LVLU US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part I, “Item 1A. Risk Factors” and other factors set forth in other parts of this Annual Report on Form 10-K. Discussion of the year-to-year comparisons between 2024 and 2023 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2024.

Overview

Lulu’s Fashion Lounge Holdings, Inc., a Delaware Corporation (“Lulus”, “we”, “our”, or the “Company”) is a women’s clothing brand offering modern, feminine styles at accessible prices for every occasion. Our goal is to make every customer feel their most confident and beautiful for the moments that matter most. Lulus primarily serves a large, diverse community of Gen Z and Millennial women, who typically meet us in their 20s and stay with us through their 30s and beyond. We use direct customer feedback and insights to refine product offerings and elevate the customer experience. Lulus’ world-class personal stylists, bridal concierge, and customer care team provide thoughtful, personalized service to shoppers around the world.

Recent Developments

Appointment of Permanent Chief Financial Officer

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On February 3, 2026, the Company appointed Heidi Crane as its permanent Chief Financial Officer (“CFO”), effective February 4, 2026 (“CFO Effective Date”). Ms. Crane served as the Company’s fractional CFO beginning in October 2025. Upon the CFO Effective Date, Ms. Crane transitioned to a full-time employee of the Company, as well as its principal financial officer and principal accounting officer.

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Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, tariffs or bans, world events, wars and domestic and international conflicts, existing and future laws, regulations and directives and executive orders, and overall consumer confidence with respect to current and future economic conditions have directly impacted our sales as discretionary consumer spending levels and shopping behavior fluctuate with these factors. We have responded to these factors by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors are expected to continue to have an impact on our business, results of operations, our growth and financial condition.

Liquidity

The accompanying 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. The primary sources of funds for our business activities are cash flows from operations and our 2025 Credit Agreement. We believe the cash on hand, cash provided by operations and cash available under the 2025 Credit Agreement will enable us to meet our obligations for at least the next 12 months. For further information on the 2025 Credit Agreement, see Note 5, Debt.

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Key Operating and Financial Metrics

We collect and analyze operating and financial data to assess the performance of our business and optimize resource allocation. The following table sets forth our key performance indicators for the periods presented (in thousands, except for percentages and Average Order Value).

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Adjusted EBITDA margin (1) ​ (0.4) % (3.1) % 0.9 %

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Gross Margin

We define Gross Margin as gross profit as a percentage of our net revenue. Gross profit is equal to our net revenue less cost of revenue. Certain of our competitors and other retailers may report cost of revenue differently than we do. As a result, the reporting of our gross profit and Gross Margin may not be comparable to other companies.

Active Customers

We define Active Customers as the number of customers who have made at least one purchase across our platform in the prior 12-month period. Active Customer count is measured as of the last day of the relevant period. We consider the number of Active Customers to be a key performance metric on the basis that it is directly related to consumer awareness of our brand, our ability to attract visitors to our primarily digital platform, and our ability to convert visitors to paying customers. Active Customers counts are based on deduplication logic using customer account and guest checkout name, address, and email information.

Average Order Value

We define Average Order Value (“AOV”) as the sum of the total gross sales before returns across our platform in a given period, plus shipping revenue, less discounts and markdowns, divided by the Total Orders Placed (as defined below) in that period. AOV reflects the average basket size of our customers. AOV may fluctuate as we continue investing in the development and introduction of new Lulus’ merchandise and as a result of our promotional discount activity.

Total Orders Placed

We define Total Orders Placed as the number of customer orders placed across our platform during a particular period. An order is counted on the day the customer places the order. We do not adjust the number of Total Orders Placed for any cancellation or return that may have occurred subsequent to a customer placing an order. We consider Total Orders Placed as a key performance metric on the basis that it is directly related to our ability to attract and retain customers as well as drive purchase frequency. Total Orders Placed, together with AOV, is an indicator of the net revenue we expect to generate in a particular period.

Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”). However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance and that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net loss provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. These non-GAAP financial measures may be different than similarly titled measures used by other companies.

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss) before interest expense, income taxes or benefit, depreciation and amortization adjusted to exclude the effects of equity-based compensation expense and other non-routine expenses. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. We believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors and others in understanding and evaluating our operating results and in comparing operating results across periods.

To supplement our audited consolidated financial statements which are prepared in accordance with GAAP, we use “Adjusted EBITDA” and “Adjusted EBITDA Margin” (collectively referred to as “Adjusted EBITDA”) which are non-GAAP financial measures. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:

Due to these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of depreciation and amortization, interest expense, income taxes, equity-based compensation and goodwill impairment. It is reasonable to expect that some of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal results of operations and results of operations of other companies over time. In addition, Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the following reconciliation table help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Adjusted EBITDA Margin is a non-GAAP financial measure that we calculate as Adjusted EBITDA (as defined above) as a percentage of our net revenue.

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The following table provides a reconciliation for Adjusted EBITDA and Adjusted EBITDA Margin:

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​ ​ (52 weeks) ​ (52 weeks) ​ (53 weeks)

​ ​ (in thousands)

Income tax provision (benefit) ​ 188 ​ ​ 2,333 ​ ​ (1,676) ​

Other non-routine expense (2) ​ ​ 270 ​ ​ ​ — ​ ​ ​ — ​

Goodwill impairment ​ ​ — ​ ​ ​ 28,374 ​ ​ ​ — ​

Net loss margin ​ ​ (4.9) % ​ ​ (17.5) % ​ ​ (5.4) %

Adjusted EBITDA margin ​ (0.4) % ​ (3.1) % ​ 0.9 %

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Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used for capitalized software development costs and purchases of property and equipment. We view Free Cash Flow as an important indicator of our liquidity because it measures the amount of cash we generate. Free Cash Flow does not represent the total residual cash flow available for discretionary purposes. Due to such limitations, Free Cash Flow should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally.

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A reconciliation to non-GAAP Free Cash Flow from net cash provided by operating activities for the periods presented is as follows (in thousands):

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Net cash provided by operating activities ​ $ 1,379 ​ $ 2,601 ​ $ 15,421

Capitalized software development costs ​ ​ (1,816) ​ ​ (1,574) ​ ​ (2,055)

Purchases of property and equipment ​ ​ (350) ​ ​ (1,300) ​ ​ (1,880)

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Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including what is discussed below. See Part I, “Item 1A. Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Customer Acquisition

Our business performance depends in part on our continued ability to cost-effectively acquire new customers. We define customer acquisition cost (“CAC”) as our brand and performance marketing expenses attributable to acquiring new customers, including, but not limited to, agency costs and marketing team costs but excluding any applicable equity-based compensation, divided by the number of customers who placed their first order with us in a given period. As a primarily digital brand, our marketing strategy is primarily focused

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on brand awareness marketing and digital advertising in channels like search, social, and programmatic – platforms that enable us to engage our customer where she spends her time, and in many cases also quickly track the success of our marketing, which allows us to adjust and optimize our marketing spend.

