Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Special occasion and bridesmaid net sales grew by over 30% year over year, surpassing pre-pandemic peaks.
- Gross margin improved by 80 basis points year over year due to lower markdown sales and a shift toward higher margin product classes.
- Inventory levels declined by 19% for Q2 2023, showcasing the agility of the data-driven buying model.
- New return policy boosted restocking fee revenue and improved customer return behavior towards the end of the quarter.
- Third-party branded influencer collaborations, such as with Levi's and Vans, have proven highly effective in driving increased media interest, social traffic, and purchase intent.
Negative Points
- Net revenue of $92 million was 13% lower than the prior year period.
- Adjusted EBITDA was a loss of $0.2 million, $4.4 million below the prior year period.
- Casual business was disproportionately challenged, driving the majority of the year-over-year declines in net sales.
- Profitability was pressured due to higher fixed costs on a lower than anticipated net revenue base.
- The company withdrew its full-year net revenue and adjusted EBITDA outlook due to slower than expected recovery amidst persistent macroeconomic pressures.
Q & A Highlights
Q: Crystal, as I think about the core health of the consumer and what you're seeing out there and the competitive landscape with promotions, what's changing in your business, whether pricing you mentioned some of the categories and how you're planning for the back half of the year in addition to you gave that sales for the third quarter, but not any adjusted EBITDA, any framework you could provide there. Thank you.
A: Thanks for the question, Dana. At a high level, we believe our customer continues to be under pressure due to various macroeconomic factors. This is reflected in our withdrawal of full-year guidance for EBITDA and the conservatism in our third-quarter guidance. Despite this, we are focusing on opportunities to drive engagement, growth, and profitability. Our recovery is underway, but it's taking longer than anticipated due to the consumer backdrop.
Q: Crystal, I was hoping you could dive a little bit deeper on the plans that you have to drive engagement in the back half and continue the momentum on the sequential recovery in sales? How are you planning selling and marketing expenses in the back half? And are there fixed versus variable expenses that we should consider within that line item going forward?
A: Typically, in the third and fourth quarters, we pull levers across markdowns, discounts, and paid marketing spend based on where the consumer is and where we get the best use of our cash. We are continuing to invest prudently on the brand side due to positive momentum in brand equity. However, we must be cautious about spending to ensure the payoff is both near-term and long-term.
Q: Can you talk a little bit about the levers that you can pull to reduce costs and defend profitability in both the near and medium term beyond the 10% to 15% second-half operating expense cuts that were announced today? How are you thinking about the range of outcomes on profit margins and free cash flow generation for the business, should the timeline of recovery continue to elongate versus your current expectations?
A: Maintaining positive cash flow is a big priority for us. The cost reductions announced were largely headcount-related, including executive pay cuts and some headcount reduction. We are fairly lean already, so further reductions may be limited. We are considering other types of G&A spend reductions but don't have specifics to share at this point. Our cost structure is highly variable, so if sales worsen, our cost structure would also be reduced proportionately.
Q: In terms of category trends, I know you highlighted the casual business is seeing some softness. Could you give more color on what's not working as well in the assortment and strategies you have in place to address those issues?
A: We had a record-breaking special occasion and bridesmaid business in the second quarter. The most pressure was in the casual space. We are continuing to invest in the recovery of that business. The new site is comping fine to last year, but rebuilding the reorder funnel in the casual space is taking longer due to the competitive nature and consumer pressure.
Q: How are you planning to manage the balance between cost reductions and maintaining momentum in the business?
A: Our goal is to nurture areas where we see positive momentum while managing cash flow prudently. We want to maintain flexibility in timing our cost reductions and ensure we read the business and macro environment properly. We aim to avoid pulling back too hard on cost reductions to not jeopardize the momentum we are seeing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
