Good afternoon, and welcome to Lulu's Third Quarter 2021 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. .

At this time, I'd like to turn the conference over to Alexa Pisczak, Associate General Counsel at Lulu's. Thank you. You may begin. .

Good afternoon, everyone, and thanks for joining us to discuss Lulu's third quarter results. .

Before we begin, we would like to remind you that this conference call will include forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. .

All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, but not limited to, statements regarding management's expectations, plans, strategies, goals and objectives, including our plans to invest in a third logistics facility and a mobile app; our future expectations regarding financial results; outlook for the quarter and year ending January 2, 2022; market opportunities; product launches and other initiatives; and our growth, including with respect to our customer community.

These statements, which are subject to various risks, uncertainties, assumptions and other important factors, could cause our actual results, performance or achievements to differ materially from results, performance or achievements expressed or implied by these statements.

These risks, uncertainties and assumptions are detailed in this afternoon's press release, as well as our filings with the SEC, including our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on November 12, 2021, all of which can be found on our website at investor.lulus.com. .

Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we undertake no obligation to revise or update any forward-looking statements or information, except as required by law. .

During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA and adjusted EBITDA margin. We use non-GAAP measures in some of our financial discussions, as we believe they more accurately represent the true operational performance and underlying results of our business. .

The presentation of this non-GAAP financial information is not intended to be considered in isolation, or as a substitute for, or superior to the financial information prepared and presented in accordance with GAAP. Our non-GAAP measures may be different from non-GAAP measures used by other companies.

Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations and rationale for using each measure can be found in this afternoon's press release and in our SEC filings. .

Joining me on the call today is our CEO, David McCreight; Co-President and CFO, Crystal Landsem; and Co-President and CIO, Mark Vos. Following our prepared remarks, we'll open the call for your questions. .

With that, I'll turn the call over to David. .

Thank you, Alexa, and good afternoon, everyone. Thank you for joining us on our first earnings call as a public company. .

Our IPO in gaining access to the capital market is an important and exciting milestone for the team. But we recognize it's merely one proud step in our journey to reaching our future potential as a company. And now, we are delighted to share our exceptional third quarter results with you all today in our first earnings call. .

As a reminder, for this, who met us recently on the IPO road shows, was an introduction for those who are new to our business model. Lulu's is a customer-driven, digitally native fashion brand, primarily serving millennial and Gen Z women. We focus relentlessly on meeting our customers' needs.

We do this by using data, coupled with human insight to deliver a curated and continuously evolving assortment of on-point affordable luxury fashion. .

We aim to build authentic personal relationships with our customers and offer them coveted quality products, most of which they cannot purchase elsewhere.

We tap into the pulse of the customer by engaging with her where she is online, through digital channels and social media, as well as on our own platforms, through reviews, feedback surveys and one-on-one interactions with our style advisers, fit experts and bridal concierge team. .

Our team, the LuCrew, works to make our customer touch points special, which ultimately leads to strong customer engagement and loyalty with our growing community of brand fans. A key differentiator of our model is our use of data to optimize almost all elements of our business.

The use of data and technology guide much of the decision-making throughout the company, from logistics planning to marketing placement, but nowhere is this more pronounced than in our product creation and curation cycle.

Traditional merchandising approaches are both risk and capital intensive, characterized by extended in-house design cycles, seasonal assortment decisions, deep buys made with limited customer feedback and often high markdowns. .

Unlike traditional retailers, we leverage our test, learn and reorder strategy to bring hundreds of new products to market every week. We test products informed by our attribution system in small batches. We use our algorithms to gauge customer demand and then quickly reorder winning products in higher volume to optimize revenue and profitability.

This strategy and use of test information enables us to convert new products into profitable sales consistently and with a high degree of accuracy, while minimizing fashion and trend risk. .

Our overarching vision is to be the most beloved women's brand for affordable luxury fashion, through curated exclusive products at reasonable prices, with superior customer service, and a personalized shopping experience. We want to be the category-defining apparel brand for millennial and Gen Z women. .

A few key points about Lulu that I'd like to highlight. We remain focused on strengthening and deepening our relationships with customers, aspiring to dress them for more occasions and every day of the week, in order to expand our space in their closet and thereby growing wallet share.