Customer Retention

Our continued success depends in part on our ability to retain and drive repeat purchases from our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into Active Customers and foster relationships that drive repeat purchases. During the trailing 12 months ended December 28, 2025, we served 2.3 million Active Customers compared to 2.6 million for the trailing 12 months ended December 29, 2024.

Inventory Management

We utilize a data-driven strategy that leverages our proprietary reorder algorithm to manage inventory as efficiently as possible. Our “test, learn, and reorder” approach consists of limited inventory purchases followed by the analysis of proprietary data including real-time transaction data and customer feedback, which then informs our selection and customization of popular merchandise prior to reordering in larger quantities. While our initial orders are limited in size and financial risk and our supplier partners are highly responsive, we nonetheless purchase inventory in anticipation of future demand and therefore are exposed to potential shifts in customer preferences and price sensitivity over time. We will adjust our inventory purchases to align with the current needs of the business.

Investment in Our Operations and Infrastructure

We will continue to invest in our operations and infrastructure to facilitate further operational efficiencies and growth of our business, while managing expenses to align with our net revenue expectations and goals to return to profitability. We will continue to carefully evaluate any new investments or capital spending initiatives as we believe that a disciplined approach to capital spending will enable us to generate positive returns on our investments over the long term.

Components of Our Results of Operations

Net Revenue

Net revenue consists primarily of gross sales, net of merchandise returns, international duties and taxes and promotional discounts and markdowns, generated from the sale of apparel, footwear, and accessories. Net revenue excludes sales taxes assessed by governmental authorities. We recognize net revenue at the point in time when control of the ordered product is transferred to the customer, which we generally determine to have occurred upon shipment.

Net revenue is impacted by our number of customers and their spending habits, AOV, product assortment and availability, and marketing and promotional activities. During any given period, we may seek to increase sales by increasing promotional discounts, and in other periods we may instead seek to increase sales by increasing our selling and marketing expenses. We consider both actions together, so increased promotional discounts in a period, which would reduce net revenue accordingly in such period, might also result in lower selling and marketing expenses in such period. Similarly, if we increase selling and marketing expenses in a given period, promotional discounts may be correspondingly reduced, thereby improving net revenue.

Cost of Revenue and Gross Profit

Cost of revenue consists of the product costs of merchandise sold to customers; shipping and handling costs, including all inbound, outbound, and return shipping expenses; rent, insurance, business property tax, utilities, depreciation and amortization, and repairs and maintenance related to our distribution facilities; and charges related to inventory shrinkage, damages, and our allowance for excess or obsolete inventory. Cost of revenue is primarily driven by growth in orders placed by customers, the mix of the product available for sale on our site, and transportation costs related to inventory receipts from our suppliers. We expect our cost of revenue to fluctuate as a percentage of net revenue primarily due to how we manage our inventory and merchandise mix.

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Gross profit is equal to our net revenue less cost of revenue. We calculate Gross Margin as gross profit as a percentage of our net revenue. Our Gross Margin varies across Lulus, exclusive to Lulus, and third-party branded products. Exclusive to Lulus consists of products that we develop with design partners and have exclusive rights to sell across our platform, but that do not bear the Lulus brand. Gross Margin on sales of Lulus and exclusive to Lulus merchandise is generally higher than Gross Margin on sales of third-party branded products, which we offer for customers to “round out” the shopping basket. As we continue to optimize our distribution capabilities and gain more negotiation leverage with suppliers, our Gross Margin may fluctuate from period to period depending on the interplay of these factors.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of payment processing fees, advertising, targeted online performance marketing and customer order courtesy adjustments. Selling and marketing expenses also include our spend on brand marketing channels, including compensation and free products to social media influencers, events, and other forms of online and offline marketing related to growing and retaining the customer base. As discussed in “Net Revenue” above, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period.

General and Administrative Expenses

General and administrative expenses consist primarily of fixed and variable labor payroll and benefits costs, including equity-based compensation for our employees involved in general corporate functions including finance, merchandising, marketing, and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation and amortization, rent and other occupancy expenses. General and administrative expenses are primarily driven by headcount related costs required to support our business and meet our obligations as a public company.

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Goodwill impairment

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Goodwill as described in Note 2, Significant Accounting Policies,is stated at the excess of the acquisition price over the fair value of net assets acquired in a purchase acquisition and is not amortized. The Company reviews its goodwill for impairment at least annually (on the first day of the fourth quarter) or more frequently whenever events or changes in circumstances indicate that the carrying amount may be impaired. If the carrying value of the goodwill exceeds the fair value, the Company recognizes goodwill impairment.

Interest Expense

Interest expense consists of interest expense related to the prior credit agreement with Bank of America (“Prior Credit Agreement”) and the 2025 Credit Agreement.

Benefit (Provision) for Income Taxes

The benefit (provision) for income taxes represents federal, state, and local income taxes. The effective rate differs from the statutory rate primarily due to non-deductible equity-based compensation expenses, non-deductible officer compensation, valuation allowance and state taxes. Our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, the impact of permanent tax adjustments, tax audit settlements, and the interaction of various tax strategies.

We regularly assess the realizability of deferred tax assets (“DTAs”) and record a valuation allowance to reduce the DTAs to the amount that is more likely than not to be realized. In assessing the realizability of our DTAs, 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, we established a valuation allowance as of December 29, 2024 of $14.9 million and increased the allowance to $16.7 million as of December 28, 2025.

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Our Results of Operations

The following tables set forth our consolidated results of operations for the years presented and as a percentage of net revenue:

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​ ​ (in thousands, except percentages)

Goodwill impairment ​ ​ — ​ ​ 28,374 ​ (100) ​ ​ ​ —

NM – not meaningful

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Cost of revenue ​ 57 ​ ​ 59 ​ 58 ​

Gross profit ​ 43 ​ ​ 41 ​ 42 ​

Selling and marketing expenses ​ 24 ​ ​ 23 ​ 22 ​

General and administrative expenses ​ 24 ​ ​ 26 ​ 26 ​

Goodwill impairment ​ ​ — ​ ​ 9 ​ ​ — ​

Loss from operations ​ (5) ​ ​ (17) ​ (6) ​

Interest expense ​ (1) ​ ​ — ​ — ​

Other income, net ​ 1 ​ ​ — ​ — ​

Loss before benefit (provision) for income taxes ​ (5) ​ ​ (17) ​ (6) ​

Income tax benefit (provision) ​ — ​ ​ (1) ​ — ​

Net loss ​ ​ (5) % ​ (18) % ​ (6) %

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Comparisons for the Fiscal Years Ended December 28, 2025 and December 29, 2024

Net Revenue

Net revenue decreased in 2025 by $33.6 million, or 11%, compared to 2024. The decrease was primarily due to a decline of 15% in Total Orders Placed, along with slightly higher return rates partially offset by higher AOV compared to 2024.

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Cost of Revenue

Cost of revenue decreased in 2025 by $25.4 million, or 14% compared to 2024, which was primarily driven by lower shipping costs and product cost due to favorable shipping rates and reduced sales volume.

