Lulus Fashion Lounge Holdings Inc

**1.**Description of Business, Organization and Liquidity

Organization and Business

Pursuant to a reorganization, Lulu’s Fashion Lounge Holdings, Inc., a Delaware Corporation (“Lulus”, “we”, “our”, 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 Company’s initial public offering, the Company was majority-owned by Lulu’s Holdings, L.P. (the “LP”). In connection with the Company’s initial public offering, the LP was liquidated.

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 a customer-driven, primarily online, digitally-native, attainable luxury fashion brand for women, offering modern, unapologetically feminine designs at accessible prices for all of life’s fashionable moments.

Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, student loan repayment resumption, as well as world events, wars and domestic and international conflicts, affect overall consumer confidence with respect to current and future economic conditions and continue to impact our sales as discretionary consumer spending levels and shopping behavior fluctuate with these factors. We continue to respond to these factors, as needed, by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors may 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. During the thirteen and thirty-nine weeks ended September 29, 2024, the Company incurred net losses of$6.9 million and$23.4 million, respectively.

In November 2021, the Company entered into a Credit Agreement (the “2021 Credit Agreement”) with Bank of America to provide a Revolving Facility (the “2021 Revolving Facility”) for borrowings up to$50.0 million. On July 22, 2024, the Company entered into the First Amendment to the Credit Agreement (the “2024 Amended Credit Agreement”) which extended the maturity date to August 15, 2025 and reduced the 2021 Revolving Facility to$15.0 million with a further reduction to$10.0 million on March 31, 2025, as further described in Note 5,Debt. As of September 29, 2024, the Company had total cash and cash equivalents of$6.3 million and$11.5 million due under the 2024 Amended Credit Agreement classified within total current liabilities. The Company borrowed an additional$1.6 million under the terms of the 2024 Amended Credit Agreement subsequent to September 29, 2024.

As of September 29, 2024, the Company was not in compliance with its preliminary financial covenants for the third quarter 2024 required by its 2024 Amended Credit Agreement. On November 12, 2024, the Company entered into a second amendment to the 2021 Credit Agreement (the “November 2024 Amended Credit Agreement”) as described in Note 13,Subsequent Events. The November 2024 Amended Credit Agreement extended the Company's reporting deadline for its financial statements and covenant compliance certificate for the third quarter 2024 to December 16, 2024, and required that the financial covenants be tested on the earlier of the date the financial statements and compliance certificate are delivered or December 16, 2024. The November 2024 Amended Credit Agreement also provided that the failure to deliver the financial statements and covenant compliance certificate within the original time period required by the 2024 Amended Credit Agreement will not constitute an event of default. Further, the filing of this Form 10-Q with the SEC

shall not be deemed to constitute delivery of the financial statements and compliance certificate for the third quarter 2024. The November 2024 Amended Credit Agreement also revised the applicable interest rates for borrowings for the period commencing on November 12, 2024, as described in Note 13,Subsequent Events. Until the earlier of the date the financial statements and compliance certificate are delivered or December 16, 2024, the Company has no further access to the revolving commitments under the November 2024 Amended Credit Agreement. If the Company has not refinanced the revolving credit facility or obtained a further waiver or amendment prior to December 16, 2024, the Company expects to be in default of its 2024 Amended Credit Agreement, and as a result, its lenders would have the right in such circumstances to terminate any commitments to provide further borrowings and to elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable.

The Company is actively seeking alternative debt financing and continues to take certain cash conservation measures, including adjustments to marketing and other fixed and variable costs and capital spend to meet its obligations as needed. As the ability to raise additional debt financing is outside of management’s control, the Company cannot conclude that management’s plans will be effectively implemented within twelve months from the date the condensed consolidated financial statements are issued. Accordingly, the Company has concluded that these plans do not alleviate substantial doubt about the Company's ability to continue as a going concern. 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 to December 31. The fiscal years ending December 29, 2024 and ended December 31, 2023 consist of 52-weeks.

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 September 29, 2024 and its results of operations for the thirteen and thirty-nine weeks ended September 29, 2024 and October 1, 2023 and its cash flows for the thirty-nine weeks ended September 29, 2024 and October 1, 2023. The results of operations for the thirty-nine weeks ended September 29, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 29, 2024 or for any other future annual or interim period.

