Lulu's Fashion Lounge Struggles Amid Challenging Macro Environment: Analyst Downgrades To Market Perform

Telsey Advisory Group analyst Dana Telsey downgraded Lulu's Fashion Lounge Holdings, Inc. LVLU from Outperform to Market Perform, lowering the price target to $3 from $4.

The company recently reported its preliminary Q2 results with net revenue of approximately $104.5 million-$106.0 million, representing a decline of roughly 20.5%-19.4% compared to last year.

The disappointing second quarter preannouncement reflects the challenging macro environment, marked by elevated return rates and promotions that LVLU has struggled to navigate in recent quarters, the analyst notes.

With macro headwinds and volatile consumer spending patterns compounded by the company's exposure to a slow wedding event cycle and normalization of physical/digital channel traffic, the analyst sees a further clouding of visibility to overall operational improvement near-term, as well as the ultimate profitability potential of the model longer-term.

Incorporating the preannounced results and withdrawn outlook, Telsey reduced estimates.

The analyst now looks for EBITDA of $15.5 million, down from $23.9 million previously, which compares to the prior consensus of $23.9 million. Telsey's FY24 EBITDA estimate goes to $22.1 million from $37.0 million, compared to the previous consensus of $33.8 million.

However, the analyst thinks that the new product has tested well, and inventory is expected to be down year over year at 2Q23-end.

Telsey continues to view the company's unique "test, learn, and reorder" strategy as a competitive advantage.

Price Action: LVLU shares are trading lower by 4.71% to $2.43 on the last check Wednesday.