Gross Profit

Gross profit decreased in 2025 by $8.2 million or 6% compared to 2024 which was primarily driven by the impact of the lower volume of sales, partially offset by improvements in merchandise margins and logistics costs.

Selling and Marketing Expenses

Selling and marketing expenses decreased in 2025 by $6.3 million, or 9% compared to 2024, due to lower online marketing costs of $4.9 million, lower merchant processing fees of $0.9 million along with reduced marketing software spend and other marketing costs of $0.5 million.

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General and Administrative Expenses

General and administrative expenses decreased in 2025 by $13.3 million, or 16%, compared to 2024. The decrease was primarily due to a $4.9 million decrease in fixed labor and benefits costs driven by reduced fixed headcount, a $3.7 million decrease in equity-based compensation expense, a $2.0 million decrease in variable labor and benefits associated with lower sales volume and increased process efficiency, a $1.2 million decrease in liability insurance and legal and professional fees and a $1.5 million decrease in software, occupancy, depreciation and amortization.

Goodwill Impairment

No goodwill impairment was recognized in 2025. In 2024 we recorded a non-cash goodwill impairment expense of $28.4 million.

Interest Expense

Interest expense increased in 2025 by $1.2 million, or 94%, compared to 2024. The increase is primarily attributable to higher average borrowings and write-off of loan amendment fees related to the Prior Credit Agreement of $0.9 million.

Income Tax Provision

Our income tax provision was $0.2 million in 2025 compared to $2.3 million in 2024. The decrease of $2.1 million was primarily due to a decrease in deferred tax provision of $4.5 million which was partially offset by a state income tax benefit of $2.4 million that included a one-time state refund benefit of $2.2 million received in 2024.

Quarterly Trends andSeasonality

We experience moderate seasonal fluctuations in aggregate sales volume during the year. Seasonality in our business does not follow that of traditional retailers, such as a typical concentration of revenue in the holiday quarter. Our net revenue is typically highest in the second and third quarters due to the increased demand for event dresses in the spring and summer. Net revenue is typically the lowest in the first and fourth quarters when event dresses are less in demand. The seasonality of our business has resulted in variability in our total net revenue quarter-to-quarter. We believe that this seasonality has affected and will continue to affect our results of operations. We recognized 23%, 29%, 26%, and 22% of our annual net revenue during the first, second, third, and fourth quarters of 2025, respectively.

While our quarterly gross profit generally fluctuates in line with our net revenue, it is also based on how we manage our inventory and merchandise mix and can be further affected by non-recurring, external factors, such as global pandemics or trade wars.

Selling and marketing expenses generally fluctuate with net revenue. Further, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period. In addition, we may increase or decrease marketing spend to assist with optimizing inventory mix and quantities.

General and administrative expenses consist primarily of payroll and benefit costs and vary quarter to quarter due to changes in the number of seasonal workers to meet demand based on our seasonality.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operating activities and borrowings under our 2025 Credit Agreement. Our primary requirements for liquidity and capital are inventory purchases, payroll and general operating expenses, capital expenditures associated with our distribution facilities, capitalized software and debt service requirements.

Credit Facilities

On November 15, 2021, we entered into the Prior Credit Agreement with Bank of America (the “lender”) to provide a revolving facility that provided for borrowings up to $50.0 million with a maturity date of November 15, 2024. The Prior Credit Agreement was amended subsequently by five amendments which modified a number of terms, including extending the maturity date to August 22, 2025, reducing and ultimately prohibiting further borrowings, revising the applicable interest rates, revising or providing limited waivers of compliance with certain financial covenants, and adding covenants related to achieving a refinancing transaction. The interest rates in effect under the Prior Credit Agreement, as amended, during the thirteen and thirty-nine weeks ended September 28, 2025 were as

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follows: (a) in the case of Base Rate Loans, the Base Rate plus 5% (increased from a margin of 4%), (b) in the case of Term SOFR Loans, Term SOFR (subject to a credit spread adjustment of 10 basis points) plus (i) 6% (increased from a margin of 5%), and (c) the Letter of Credit Fee of 6% (increased from 5%).

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On June 23, 2025, we entered into a Forbearance Agreement (the “Forbearance Agreement”) related to the Prior Credit Agreement with the lenders party thereto and Bank of America, N.A., as administrative agent (the “Administrative Agent”), and Swing Line Lender and an L/C Issuer (the “Lenders”). Pursuant to the terms of the Forbearance Agreement, the Administrative Agent and Lenders agreed that they would forbear, during the Forbearance Period (as defined in the Forbearance Agreement), from exercising any and all rights and remedies with respect to or arising out of the events of default that occurred as a result of the Company’s failure to comply with certain Refinancing Transaction Milestones (as defined in the Forbearance Agreement) by the specified dates under Sections 6.19(a), (c) and (d) of the Prior Credit Agreement. On August 11, 2025, we entered into an amendment to the Forbearance Agreement and the fifth amendment to the Prior Credit Agreement which extended the Forbearance Period and maturity date to August 22, 2025. Under the terms of the Forbearance Agreement, as amended, the Refinancing Transaction Milestones were due on the maturity date. No fees were paid in connection with the forbearance. The Forbearance Agreement was not entered into as a result of financial distress, but rather to provide additional time to finalize and execute the 2025 Credit Agreement.

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On August 14, 2025, we entered into the 2025 Credit Agreement. The 2025 Credit Agreement is comprised of an asset-based revolving credit facility with a $20.0 million commitment, a $5.0 million uncommitted accordion and a $1.0 million sublimit for letters of credit. The amount that the Borrowers may borrow under the 2025 Credit Agreement is based on a borrowing base calculated on advance rates for various assets serving as collateral for the 2025 Credit Agreement. Borrowings under the 2025 Credit Agreement bear interest at a rate equal to the 30-day SOFR rate plus 3.95%. The 2025 Credit Agreement is secured by a first-priority security interest in and lien upon all tangible and intangible personal property of the Borrowers now owned or acquired in the future. The 2025 Credit Agreement includes covenants that limit the Borrowers’ ability to incur indebtedness, to create liens or other encumbrances, to make certain payments and investments, to engage in transactions with affiliates, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities. The 2025 Credit Agreement also includes a financial covenant for minimum excess availability under the 2025 Credit Agreement. It also requires us to maintain lockbox accounts and cash management arrangements under the control of the Administrative Agent, who has full dominion and control over each Collection Account and all Deposit Accounts (except Excluded Accounts). Outstanding borrowings are classified as current liabilities, however, the 2025 Credit Agreement does not mature until August 14, 2028.

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On October 28, 2025, we entered into an amendment to the 2025 Credit Agreement, which clarified the terms related to the manner in which interest is calculated, provides us greater flexibility with respect to the location of our corporate headquarters and extends the amount of time to produce our borrowing base reports.

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The initial funding of the 2025 Credit Agreement occurred on August 14, 2025, and the proceeds were used in part to repay approximately $6.0 million outstanding under the Prior Credit Agreement. In connection with entering into the 2025 Credit Agreement and the repayment in full of all outstanding obligations under the Prior Credit Agreement, the Prior Credit Agreement, along with the related Forbearance Agreement, as amended, were terminated.