The condensed consolidated balance sheet as of December 31, 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 6, 2024.

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 December 31, 2023, except as noted below and within the "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, income tax valuation allowance and fair value of equity awards. 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. Such amounts may exceed federally insured limits. The Company reduces credit risk by depositing its cash with a major credit-worthy financial institution within the United States. To date, the Company has not experienced any losses on its cash deposits. As of September 29, 2024 and December 31, 2023, no single customer represented greater than 10% 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 September 29, 2024 and October 1, 2023.

Leases

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. The Company adjusts 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 loss. Fixed and variable lease expense on operating leases is recognized within operating expenses in the condensed consolidated statements of operations and comprehensive 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 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 onlyone 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 thepractical 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.

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 September 29, 2024 and October 1, 2023 was not material.

The Company hastwo 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 September 29, 2024 and October 1, 2023 (in thousands):

Selling and Marketing Expenses

Advertising costs included in selling and marketing expenses were$13.1 million and$12.4 million for the thirteen weeks ended September 29, 2024 and October 1, 2023, respectively, and$46.2 million and$46.9 million for the thirty-nine weeks ended September 29, 2024 and October 1, 2023, respectively.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed using net loss attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders represents net 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. Due to the net loss for all periods presented, no potentially dilutive securities had an impact on diluted loss per share for any period.

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

2024 Stock Repurchase Program

On May 3, 2024, the Company's Board of Directors authorized a stock repurchase program to repurchase up to$2.5 million of our common stock (the “2024 Repurchase Program”). The actual timing, number, and value of shares repurchased in the future will be determined by the Company in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements, our capital needs, and whether there is a better alternative use of capital.

As of September 29, 2024, $2.2 million remained available under the 2024 Repurchase Program authorization. The table below summarizes the share repurchase activity during the thirteen and thirty-nine weeks ended September 29, 2024 under our 2024 Repurchase Program:

Goodwill and Intangible Assets

The Company tests for goodwill impairment at the reporting unit level on the first day of the fourth quarter of each year and between annual tests if significant indicators exist that would suggest the Company's goodwill and intangible assets could potentially be impaired. The Company monitors changing business conditions as well as industry and economic factors, among others, for events which could trigger the need for an interim impairment analysis. The Company concluded that a sustained decline in its stock price coupled with continuing net losses, were significant enough factors to warrant an impairment analysis of its goodwill, tradename and intangible assets (which constitutes the Company's sole reporting unit) during the thirteen weeks ended March 31, 2024.

Accordingly, the Company performed an interim quantitative assessment as of March 31, 2024 using a market-based quantitative assessment utilizing a combination of (i) the guideline public company method applying revenue and EBITDA multiples of similar companies and (ii) the discounted cash flow method. The fair value determination used in the impairment assessment requires estimates of the fair values based on present value or other valuation techniques or a combination thereof, necessitating subjective judgments and assumptions by management. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. The results from the quantitative assessment indicated that the fair value exceeded the carrying value by approximately 17%.

As of September 29, 2024, the Company performed a qualitative assessment of its goodwill, tradename and intangible assets and determined that it is more likely than not that the fair value of its reporting unit exceeds the carrying value of the reporting unit. As a result, there wasno impairment relating to the goodwill, tradename and intangible assets as of September 29, 2024.

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 condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

In November 2023, FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures.

In December 2023, FASB issued ASU 2023-09,*Income Taxes (Topic 740): Improvements to Income Tax Disclosures,which *amends existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual reporting periods beginning

after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our income tax disclosures.

In March 2024, FASB issued ASU 2024-01,*Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards,which is *intended to reduce complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and existing diversity in practice. ASU 2024-01 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our stock compensation.

In March 2024, FASB issued ASU 2024-02,*Codification Improvements—Amendments to Remove References to the Concepts Statements,which is *intended to simplify the Codification and draw a distinction between authoritative and nonauthoritative literature. ASU 2024-02 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our stock compensation.

**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. As of September 29, 2024 and December 31, 2023, the carrying values of cash and cash equivalents, restricted cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities. The fair value of the Company’s 2024 Amended Credit Agreement that provides for borrowings up to $15.0 million, which decreases to $10.0 million on March 31, 2025 (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.

