Lulu’s Fashion Shares Down After 2Q Results

By Michael Dabaie

Lulu’s Fashion Lounge Holdings Inc. shares were down 17% to $6.47 after the company reported results in line with a pre-announcement and backed its guidance.
The fashion brand after the bell Tuesday reported second-quarter revenue of $131.5 million, up 27.% and in line with FactSet consensus. Earnings per share were 15 cents. The company in late July had said it expected to report revenue of about $131 million to $132 million.

Gross margin decreased 380 basis points to 45.8% and gross profit increased 17.0%.
The company backed its 2022 guidance for revenue between $440 million and $480 million.
Jefferies analysts in a note lauded the quarter’s top-line performance and customer growth, but pointed to lower gross margin and reiterated guidance as things they didn’t like for the quarter.
Cowen analysts said they believe LVLU’s sales slowdown and margin pressure are more macro-driven than company-specific, and view current challenges as transitory.
“2Q22 EPS was in line with the pre-announcement on 7/28 and management reiterated the revised outlook, which assumes no reversal in trends with continued choppiness with consumer demand, elevated return rates and freight surcharges, and pre-Covid promotional levels,” Cowen analysts said in a note. “We believe potential upside to 2H22 is possible as guidance assumes continued revenue and margin pressure.”
Chief Executive David McCreight said in the company’s conference call that after the company’s first-quarter earnings call “and like many others,” the company began to see volatility in traffic trends and conversion rates, likely driven by increasing macro pressures that hit customer spending behavior.
“We saw higher level of returns as well as shipping surcharges, which had a disproportionately negative impact on our Ebitda margins,” Mr. McCreight said.
“As a result of this change in consumer behavior, we are actively managing our inventory and discretionary expenses with a more cautious outlook because of the macro environment. We view these challenges as temporary and have conviction in our long-term opportunity for continued profitable growth,” the CEO said in the call.
KeyBanc Capital Markets analysts Noah Zatzkin and Chandana Madaka said in a note that while they think top line and margins will be pressured near term, “we think reiterated FY guidance seems appropriately conservative.”
“Encouragingly, LVLU noted it is seeing some green shoots related to lower income customers as fuel prices fall,” the analysts said.
Write to Michael Dabaie at michael.dabaie@wsj.com