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As of December 28, 2025, the outstanding borrowing under the 2025 Credit Agreement was $14.4 million in addition to a $0.3 million letter of credit outstanding. After giving effect to the excess availability covenant and the outstanding letter of credit, the unused availability was $1.3 million. During 2025, the Company borrowed $115.1 million and repaid $100.7 million under the 2025 Credit Agreement and had a weighted average interest rate of 10.7%.

Availability and Use of Cash

As of December 28, 2025, we had cash and cash equivalents of $2.7 million. During the year ended December 28, 2025, we took certain cost reduction and cash conservation measures, including headcount reductions, adjustments to marketing spend, and other fixed, variable, and capital spend. The accompanying 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. The primary sources of funds for our business activities are cash flows from operations and our 2025 Credit Agreement. We believe the cash on hand, cash provided by operations and cash available under the 2025 Credit Agreement will enable us to meet our obligations for at least the next 12 months. For further information on the 2025 Credit Agreement, see Note 5, Debt. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in Part I, “Item 1A. Risk Factors” included elsewhere in this Annual Report on Form 10-K.

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Repurchases Pursuant to the 2024 Repurchase Program

On May 3, 2024, our Board of Directors authorized a stock repurchase program to repurchase up to $2.5 million of our common stock (the “2024 Repurchase Program”). During 2025, we repurchased 123,934 shares of common stock in open market transactions pursuant to 10b5-1 purchase plans entered into by the Company for a total cost of $0.9 million. As of December 28, 2025, there was $1.1 million available under the 2024 Repurchase Program authorization.

The actual timing, number, and value of shares repurchased in the future will be determined at our discretion and will continue to 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. Repurchases will continue to be funded from our existing cash and cash equivalents, or future cash flow. The 2024 Repurchase Program may be modified, suspended, or terminated at any time. For further information on the 2024 Repurchase Program, see Note 8, Stockholder’s Equity, of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Cash Flow Analysis

The following table summarizes our cash flows for the periods indicated:

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​ ​ (in thousands)

Net cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ ​

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Operating Activities

Net cash provided by operating activities consists primarily of net loss adjusted for certain non-cash items, including depreciation, amortization, noncash lease expense, equity-based compensation, amortization of debt discount and debt issuance costs, and the effect of changes in working capital and other activities.

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During 2025, net cash provided by operating activities was $1.4 million, which primarily consisted of a net loss of $13.7 million, partially offset by non-cash charges of $14.3 million and a net change of $0.8 million in operating assets and liabilities. The non-cash charges were primarily comprised of $5.1 million of depreciation and amortization, $4.5 million of equity-based compensation expense, and $4.5 million of non-cash lease expense. The net change in operating assets and liabilities was primarily driven by a $3.1 million decrease in income tax receivable due to the receipt of state income tax refunds and a $2.2 million increase in accrued expenses and other current liabilities primarily driven by increase in returns reserve and stored-value card liabilities. These increases were partially offset by a $4.3 million decrease in operating lease liabilities and a $2.7 million increase in accounts payable.

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During 2024, net cash provided by operating activities was $2.6 million, which primarily consisted of a net loss of $55.3 million, partially offset by non-cash charges of $50.4 million and a net change of $7.5 million in operating assets and liabilities. The non-cash charges were primarily comprised of $28.4 million of goodwill impairment, $8.1 million of equity-based compensation expense, $5.5 million of depreciation and amortization, $4.1 million of non-cash lease expense and $3.8 million of deferred income taxes. The net change in operating assets and liabilities was primarily driven by a $4.8 million increase in accrued expenses and other current liabilities primarily driven by increase in returns reserve and stored-value card liabilities, a $2.1 million decrease in accounts payable related to purchases activity in line with sales, a $1.4 million decrease of accounts receivable driven by lower sales and a $1.4 million increase in inventory. These increases were partially offset by a $3.5 million decrease in operating lease liabilities.

Investing Activities

Our primary investing activities have consisted of purchases of equipment to support our overall business growth and internally developed software for the continued development of our proprietary technology infrastructure. Purchases of property and equipment may vary from period to period due to the timing of the expansion or contraction of our operations. We have no material commitments for capital expenditures.

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During 2025, as compared to 2024, net cash used in investing activities decreased by $0.8 million, primarily due to lower purchases of property and equipment.

Financing Activities

Financing activities consist primarily of borrowings and repayments related to our revolving facility under the Prior Credit Agreement and the 2025 Credit Agreement.

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During 2025, cash used in financing activities was $1.0 million, primarily due to $100.7 million of repayments under our 2025 Credit Agreement, $13.1 million of repayments under our Prior Credit Agreement, $1.3 million of principal payments of finance lease obligations, and $0.9 million used in the repurchase of our common stock, partially offset by $115.1 million of proceeds from borrowings under our 2025 Credit Agreement.

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During 2024, cash provided by financing activities was $2.2 million, primarily due to $33.1 million of proceeds from borrowings under our Prior Credit Agreement which was partially offset by $28.0 million of repayments under our Prior Credit Agreement, $1.4 million of principal payments on finance lease obligations, $1.3 million of withholding tax payments related to the vesting of equity-based awards and $0.5 million used in the repurchase of our common stock.

Contractual Obligations and Other Commitments

Our most significant contractual obligations relate to our 2025 Credit Agreement and operating lease obligations on our distribution facilities and corporate offices. For information on our 2025 Credit Agreement, see Note 5, Debt, and for information on our contractual obligations for operating leases, see Note 6, Leases, of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition, equity-based compensation, and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, please see Note 2, Significant AccountingPolicies, of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

While our revenue recognition does not involve significant judgment, it represents an important accounting policy. We generate revenue both from the sale of merchandise products sold directly to end customers and to wholesale customers. We recognize revenue when the product is transferred to the customer, which is generally upon shipment. We estimate a reserve of future returns based on historical return rates. There is judgment in utilizing historical trends for estimating future returns. Our refund for sales returns is included in returns reserve and asset for recovery on the consolidated balance sheets and represents the expected value of the refund that will be due to our customers.

​

The Company also estimates breakage related to store credits using historical redemption rates for each store credit issuance year, which reflects customer redemption patterns. The Company periodically evaluates redemption patterns and may record adjustments to its breakage estimate from time to time. These changes may impact trends for the quarter and/or year in the period the changes are made.

​

Income Taxes

​

We compute our provision for income taxes using the asset and liability method, under which DTAs and DTLs are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and

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for operating losses and tax credit carryforwards. DTAs and DTLs are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which they are expected to be realized or settled.

DTAs are evaluated for future realization and reduced by a valuation allowance to the amount that is more likely than not to be realized. We consider many factors when assessing the likelihood of future realization, including our recent cumulative loss, earnings expectations in earlier future years, and other relevant factors.