**4.**Balance Sheet Components

Property and Equipment, net

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

Depreciation and amortization of property and equipment for the thirteen weeks ended September 29, 2024 and October 1, 2023 was $0.9 million and $0.8 million, respectively, and for the thirty-nine weeks ended September 29, 2024 and October 1, 2023, was $2.5 million and $2.2 million, respectively.

Accrued Expenses and Other Current Liabilities

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

**5.**Debt

Credit Facility

On November 15, 2021, the Company entered into the 2021 Credit Agreement with Bank of America (the “lender”) to provide the 2021 Revolving Facility that provided for borrowings up to $50.0 million with a maturity date of November 15, 2024. All borrowings under the 2021 Credit Agreement accrued 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%).

On July 22, 2024, the Company entered into the 2024 Amended Credit Agreement which extended the maturity date from November 15, 2024 to August 15, 2025 and reduced the 2021 Revolving Facility from$50.0 million to$15.0 million, with a further reduction to$10.0 million on March 31, 2025. Under the 2024 Amended Credit Agreement, the Company can increase the aggregate amount of the facility by$10.0 million, subject to the satisfaction of certain conditions, including an asset coverage ratio of at least 1.50:1.00, recalculated as of the last day of the most recently ended month for which financial statements are internally available. The 2024 Amended Credit Agreement also reduced the previous letters of credit sublimit from$7.5 million to$5.0 million.

The 2024 Amended Credit Agreement revised the applicable interest rates for borrowings for the period commencing on July 22, 2024 through (but excluding) November 15, 2024 as follows: at the Company’s option, the base rate plus 1.25% (increased from 0.75%) or Term SOFR (subject to a credit spread adjustment of 10 basis points) plus 2.25% (increased from 1.75%). Additionally, the 2024 Amended Credit Agreement reduced the SOFR credit spread adjustment to 0.10%, which previously ranged from 0.11448% to 0.71513% depending on the SOFR tenor. The previous Commitment Fee of 37.5 basis points to be assessed on unused commitments, including the sum of outstanding borrowings and letter of credit obligations, remained unchanged under the 2024 Amended Credit Agreement. Capitalized terms used without definition are as defined in the 2024 Amended Credit Agreement.

During the thirty-nine weeks ended September 29, 2024, the Company borrowed$31.5 million under the 2021 Credit Agreement and the 2024 Amended Credit Agreement and repaid$28.0 million of the outstanding balance. The weighted average interest rate on the$11.5 million outstanding balance as of September 29, 2024 was 7.5%, and during the thirteen and thirty-nine weeks ended September 29, 2024, the effective interest rate was 9.8% and 9.2%, respectively. As of September 29, 2024, the Company had$0.5 million letters of credit outstanding. The Company borrowed an additional$1.6 million under the terms of the 2024 Amended Credit Agreement subsequent to September 29, 2024.

Amounts borrowed under the 2021 Credit Agreement and the 2024 Amended Credit Agreement are collateralized by all assets of the Company and contain 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.

The 2024 Amended Credit Agreement retained the previous maximum total leverage ratio covenant of 2.00:1.00 and added a financial covenant that requires a fixed charge coverage ratio as of the end of any period of four consecutive quarters, commencing June 30, 2024, to be less than 1.15:1.00.