By increasing Lulu's brand awareness over the next quarters and years, we expect more customers to join the Lulu's community. We launched our first ever brand awareness campaign in late Q3, focused entirely on acquiring new customers, or is where we like to say, bringing more new friends to the party. .

Over the next quarters, we will be laying a stronger foundation for potential international marketing that international customers are already showing their interest by visiting and purchasing at Lulu's, as well as following and engaging with us on social media, even while we are not actively marketing to them.

As a digitally native brand, we continue to accelerate our competitive advantages and data-driven merchandising, profitable marketing and operational efficiency, leading us down the path of future market share gain..

Turning to a few of our third quarter highlights. We had another excellent quarter, delivering growth in net sales and profitability, achieving record results for any third quarter in our history. Comparable net sales increased 95% year-over-year and adjusted EBITDA increased 126% year-over-year. Crystal will walk you through the finer point shortly. .

We are also thrilled by our growth in active customers with sequential year-on-year double AOV growth in both new and repeat customers, with appreciably more efficient performance marketing spend as a percentage of gross sales versus last year and double AOV.

Clearly, our affordable luxury brand experience, combined with the reach of our marketing efforts is bringing new fans to the brand. .

From a merchandising perspective, we are encouraged by the broad-based response to our product offerings, with both event and non-event categories, delivering double-digit demand growth as compared to 2019. We saw maintained momentum addresses and even faster growth in separate sales as compared to 2019. .

Our operating results reflect our disciplined approach to spend and efficiency. It's a testament to our model and team that we're able to achieve meaningful revenue growth, with inventory turnover at a rate north of 8x.

And Mark's team has been busy implementing plans to not only expand our logistical capabilities to facilitate our fast growth, but also to find new ways to optimize an already efficient logistics system. .

Finally, before Crystal walks you through our financial performance for the quarter, I wanted to provide commentary on COVID and supply chain issues. We all can be our witness to how our daily lives have been disrupted, and our product supply chain endured some delays, but it was not to the degree you read about daily in the business headlines.

Where we have been affected, mostly, is our reduced ability to chase in season, not being able to maximize the upside in periods of exceptional demand. .

And while few can confidently speculate on how variance might impact the economy, what we can say is, Lulu's is better prepared for disruption. Our balance sheet is now healthy, our product offering is increasingly balanced with fastest revenue growth coming from our non-event segment.

And with approximately 70% of our revenue from algorithmic-driven purchasing, we are able to confidently take positions in future orders with low risk. .

Again, thank you for your time. We are thrilled about our future prospects and look forward to executing on our vision. I'd like to take a moment to thank the LuCrew for finding new ways daily to efficiently delight our brand fans. Without you all, none of this would be possible. .

And now let me introduce my colleague, Crystal Landsem, Co-President and CFO. .

Thanks, David, and good afternoon, everyone. .

Before we dive into our results, I would just like to say how grateful I am to be part of such an amazing company and team that continues to execute on a daily basis. As David mentioned, we delivered a very strong quarter, highlighted by growth on all fronts, including net revenue, gross margins, profitability and cash flows.

We had a record number for third quarter active customers engaging with us, as our customer returned to their social calendars and continue to come back to us for their everyday fashion needs. With that said, we're very pleased with our third quarter financial results, so let's dive right in. .

During Q3, we grew our net revenue by 95% to $106.3 million, a $51.8 million increase over the same period in the prior year, and Q3 year-to-date net revenues were up 43.6%, an $84.7 million increase over the same period in the prior year.

Our top line growth continues to be driven by the combination of new customers acquired and increasing loyalty from our existing customer base, with an all-time high number of repeat customers engaging with us during the third quarter. We're very proud of our large diverse community of loyal customers. .

In the 12 months ended October 3, 2021, we serve 2.5 million active customers compared to 2.3 million active customers in the 12 months ended September 27, 2020. In spite of the industry-wide supply chain challenges, our business model has enabled us to continue our path of strong growth and profitability, as you can see from our successes in Q3. .

Gross margins for the third quarter increased 290 basis points to 47.7%, driven by lower markdowns and discounts compared to last year, as well as a shift in sales mix to higher gross margin products. Strong customer demand drove faster inventory turns and a high level of net sales at full price.