As of December 28, 2025, we had approximately $23.9 million in gross DTAs and $8.1 million in gross DTLs, which resulted in a net DTA of $15.8 million. These DTAs include approximately $5.9 million related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. Some of these net operating loss carryforwards will expire if they are not used within certain periods. At this time, based on evidence currently available, we consider it more likely than not that we will not have sufficient taxable income in the future that will allow us to realize the DTAs. Due to the weight of objectively verifiable negative evidence, we established a valuation allowance in the prior year of $14.9 million and increased the allowance to $16.7 million as of December 28, 2025, which reduced the tax benefit recognized in the current year, impacting our results of operations.

Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies—Recently Issued Accounting Pronouncements, of the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial position and our results of operations.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements and our unaudited interim consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

​

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our operations are solely based within the U.S. and the majority of our sales are within the U.S. We are exposed to market risks in the ordinary course of our business, including the effects of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Interest Rate Sensitivity

Cash and cash equivalents are held primarily in money market funds and cash deposits. The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments. Interest on any borrowings incurred pursuant to our 2025 Credit Agreement, accrue at a floating rate based on a formula tied to certain market rates at the time of incurrence; however, we do not expect that any change in prevailing interest rates will have a material impact on our results of operations.

Foreign Currency Risk

All of our domestic sales and operating expenses are denominated in U.S. dollars, and therefore, our income/(loss) before income taxes is not currently subject to foreign currency risk.

Inflation

We have experienced inflationary pressures in our supply chain and in our operating costs, as well as impacts related to our customers’ spending levels, which fluctuate with inflation. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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Item 8. Financial Statements and Supplementary Data.

LULU’S FASHION LOUNGE HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

​ Page

​ ​

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 68

​ ​

Financial Statements: ​

​ ​

Consolidated Balance Sheets 69

​ ​

Consolidated Statements of Operations and Comprehensive Loss 70

​ ​

Consolidated Statements of Stockholders’ Equity 71

​ ​

Consolidated Statements of Cash Flows 72

​ ​

Notes to Consolidated Financial Statements 74

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​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Lulu’s Fashion Lounge Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Lulu’s Fashion Lounge Holdings, Inc. and subsidiaries (the “Company”) as of December 28, 2025, and December 29, 2024, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 28, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2025, and December 29, 2024, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

San Francisco, California

March 30, 2026

We have served as the Company's auditor since 2017.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ December 28, ​ ​ ​ December 29,

Assets ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​ ​

Cash and cash equivalents ​ $ 2,661 ​ $ 4,460

Income tax refund receivable, net ​ 1,028 ​ 4,177

Prepaids and other current assets ​ 3,606 ​ 4,287

Property and equipment, net ​ 2,311 ​ 3,642

Other noncurrent assets ​ 639 ​ 698

​ ​ ​ ​ ​ ​ ​

Liabilities and Stockholders' Equity ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​

Accrued expenses and other current liabilities ​ 17,411 ​ 15,985

Asset based revolving credit facility – current ​ ​ 14,390 ​ —

Revolving line of credit ​ ​ — ​ ​ 13,090

Lease liabilities, current ​ ​ 6,402 ​ ​ 6,611

Lease liabilities, noncurrent ​ ​ 10,389 ​ ​ 19,653

Other noncurrent liabilities ​ 898 ​ 852

Commitments and Contingencies (Note 7) ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Stockholders' equity: ​ ​ ​ ​

Total liabilities and stockholders' equity ​ $ 89,364 ​ $ 108,198

​

The accompanying notes are an integral part of the consolidated financial statements.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fiscal Years Ended

​ ​ December 28, ​ ​ ​ December 29, ​ December 31,

​ ​ (52 weeks) ​ (52 weeks) ​ (52 weeks)

Goodwill impairment ​ ​ — ​ ​ 28,374 ​ ​ —

Income tax benefit (provision) ​ ​ (188) ​ ​ (2,333) ​ ​ 1,676

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic loss per share(1) ​ $ (4.90) ​ $ (20.00) ​ $ (7.27)

Diluted loss per share(1) ​ $ (4.90) ​ $ (20.00) ​ $ (7.27)

​

​

The accompanying notes are an integral part of the consolidated financial statements.

​

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​

LULU’S FASHION LOUNGE HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ Total

​ ​ Common Stock ​ Paid-In ​ Accumulated ​ Treasury Stock ​ Stockholders'

Forfeited shares of restricted stock ​ (309) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ —

Equity-based compensation ​ — ​ ​ — ​ ​ 16,489 ​ ​ — ​ — ​ ​ — ​ ​ 16,489

Issuance of common stock for ESPP ​ 7,316 ​ ​ — ​ ​ 239 ​ ​ — ​ — ​ ​ — ​ ​ 239

Equity-based compensation ​ — ​ ​ — ​ ​ 9,189 ​ ​ — ​ — ​ ​ — ​ ​ 9,189

Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ (22,621) ​ ​ (496) ​ ​ (496)

Issuance of common stock for ESPP ​ 12,609 ​ ​ — ​ ​ 69 ​ ​ — ​ — ​ ​ — ​ ​ 69

Equity-based compensation ​ — ​ ​ — ​ ​ 4,540 ​ ​ — ​ — ​ ​ — ​ ​ 4,540

Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ (123,934) ​ ​ (886) ​ ​ (886)

Other ​ — ​ ​ — ​ ​ (107) ​ ​ — ​ — ​ ​ — ​ ​ (107)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​

The accompanying notes are an integral part of the consolidated financial statements

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Consolidated Statements of Cash Flows

(in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fiscal Years Ended

​ ​ December 28, ​ December 29, ​ December 31,

​ ​ (52 weeks) ​ (52 weeks) ​ (52 weeks)

Cash Flows from Operating Activities ​ ​ ​ ​ ​ ​ ​ ​

Gain on lease modification ​ ​ (92) ​ ​ — ​ ​ —

Gain on lease termination ​ ​ (229) ​ ​ — ​ ​ —

Amortization of debt discount and debt issuance costs ​ 544 ​ 159 ​ ​ 156

Loss on disposal of property and equipment ​ 2 ​ 276 ​ ​ 19

Deferred income taxes ​ — ​ 3,802 ​ ​ (2,539)

Goodwill impairment ​ ​ — ​ ​ 28,374 ​ ​ —

Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​

Income taxes (receivable) payable ​ 3,149 ​ (832) ​ ​ 2,752

Prepaid and other current assets ​ 101 ​ 1,068 ​ ​ (1,803)

Accrued expenses and other current liabilities ​ 2,190 ​ 4,832 ​ ​ 918

Operating lease liabilities ​ ​ (4,299) ​ ​ (3,488) ​ ​ (3,317)

Other noncurrent liabilities ​ 47 ​ 368 ​ ​ (46)

Net cash provided by operating activities ​ 1,379 ​ 2,601 ​ ​ 15,421

Cash Flows from Investing Activities ​ ​ ​ ​ ​ ​ ​

Capitalized software development costs ​ (1,816) ​ (1,574) ​ ​ (2,055)

Purchases of property and equipment ​ (350) ​ (1,300) ​ ​ (1,880)