As of September 29, 2024, the Company was not in compliance with its preliminary financial covenants for the third quarter 2024 as required by its 2024 Amended Credit Agreement. On November 12, 2024, the Company entered into the November 2024 Amended Credit Agreement as described in Note 13,Subsequent Events. The November 2024 Amended Credit Agreement extended the Company's reporting deadline for its financial statements and covenant compliance certificate for the third quarter 2024 to December 16, 2024, and required that the financial covenants be tested on the earlier of the date the financial statements and compliance certificate for the third quarter 2024 are delivered or December 16, 2024. The November 2024 Amended Credit Agreement also provided that the failure to deliver the financial statements and covenant compliance certificate within the original time period required by the 2024 Amended Credit Agreement will not constitute an event of default. Further, the filing of this Form 10-Q with the SEC shall not be deemed to constitute delivery of the financial statements and compliance certificate for the third quarter 2024. The November 2024 Amended Credit Agreement also revised the applicable interest rates for borrowings for the period commencing on November 12, 2024, as described in Note 13,Subsequent Events. Until the earlier of the date the financial statements and compliance certificate for the third quarter 2024 are delivered or December 16, 2024, the Company has no further access to the revolving commitments under the November 2024 Amended Credit Agreement. If the Company has not refinanced the revolving credit facility or obtained a further waiver or amendment prior to December 16, 2024, the Company expects to be in default of its 2024 Amended Credit Agreement. Immediately upon the occurrence and during the continuance of an event of default, the lender could take any or all of the following actions: terminate the available borrowings, declare the unpaid principal and interest on outstanding loans immediately due and payable, require that the Company cash collateralize the letter of credit obligations, increase the interest rate per annum by 2.0% above the rate that would be otherwise applicable, and exercise any other right and remedy available under the loan documents, law, or equity.

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 consolidated statements of operations and comprehensive loss. Debt issuance costs related to the 2021 Revolving Facility and 2024 Amended Credit Agreement are included in prepaids and other current assets in the consolidated balance sheets. As of September 29, 2024 and December 31, 2023, unamortized debt issuance costs recorded within prepaids and other current assets were$0.1 million and$0.1 million, respectively.

6**.**Leases

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 on which a lessor makes an underlying asset available for use by the 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 multiple finance leases and 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, corporate offices and retail stores under operating lease agreements expiring on various dates through December 2031, most of which contain options to extend. 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. The Company had immaterial remaining obligations for the base rent related to the short-term leases as of September 29, 2024 and October 1, 2023.

The Company also leases equipment under finance lease agreements expiring on various dates through April 2029.

As of September 29, 2024, the future minimum lease payments for the Company’s operating and finance leases for each of the fiscal years were as follows (in thousands):

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.

**7.**Commitments and Contingencies

Litigation and Other

From time to time, the Company may be a party to litigation and subject to 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. 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.

As disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, we received a cease and desist letter alleging intellectual property infringement. This matter was resolved by the parties at a confidential mediation subsequent to the quarter ended September 29, 2024. As of September 29, 2024, the Company had accrued a liability net of anticipated insurance receivable related to resolution of this matter in an amount that was not material to the Company’s condensed consolidated financial statements.

During the normal course of business, the Company may be a party to claims that may not be covered wholly or partially by insurance. While the ultimate liability, if any, arising from these claims cannot be predicted with certainty, other than as discussed above, 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. As of September 29, 2024, other than as discussed above, the Company was not aware of any 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 and officers. 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.

**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. As of September 29, 2024 and December 31, 2023, no shares of preferred stock were issued andoutstanding.

**9.**Common Stock

The Company has authorized the issuance of 250,000,000 shares of common stock,$0.001 par value ("common stock") as of September 29, 2024 and December 31, 2023, respectively. Holders of common stock are entitled toone 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 September 29, 2024, the Company has reserved 161,397 shares of common stock for issuance upon the exercise of stock options, and 1,522,874 shares of common stock available for future issuance under the Lulu's Fashion Lounge Holdings, Inc. Omnibus Equity Plan (the “Omnibus Equity Plan”) and 1,310,595 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 and 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.

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 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. This registration also included 3,200,000 and 800,000 shares for the Omnibus Equity Plan and the ESPP, respectively, 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 (the “2023 Bonus Plan”) that granted RSUs to eligible employees on April 1, 2024, in lieu of a cash bonus. On April 1, 2024,95,912 RSUs were awarded to eligible employees under the 2023 Bonus Plan, and all such RSUs vested fully on that date subject to any forfeitures.