The reacceleration of event dressing demand, coupled with accelerated demand in non-event dressing drove year-on-year improvements in gross product margins across nearly all product classes. .

Our AOV reached an all-time high of $125, driven by increased items per cart, as well as lower discounts and markdowns due to lower promotional activity, with AOV increasing 22% over 2020 and 12% over 2019. .

Moving down to P&L to give some insights into our expense line items. Selling and marketing expenses consist primarily of online performance marketing, payment processing fees and other advertising.

Q3 selling and marketing expenses were $20.5 million, up $11 million from the same period in the prior year due to the return of online performance marketing spend to a more normalized state. Spend was suppressed in 2020 in response to lower customer demand due to the pandemic and an increased focus towards liquidity and cash flows. .

Towards the end of Q3 this year, we also launched our first ever brand awareness campaign. Our free organic and low-cost initiatives, coupled with profitable performance media drive traffic to our platform, which is custom built to allow for continuous updating and personalization for each customer.

And our unified cross-platform strategy consistently reinforces the same brand values, with our marketing approach resulting in an attractive customer acquisition and strong retention. .

General and administrative expenses amounted to $21.2 million for the quarter, an increase of $10.3 million compared to 2020.

It reflects increases in payroll and benefits in line with higher sales volumes, higher bonus expenses due to improved business results, and higher fixed headcount costs as the previous year's costs were suppressed due to furloughs related to the pandemic.

It also includes a $1.7 million increase in equity-based compensation related to stock options and special awards. .

We reported earnings per share of $0.13, up from $0.01 in the third quarter of 2020, which is the result of our top line growth, combined with the efficiently managed costs and operations. .

And finally, adjusted EBITDA for the third quarter was $11.9 million, up from $5.2 million in the same period in 2020. Our Q3 adjusted EBITDA margin was 11.2%, up from 9.6% in the same period in 2020. We believe these non-GAAP metrics are important supplemental measures for understanding our results.

We refer you to our 10-Q and earnings release issued earlier today for the required disclosures and reconciliations. .

Moving to the balance sheet. Our cash and equivalents amounted to $40.9 million as of October 3. For inventory, we ended the quarter with $23.4 million, an increase of $9.9 million and 73% higher compared to $13.5 million at the end of Q3 2020. .

We completed our IPO on November 15, 2021, with net proceeds of $85.6 million. We repaid the long-term debt balance and borrowed $25 million against the new revolving facility. Just as a reminder, we operate a highly capital-efficient business that positions us to generate positive free cash flow.

In the third quarter, we generated $12.7 million in cash flow from operations. .

As it relates to guidance, since this is our first earnings call as a public company, I wanted to provide a framework or our key performance metrics and how we will evaluate the business.

Outside of the core financial statements, we will provide annual guidance to be updated quarterly on revenue, adjusted EBITDA, average order value and active customers. We will also provide annual updates on CapEx.

And just as a quick reminder, we're not a Q4-dependent business, and Q4 typically represents a smaller quarter compared to the rest of the year. Historically, our net revenue is highest in our second and third quarters due to higher demand for event apparel on spring and summer fashion. .

Our guidance range for 2021 is net revenues between $370 million and $372 million, which represents growth of 49% and 50%. Adjusted EBITDA is expected to be between $38 million and $39 million, which represents growth of 101% and 106% over 2020. This equates to an adjusted EBITDA margin of 10.3% and 10.5% compared to 7.6% in 2020. .

As a result of paying down our long-term debt following the IPO, we expect interest expense of $4 million in Q4, which includes the amortization and write-off of loan fees related to the term loan payoff versus $4.1 million in last year's Q4.

On an as adjusted basis for the paydown of the debt, interest expense would amount to approximately $1.5 million (sic) [ $1.4 million ] versus $3.5 million in Q4 of 2020. We expect that the impact of nonrecurring amortization and write-off of loan fees captured in interest expense for Q4 2021 will be $2.5 million (sic) [ $2.6 million ]..

Moving on to capital expenditures, I'd like to highlight the following investment areas for us going forward. Firstly, we're planning on continuing to invest in our logistics capabilities, so we're prepared to continue to serve our customers as we grow in scale.

These initiatives include plans to invest in a third logistics facility starting in Q4 2021. We are also planning on continuing to improve our platforms to ensure that we maintain our customer-centric shopping experience. Our near-term initiative on this front include the launch of a new mobile app in Q4 2021.