Other ​ 35 ​ — ​ ​ (68)

Net cash used in investing activities ​ (2,131) ​ (2,874) ​ ​ (4,003)

Cash Flows from Financing Activities ​ ​ ​ ​ ​ ​ ​

Proceeds from borrowings on revolving line of credit ​ — ​ 33,090 ​ ​ 13,000

Repayments on Asset Based Revolving Credit Facility ​ ​ (100,712) ​ ​ — ​ ​ —

Proceeds from issuance of common stock under ESPP ​ ​ 69 ​ ​ 239 ​ ​ 487

Repurchase of common stock ​ ​ (886) ​ ​ (496) ​ ​ —

Other ​ — ​ — ​ ​ (6)

Cash and cash equivalents at beginning of period ​ 4,460 ​ 2,506 ​ ​ 10,219

Cash and cash equivalents at end of period ​ $ 2,661 ​ $ 4,460 ​ $ 2,506

​ ​ ​ ​ ​ ​ (Continued)

​

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Consolidated Statements of Cash Flows

(in thousands)

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fiscal Years Ended

​ ​ December 28, ​ December 29, ​ December 31,

​ ​ (52 weeks) ​ (52 weeks) ​ (52 weeks)

Supplemental Disclosure ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash paid (refunded) during the period for: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Assets acquired under finance lease obligations ​ $ — ​ $ 42 ​ $ 983

​ ​ ​ ​ ​ ​ ​ ​ ​ (Concluded)

​

The accompanying notes are an integral part of the consolidated financial statements.

​

​

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Consolidated Financial Statements

​

​

1.Description of Business, Organization and Liquidity

Organization and Business

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, the operating company. Prior to the Company’s initial public offering, the Company was majority-owned by Lulu’s Holdings, L.P. (the “LP”), the prior parent company. In connection with the Company’s initial public offering, the LP was liquidated.

Lulu’s Fashion Lounge, LLC was founded in 1996, starting as a vintage boutique in Chico, California 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 Lulu’s Fashion Lounge, LLC’s outstanding common stock in 2014. The Company, based in Chico, California, through Lulu’s Fashion Lounge, LLC, is a women’s clothing brand offering modern, feminine styles at accessible prices for every occasion. Our goal is to make every customer feel their most confident and beautiful for the moments that matter most.

Impact of Macroeconomic Trends on Business

​

Changing macroeconomic factors, including inflation, interest rates, tariffs or bans, world events, wars and domestic and international conflicts, existing and future laws, regulations, directives and executive orders, and overall consumer confidence with respect to current and future economic conditions have directly impacted our sales as discretionary consumer spending levels and shopping behavior fluctuate with these factors. We have responded to these factors by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors are expected to continue to have an impact on our business, results of operations, our growth and financial condition.

Liquidity

​

The accompanying 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. The primary sources of funds for our business activities are cash flows from operations and our 2025 Credit Agreement. We believe the cash on hand, cash provided by operations and cash available under the 2025 Credit Agreement will enable us to meet our obligations for at least the next 12 months. For further information on the 2025 Credit Agreement, see Note 5, Debt.

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 December 31. The fiscal years ended December 28, 2025 (“2025”), ended December 29, 2024 (“2024) and ended December 31, 2023 (“2023”) consisted of 52-weeks.

The 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). As further discussed in the Reverse Stock Split section below, all per share amounts and common stock amounts have been adjusted on a retroactive basis to reflect the Reverse Stock Split (as defined below).

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Consolidated Financial Statements

​

​

Use of Estimates

The preparation of 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 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, store credit breakage, 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.

The Company estimates breakage related to store credits using historical redemption rates for each store credit issuance year, which reflects customer redemption patterns. The Company evaluates redemption patterns and may record adjustments to its breakage estimate from time to time.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. Such amounts may exceed federally insured limits. The Company reduces credit risk by depositing its cash with major credit-worthy financial institutions within the United States (the U.S.”). To date, the Company has not experienced any losses on its cash deposits. As of December 28, 2025, two single wholesale customers represented 15% and 37%, respectively, of the Company’s accounts receivable balance. As of December 29, 2024, no single customer represented greater than 10% of the Company’s accounts receivable balance. No single customer accounted for greater than 10% of the Company’s net revenue during 2025, 2024 and 2023.

​

Accounts Receivable

Accounts receivable consist primarily of receivables from credit card processing agencies and wholesale customers. Based on historical collections from these agencies and wholesale customers, an immaterial allowance for doubtful accounts was deemed necessary as of December 28, 2025, and December 29, 2024.

Inventory

Inventory consists of finished goods, which are recorded at the lower of cost or net realizable value, with cost determined using the first-in-first-out method. The cost of inventory consists of merchandise costs and inbound freight costs. Inventory levels are reviewed to identify slow-moving merchandise, and promotions and markdowns are used to clear merchandise. In the period in which the Company determines estimated selling price, less costs to sell, is below cost, or identifies excess, obsolete, or unsalable items, the Company writes its inventory down to its net realizable value.

Property and Equipment, net

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which range from one to six years. Improvements that extend the life of a specific asset are capitalized, while normal maintenance and repairs are expensed as incurred. When assets are sold or otherwise retired, their cost and related accumulated depreciation are removed from the consolidated balance sheet with any resulting gain or loss reflected in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Consolidated Financial Statements

​

​

Goodwill and Tradename

​

Goodwill is stated at the excess of the acquisition price over the fair value of net assets acquired in a purchase acquisition and is not amortized. Goodwill arose from the LP’s purchase of 100% of the outstanding common stock of Lulu’s Fashion Lounge, LLC on July 25, 2014 and the Company has one reporting unit. The Company’s tradename is an indefinite-lived intangible asset and is not amortized. The Company reviews its goodwill and tradename for impairment at least annually (on the first day of the fourth quarter) or more frequently whenever events or changes in circumstances indicate that the carrying amount may be impaired.

​

When testing goodwill for impairment, the Company first performs an assessment of qualitative factors (“Step 0 Test”). The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. The Company also considers recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

​

As of the annual goodwill impairment assessment date for fiscal year 2025, the Company performed a qualitative assessment of its goodwill and concluded that it was more likely than not that the fair value of its reporting unit exceeds its carrying value. Management evaluated relevant events and circumstances throughout fiscal 2025, including market conditions, operating results, stock price performance, and overall financial trends, and determined that no events occurred during the year that would indicate a triggering event or require a quantitative goodwill impairment test. Accordingly, no goodwill impairment was recorded for the year ended December 28, 2025. The goodwill balance remained $7.0 million on the consolidated balance sheet at year end.

​

As of the annual goodwill impairment assessment performed on the first day of the fourth quarter, for fiscal year 2024, the Company conducted a qualitative assessment of its goodwill 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. However, during the fourth quarter of fiscal 2024, due to a sustained decline in its stock price coupled with continuing net losses, we concluded that these were significant enough factors to warrant a 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. As a result of the quantitative goodwill impairment test conducted in the fourth quarter ended December 29, 2024, we concluded that the carrying value of the Company’s single reporting unit exceeded the fair value, and a goodwill impairment charge of $28.4 million was recorded, while $7.0 million of goodwill remained on our consolidated balance sheet as of December 29, 2024. No goodwill impairment was recorded for the year ended December 31, 2023.