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 September 29, 2024, the Company had 1,522,874 and 1,310,595 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”) administers the Omnibus Equity Plan and determines to whom awards will be granted, the exercise price of any options, the vesting schedule and the other terms and conditions of the awards granted under the Omnibus Equity Plan. The 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 oftwo consecutivesix-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 of Directors or 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 September 29, 2024, equity-based compensation expense related to our ESPP was immaterial. During the thirteen weeks ended September 29, 2024 and October 1, 2023, the Company issued 57,693 shares and 52,775 shares, respectively, pursuant to the ESPPsix-month purchase periods ended August 26, 2024 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 September 29, 2024, the Company utilized the following assumptions:

2021 Equity Plan

During April 2021, the Company’s Board of Directors adopted the 2021 Equity Plan. The 2021 Equity Plan provided 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 expireten years from the date of grant. The Company issues new shares of common 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.

Former CEO Stock Options and Special Compensation Awards

In April 2021, the Company entered into an Employment Agreement (the “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 2023 8-K”), Mr. McCreight voluntarily forfeited 161,396 unvested stock options of the Company. During the thirteen weeks ended April 2, 2023, the forfeiture of 161,396 unvested stock options 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 2023 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 extended the post-termination exercise period of 161,397 vested stock options from 90 days tothree (3) years from a termination of service other than for cause, death or disability.

Under the McCreight IPO Employment Agreement, and in light of the closing of the IPO, the former CEO receivedtwo bonuses, each of which were settled in 208,914 fully-vested shares of the Company’s common stock. The Company recognized the final$0.4 million of equity-based compensation expense related to this award in the thirteen weeks ended April 2, 2023.

Stock Options

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

Restricted Stock and Restricted Stock Units (“RSUs”)

Immediately before the completion of the IPO, the LP was liquidated and the unit holders of the LP 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 extent as the corresponding Class P units. The Company recorded equity-based compensation expense of$0.1 million and$0.3 million during the thirteen and thirty-nine weeks ended September 29, 2024, respectively, and$0.2 million and$0.6 million during the thirteen and thirty-nine weeks ended October 1, 2023, respectively, related to the exchanged restricted stock. As of September 29, 2024, the unrecognized equity-based compensation expense for all restricted stock isimmaterial and will be recognized over a weighted-average period of 0.08 years.

The following table summarizes the rollforward of unvested restricted stock during the thirty-nine weeks ended September 29, 2024:

During the thirteen weeks ended March 31, 2024, the Company entered into a second amendment to the employment agreement with Mark Vos, the President and Chief Information Officer (the “2024 President & CIO Employment Agreement”), under which 660,000 RSUs were initially granted, subject to various vesting schedules as set forth in the 2024 President & CIO Employment Agreement. On February 16, 2024, Tiffany Smith, the Chief Financial Officer received 175,000 RSUs pursuant to the applicable RSU Award Agreement, which vest over athree-year service period. On February 16, 2024, Laura Deady, the Chief Merchandising Officer, received 152,273 RSUs pursuant to her employment agreement entered into in December 2023 (“2024 CMO Employment Agreement”) and the applicable RSU Award Agreement, which vest over athree-year service period.

During the thirteen and thirty-nine weeks ended September 29, 2024, the Company granted 76,821 and 2,028,166 RSUs, respectively, to certain executives (inclusive of the aforementioned RSU grants to Mr. Vos, Ms. Deady and Ms. Smith) and employees, which are subject to various vesting schedules as set forth in the applicable employment agreement or RSU Award Agreements. During the thirteen and thirty-nine weeks ended September 29, 2024, the Company granted 10,014 and 459,748 RSUs, respectively, to certain directors which vested immediately or pursuant to the Company’s Non-Employee Director Compensation Program. During the thirteen weeks ended September 29, 2024, the Company reduced the size of its Board and accelerated the vesting of a total of 54,398 RSUs which had been previously granted to directors. A total of 163,166 RSUs were forfeited by the same directors in connection with their resignations. The Company recognized equity-based compensation expense of$1.5 million and$4.8 million during the thirteen and thirty-nine weeks ended September 29, 2024, respectively, and$3.2 million and$9.2 million during the thirteen andthirty-nine weeks ended October 1, 2023, respectively, related to the RSUs. As of September 29, 2024, the unrecognized equity-based compensation expense is$8.4 million and will be recognized over a weighted-average period of 1.91 years.