With the rollout of these initiatives, we expect capital expenditures of roughly $3.5 million for the full 2021 fiscal year. .

We believe that this guidance that we're sharing today should provide a strong sense of where we're aiming as a brand, and we will share more information, including 2022 guidance when we report on Q4 earnings. .

Thank you. We're looking forward to hearing your questions. .

[Operator Instructions] Our first question comes from the line of Brooke Roach at Goldman Sachs. .

David, Crystal, I was wondering if you could talk a little bit to the sequential trends that you've seen in customer engagement and purchase activity throughout the third quarter and into the holiday period.

How are the newly acquired customers engaging with the brand today? And have you seen any impact from these results, as COVID trends have started to shift nationwide?.

Crystal, why don't you take the COVID trends portion and Mark, maybe you could talk about the customer sequential. .

Yes, sure. It's a good question, Brooke. So, from a COVID impacts perspective, I would say that we've not really experienced any noticeable changes. And just to highlight, our performance through Q2 and even into Q3, we had 69% and 95% growth, respectively.

So, what's really great about our buying model and our business model, in general, is that we've been able to mitigate some of those risks and still put up some really strong numbers. And that's been largely driven by new and repeat customer engagement, where we've seen an acceleration sequentially for both. .

Great. That's really helpful. And as we think about the initial learnings that you've had so far from your brand awareness campaign, and I think, I heard in the prepared remarks, plans for maybe some new international marketing.

Can you talk to us a little bit about how you're thinking about marketing going forward and engaging that new customer?.

Sure. Mark, do you want to start with international? And then, I'll address the general marketing questions. .

So in the near-term revenue outlook, we did not compliment -- contemplate any material increases in revenue from international sources. Based on our platform traffic and social following data, we do see interest in Lulu's from international consumers.

And so therefore, in the near term, we are focusing on improving the international visitor experience to bring this up to par with our domestic brand experience.

And then, from there on, we will look into possibly expanding marketing activities in select territories and/or possible international partnerships in order to increase our ability to test and learn what works for us in the international markets. .

Right.

And following on Mark's comments, internationally, that will then set us up to -- as we discussed during the road shows, to explore that our potential in foreign markets with some potential, most likely, initially, some third-party partnerships using their platforms and traffic to learn and test our product, test our product appeal, test pricing, a number of things before we consider whether we're going to do it on our own and build real infrastructure in the country.

.

As it relates to the brand awareness campaign. As we've talked about in the past, we really are a culture built on testing and learning. Whether it's our test on the reorder model or how we approach marketing, and it goes on. We're very, very good at advancing with performance marketing.

And we know, like we've talked about earlier, that we have this large addressable market, and we're always looking for new ways to introduce our new people to the brand and make new brand fans. .

And so, brand awareness is a different discipline and some of it is different. We've been doing and been working with social awareness platforms, social media, for quite a while. But we think we're going to be learning quite a bit from this and we'll continue to test it in the near future, the best way to bring our message to new audiences. .

Our next question comes from the line of Lorraine Hutchinson with Bank of America. .

I want to follow up on your comments around the success in the non-event outpacing success and event dressing.

Can you talk about what categories have been working and then how that informs your buying decision on a go-forward basis?.

Crystal, did you want to speak to the product performance and category performance?.

Sure. So we won't drill into specific product classes, but what we can say is that not only did we see a reacceleration in our events business, but there's definitely been continued momentum in our non-events business, especially in the separate classes.

And while our buying model has driven such that we're buying and investing into what our customer tells us that she wants, our assortment is going to continue to evolve to support that, and we are seeing this nice acceleration and even outperformance of our dress classes and our non-events product categories, even more so pronounced in Q3. .

Our next question comes from the line of Randy Konik with Jefferies. .

I wanted to kind of unpack AOV growth. It's been growing nicely.

Can you just give us some perspective on the drivers of that, perhaps mix, UPT, et cetera? And how you think about AOV opportunity over the next few years and drivers of that?.

Sure.

David, do you want me to take that one?.

Absolutely. .

So, our AOV growth has been a combination of an increase in units per transaction, just as well, less markdowns and discounts and promotional activity over time.