​

When testing the tradename for impairment, the Company first performs an assessment of qualitative factors. If qualitative factors indicate that it is more likely than not that the fair value of the tradename is less than its carrying amount, the Company tests the tradename for impairment at the asset level. The Company determines the fair value of the tradename and compares it to the carrying value. If the carrying value of the tradename exceeds the fair value, the Company recognizes an impairment loss in an amount equal to the excess.

​

The Company performed the qualitative assessment of its tradename for fiscal year 2025 and determined that it is more likely than not that the fair value of the tradename exceeds the carrying value of the reporting unit.

​

The Company performed the qualitative assessment of its tradename for fiscal year 2024 and concluded that a sustained decline in its stock price coupled with continuing net losses were significant enough factors to warrant a

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Consolidated Financial Statements

​

​

quantitative assessment in the fourth quarter of 2024. The Company utilized the income-based relief-from-royalty method to value the trademark intangible assets. Under this method, revenues expected to be generated by the trademark are multiplied by a selected royalty rate. The royalty rate was selected based on consideration of i) royalty rates received by market participants in industries similar to the Company’s and ii) the current operating performance of the reporting unit. The estimated after-tax royalty revenue stream is then discounted to present value using the reporting unit’s WACC plus a spread that factors in the risk of the intangible asset.

​

The results of the quantitative assessment for fiscal year 2024 indicated that the fair value of the tradename exceeded the carrying value of the reporting unit and there was no impairment. There were no additions to, disposals of, or impairments of the tradename during 2025, 2024 and 2023. There was no accumulated impairment of the tradename as of December 28, 2025 and December 29, 2024.

Intangible Assets, net

Intangible assets, net consists of capitalized internal-use software development, which is amortized over a 3-year period. The Company capitalizes certain costs in connection with obtaining or developing software for internal use. Additionally, the Company capitalizes qualifying costs incurred for upgrades and enhancements that result in additional functionality to existing software. Amortization of such costs begins when the project is substantially complete and ready for its intended use. Costs related to design or maintenance are expensed as incurred. Intangible asset amortization expense was $1.9 million, $2.1 million and $1.9 million during 2025, 2024 and 2023, respectively.

Intangible assets are amortized on a straight-line basis over the estimated useful life of the assets. The Company reviews intangible assets for impairment under the long-lived asset model described below. No impairment of intangible assets was recorded during the years presented.

Long-Lived Asset Impairment

The Company evaluates long-lived assets, including lease right-of-use assets, for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition. To the extent that projected undiscounted future net cash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its estimated fair value. There was no impairment recorded during the years presented.

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 consolidated balance sheets.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Consolidated Financial Statements

​

​

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 consolidated statements of operations and comprehensive loss. Fixed and variable lease expense on operating leases is recognized within operating expenses in the 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 time of order processing and shipment.

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 only one 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 the practical 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 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 online store credit for certain returns and promotions. The stored-value gift cards and store credits do not have an expiration date. The Company recognizes revenue from stored-value gift cards and store credits when the card or credit is redeemed by the customer. The Company has determined that sufficient evidence exists to support an estimate for stored-value gift card and store credit 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 2025, 2024 and 2023 was $4.8 million, $1.3 million and $1.0 million, respectively.

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The Company has two 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.

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Notes to Consolidated Financial Statements

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The following table summarizes the significant changes in the contract liabilities balances during 2025, 2024 and 2023 (in thousands):

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​ ​ ​ ​ Stored-Value

​ ​ ​ ​ Cards

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Cost of Revenue

Cost of revenue consists of the product costs of merchandise sold to customers; shipping and handling costs including all inbound, outbound, and return shipping expenses; rent, insurance, business property tax, utilities, depreciation and amortization, and repairs and maintenance related to the Company’s distribution facilities; and charges related to inventory shrinkage, damages and the allowance for excess or obsolete inventory.

General and Administrative Expenses

General and administrative expenses consist primarily of fixed and variable labor payroll and benefits costs, including equity-based compensation for the Company’s employees involved in general corporate functions including finance, merchandising, marketing, and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation and amortization, rent and other occupancy expenses. General and administrative expenses are primarily driven by headcount related costs required to support the Company’s business and meet its obligations as a public company.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of customer service, payment processing fees, advertising, targeted online performance marketing and search engine optimization costs. Selling and marketing expenses also include spend on brand marketing channels, including cash and free clothing compensation to influencers, events and other forms of online and offline marketing related to growing and retaining the customer base. Advertising costs included in selling and marketing expenses were $50.4 million, $55.4 million, and $58.5 million in 2025, 2024 and 2023, respectively.

Equity-Based Compensation

The Company grants stock-based awards to certain employees, officers, directors, and other non-employee service providers. Equity-based compensation is measured at the grant date or modification date for all equity-based awards made to employees and non-employees based on the estimated fair value of the awards. Equity-based compensation expense is recognized on a straight-line basis over the period the employee or non-employee is required to provide service in exchange

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Notes to Consolidated Financial Statements

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for the award, which is generally the vesting period. The Company classifies equity-based compensation expense as general and administrative expense in the Company’s consolidated statements of operations and comprehensive loss.

The Company has elected to recognize forfeitures by reducing the equity-based compensation expense in the same period as the forfeitures occur.

The fair value of grants of restricted stock or RSUs is based on the fair value of the Company’s common stock underlying the award on the grant date or modification date. For stock option awards, the Company applies the Black-Scholes option pricing model to determine the fair value. The model utilizes the estimated per share fair value of the Company’s underlying common stock at the grant date, the expected or contractual term of the option, the expected stock price volatility, risk-free interest rates, and the expected dividend yield of the common stock.

The Company bases its estimate of expected volatility on the historical volatility of comparable companies from a representative peer group selected based on industry, financial, and market capitalization data. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The Company has elected to use the “simplified method” to determine the expected term which is the midpoint between the vesting date and the end of the contractual term because it has insufficient history upon which to base an assumption about the term; the Company believes the simplified method approximates a term if it were to be based on expected life. The expected dividend yield is 0.0% as the Company has not paid and does not anticipate paying dividends on its common stock.

Determining the grant date fair value of options using the Black-Scholes option pricing model requires management to make assumptions and judgments. These estimates involve inherent uncertainties and, if different assumptions had been used, stock-based compensation expense could have been materially different from the amounts recorded.

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards. DTAs and DTLs are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which they are expected to be realized or settled.

DTAs are evaluated for future realization and reduced by a valuation allowance to the amount that is more likely than not to be realized. The Company considers many factors when assessing the likelihood of future realization, including recent cumulative losses, earnings expectations in earlier future years, and other relevant factors.