The following table summarizes the rollforward of unvested RSUs during the thirty-nine weeks ended September 29, 2024:

Performance Stock Units (“PSUs”)

Under Crystal Landsem’s 2023 employment agreement (“the CEO Employment Agreement”), Ms. Landsem received a grant of 1,811,571 PSUs on March 5, 2023 which vest inthree equal annual installments of 603,857 PSUs subject to the achievement of trailing ten day volume-weighted average price targets of the Company’s common stock and her continued employment on the vesting dates. Under the 2024 President & CIO Employment Agreement, Mr. Vos received a grant of 300,000 PSUs on January 9, 2024 which vest subject to the achievement of trailing ten day volume-weighted average price targets of the Company’s common stock and his continued employment on the vesting dates. Under the 2024 CMO Employment Agreement, Ms. Deady received a grant of 50,000 PSUs on February 16, 2024, which vest subject to the achievement of specified Company trailing twelve month net revenue growth targets and her continued employment on the vesting dates.

The Company recognized equity-based compensation expense of$0.5 million and$1.5 million during the thirteen and thirty-nine weeks ended September 29, 2024, and$0.6 million and$1.5 million during the thirteen and thirty-nine weeks ended October 1, 2023, related to the PSUs. As of September 29, 2024, the unrecognized equity-based compensation expense is$1.2 million for the financial milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 1.30 years.

The following table summarizes the rollforward of unvested PSUs during the thirty-nine weeks ended September 29, 2024:

**11.**Income Taxes

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

The Company’s provision 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.

The Company’s pre-tax loss for the period ended September 29, 2024 relative to the Company’s projected pre-tax income for fiscal 2024 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 provision for the period ended September 29, 2024.

For the thirteen and thirty-nine weeks ended September 29, 2024, the Company's effective tax rate differs from the federal income tax rate of 21% primarily due to the Company’s valuation allowance resulting from the lack of sufficient positive evidence that the deferred taxes will be more-likely-than-not realized in the future. For the thirteen and thirty-nine weeks ended October 1, 2023, the Company's effective tax rate differs from the federal income tax rate of 21% primarily due to non-deductible executive compensation and non-deductible equity-based compensation expense.

The Company regularly assesses the realizability of deferred tax assets and records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Due to the weight of objectively verifiable negative evidence, the Company established a valuation allowance of $5.4 million during the thirteen weeks ended June 30, 2024 and maintained such valuation allowance for the thirty-nine weeks ended September 29, 2024. This was comprised of a valuation allowance of $5.7 million for the net deferred taxes as of December 31, 2023 and an adjustment of $0.3 million for the thirty-nine week period through September 29, 2024. The significant piece of objectively verifiable negative evidence evaluated was the recent cumulative losses. The Company’s ability to use its deferred tax assets depends on the amount of taxable income in future periods.

**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.

**13.**Subsequent Events

November 2024 Amended Credit Agreement

On November 12, 2024, the Company entered into the November 2024 Amended Credit Agreement. The November 2024 Amended Credit Agreement extends the time period required by the 2024 Amended Credit Agreement to provide the lenders the financial statements and compliance certificate for the third quarter 2024 from November 13, 2024 to December 16, 2024. It also requires that the consolidated total leverage ratio and consolidated fixed charge coverage ratio financial convenants for the third quarter 2024 be tested on the earlier of the date the Company delivers the financial statements and compliance certificate for the third quarter of 2024 or December 16, 2024. The November 2024 Amended Credit Agreement provides that the failure to deliver the financial statements and compliance certificate for the third quarter 2024 within the original time period required by the 2024 Amended Credit Agreement will not constitute an event of default. Further, the filing of this Form 10-Q with the SEC shall not be deemed to constitute delivery of the financial statements and compliance certificate for the third quarter 2024.

The November 2024 Amended Credit Agreement prohibits the Company from requesting any additional borrowing or letter of credit extension until the financial statements and the compliance certificate for the third quarter of 2024 have been delivered. The November 2024 Amended Credit Agreement also revised the applicable interest rates for borrowings for the period commencing on November 12, 2024 as follows: at the Company’s option, the base rate plus 2.75% (increased from 1.25%) or Term SOFR (subject to a credit spread adjustment of 10 basis points) plus 3.75% (increased from 2.25%). The November 2024 Amended Credit Agreement also added a requirement to deliver certain cash flow information on a weekly basis commencing November 22, 2024.