The Company believes that it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences and results of recent operations, will not be sufficient to fully recover the DTAs. Due to the weight of objectively verifiable negative evidence, we established a valuation allowance in the prior year of $14.9 million and increased the allowance to $16.7 million as of December 28, 2025, which reduced the tax benefit recognized in the current year, impacting our results of operations.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits, if any, as income tax expense.

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Notes to Consolidated Financial Statements

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Net Loss Per Share Attributable to Common Stockholders

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities as the application of the if converted method is not more dilutive. The two-class method requires loss available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company considers its redeemable preferred stock and convertible preferred stock to be participating securities. In accordance with the two-class method, net loss is adjusted for earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net loss per share attributable to common stockholders. The redeemable preferred stock and convertible preferred stock contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in the Company’s losses. As such, where applicable, net losses were not allocated to these securities.

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 shares of common stock 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 shares of common stock 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 fiscal years presented because including them would have been anti-dilutive (on an as-converted basis):

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Unvested restricted stock ​ — ​ — ​ 1,559

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Redeemable Preferred Stock

The Company has elected to record its redeemable preferred stock at the greater of its redemption value or the issuance date fair value, net of issuance costs, as it is probable of becoming redeemable due to the passage of time. Any change to the carrying value of redeemable preferred stock recognized in each period is recorded to additional paid-in capital, or in the absence of additional paid-in capital, recorded to accumulated deficit.

The issuance date fair value of the redeemable preferred stock shares purchased by entities related to current employees, board members, and service providers was higher than the consideration paid and such excess was recorded as equity-based compensation. The excess of the fair value over consideration paid for redeemable preferred stock shares purchased by an existing convertible preferred stockholder was accounted for as a deemed dividend and recorded in additional paid-in capital.

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Notes to Consolidated Financial Statements

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Comprehensive Loss

Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive loss other than the net loss incurred from operations. Thus, comprehensive loss is the same as net loss for the periods presented.

Recently Adopted Accounting Pronouncements

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

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In December 2023, Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update (“ASU”), FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, whichamends 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. The Company adopted this guidance for fiscal 2025, on a prospective basis. The adoption did not have a material impact on our consolidated financial statements except for additional disclosures. See Note 9, Income Taxes in the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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In March 2024, FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, which isintended 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. The Company adopted this guidance for fiscal 2025, on a prospective basis, and it did not have a material impact on our consolidated financial statements or related disclosures.

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Recently Issued Accounting Pronouncements

In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. We are currently evaluating this pronouncement to determine its impact on our financial statements and related disclosures.

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In July 2025, FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides all entities with practical expedient of developing reasonable and supportable forecasts as part of estimating expected credit losses, that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025 (and interim reporting periods within those annual reporting periods). Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued

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Notes to Consolidated Financial Statements

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or made available for issuance. We are currently evaluating this pronouncement to determine its impact on our financial statements and related disclosures.

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In September 2025, FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal Use Software (Topic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which amends certain aspects of the accounting for and disclosure of software costs under ASC 350-40. ASU 2025-06 is effective for all entities for annual reporting periods beginning after December 15, 2027 (and interim reporting periods within those annual reporting periods). Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. We are currently evaluating this pronouncement to determine its impact on our financial statements and related disclosures.

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In December 2025, FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which improve the guidance in Topic 270, Interim Reporting, by improving the navigability of the required interim disclosures and clarifying when that guidance is applicable. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, for public business entities and for interim reporting periods within annual reporting periods beginning after December 15, 2028, for entities other than public business entities. The amendments in this Update can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. Early adoption is permitted for all entities. We are currently evaluating this pronouncement to determine its impact on our financial statements and related disclosures.

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In December 2025, FASB issued ASU 2025-12, Codification Improvements, which represent changes to the codification that clarify, correct errors, or make minor improvements. The amendments make the codification easier to understand and apply. ASU 2025-12 is effective for all entities for annual reporting periods beginning after December 15, 2026 (and interim reporting periods within those annual reporting periods). Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. We are currently evaluating this pronouncement to determine its impact on our financial statements and related disclosures.

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3.Fair Value Measurements

The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

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The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, other current liabilities and borrowings under the 2025 Credit Agreement. As of December 28, 2025 and December 29, 2024, the carrying values of cash and cash equivalents, accounts payable, accrued expenses and other current liabilities approximate fair value due to their short-term maturities.

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Notes to Consolidated Financial Statements

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On August 14, 2025, the Company and its subsidiaries (collectively, the “Borrowers”) entered the 2025 Credit Agreement which is an asset-based revolving credit facility with a $20.0 million commitment, a $5.0 million uncommitted accordion and a $1.0 million sublimit for letters of credit. The amount that may be borrowed under the 2025 Credit Agreement is based on a borrowing base calculated based on advance rates for various assets serving as collateral for the 2025 Credit Agreement. Borrowings bear interest at a rate equal to the 30-day SOFR rate plus 3.95% and is secured by a first-priority security interest in and lien upon all tangible and intangible personal property of the Borrowers, now owned or acquired in the future. Because the interest rate is variable and reset based on SOFR with a market-based margin, the fair value of amounts outstanding under the 2025 Credit Agreement approximates carrying value.

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As of the annual goodwill and tradename impairment assessment date for fiscal year 2025, the Company performed a qualitative assessment of its goodwill, tradename and intangible assets as of December 28, 2025 and determined that no events or changes in circumstances were identified that would indicate potential impairment related to the goodwill, tradename, and intangible assets recorded during the fifty-two weeks ended December 28, 2025.

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As of the annual goodwill and tradename impairment assessment date performed on the first day of the fourth quarter, for fiscal year 2024, the Company performed a qualitative assessment of its goodwill and tradename 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. However, during the fourth quarter of 2024, due to a sustained decline in its stock price coupled with continuing net losses the Company concluded that they were significant enough factors to warrant a quantitative assessment of its goodwill and tradename. For goodwill assessment, the Company utilized 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. As a result of the goodwill impairment test conducted in the fourth quarter ended December 29, 2024, the Company concluded that the carrying value of the Company’s single reporting unit exceeded the fair value, and a goodwill impairment charge of $28.4 million was recorded. No goodwill impairment was recorded for the year ended December 31, 2023. The carrying values of goodwill is $7.0 million as of December 28, 2025, and December 29, 2024. For fiscal year 2024, for tradename assessment, the Company utilized the income-based relief-from-royalty method to value the trademark intangible assets. Under this method, revenues expected to be generated by the trademark are multiplied by a selected royalty rate. The royalty rate was selected based on consideration of (i) royalty rates received by market participants in industries similar to the Company’s and (ii) the current operating performance of the reporting unit. The estimated after-tax royalty revenue stream is then discounted to present value using the reporting unit’s WACC plus a spread that factors in the risk of the intangible asset. There were no additions to, disposals of, or impairments of the tradename during 2025, 2024 and 2023. There was no accumulated impairment of the tradename as of December 28, 2025, and December 29, 2024.

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The fair value measurement associated with the quantitative goodwill and tradename tests for fiscal year 2024 is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement.

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