And I would say, on a go-forward basis, we expect that to be a balance of increasing units over time, of course, pricing related to inflation, but only as our kind of price value generates that. It would be more so driven from her increasing her cart size, especially as we grow in our non-events classes in the separate categories as well. .

Understood.

And then, I want to ask a follow-up around systems and technology and talk to kind of where the company may had been a few years ago, where you kind of got to today and how you've been that improves your productivity and efficiency in the business? And kind of, any kind of systems and technology items you're sitting on over the next year or so to kind of continue to enhance those productivity measures and efficiencies within the organization.

.

Mark, do you want to jump in there?.

Cool. That's a broad question.

I would say that, in all aspects, so -- especially if you look over the last couple of years, I think in all aspects of our business, whether that is from a -- we talk about our data-driven decision-making and making sure that we empower and inform ourselves with all insights that we need in order to make the right decisions.

We have been continuously invested in that over the last several years. We have optimized, from a logistics perspective, specifically in the fulfillment centers, how do we essentially allocate our orders over the multiple fulfillment centers, both from an inventory balancing perspective as well as some reducing shipping zones and shipping costs. .

Then, on our product creation cycle, I think we actually talked about that in several ways. But really, again, it's that particular aspect, as it relates to those insights as to how can we derive what the -- how can we reduce that fashion risk and make sure that we get the products in on time.

Then obviously, purely from a tax stack perspective as it relates to our website, mobile app as mentioned, we switched our platforms there.

So we're on a better -- a more advanced technical platform to basically be able to continue to build off there to engage with our customers to increase conversions and increase part times, and that is essentially always ongoing, of course, and we have teams dedicated to that. .

And then lastly, I think what I can speak to is that we have started robotics in our these fulfillment centers, where we are currently in the process of implementing that, which is also with the purpose of increasing future units per hour efficiencies. .

Our next question comes from the line of Mark Altschwager with Baird. .

You sound very pleased with a lot of the marketing initiatives.

I'm curious, are you seeing any impact from some of the iOS changes? And more generally, what are you seeing in terms of customer acquisition cost trends as we head into the holiday period?.

Mark, you want to jump in?.

Yes. Okay, thanks. As it relates, there have been various iOS changes, so obviously, iOS 14 changes, we have been able to recalibrate essentially the impacts on how things are being viewed. And so we feel that together with the platforms, we have been able to continue or finding that efficiency as it also shows in our numbers.

The more reason to change, as it relates to e-mail impact and the machine-assisted opens that obviously has impacted the certain segments of our e-mail, as it relates to having a reliable open data, and we are currently assessing that impact in triangulating, essentially, the performance of our e-mail in various ways.

And even though the open rates, again, for a subset of the e-mail impacted other key metrics like traffic of e-mails, or clicks or revenue per e-mail are still visible and it still allows us, combined with continuous content testing to continue to optimize our e-mail program. .

So, in that sense, that's -- it's adapting to the new realities and continue to find the ways to upsize and we feel that as of today, that we have what we need in order to be successful. .

Okay. Okay.

And then, separately here, can you give us a brief history on how stimulus affected the business earlier this year and just your thoughts on some of the puts and takes of lapping stimulus as we look into early 2022?.

I think it's safe to say that we experienced a rapid reacceleration earlier on in 2021 related to the stimulus, but we also returning inventory so quickly that it's difficult to say how much of that affected our business versus having further upside and just a natural return to normal business and normal growth rates.

So I think our internal view is that we certainly had a benefit early on from a stimulus perspective. But when those money starts coming, our business still continue to grow and in some cases, accelerating. .

So it's difficult to say what the actual impact was. But I think we're optimistic we could have had further upside as we had more inventory in the stimulus was maybe less impactful or noticeable within our financials. .

Yes, we could say that, that upside in not only Q1, Q2 and Q3. .

Our next question comes from the line of Oliver Chen with Cowen. .

The merchandise margins and the momentum there was also very impressive. What do you see ahead in terms of maintaining the merchandise margins, and also, you have low levels of clearance and markdowns, so wondering about that? Also, the mobile app innovations sound quite positive.

Would love your take on what are some of the key changes you'll make there, especially as you pursue more context and personalization? And then lastly, on the net promoter score frontier, you have a high net promoter score relative to competitors, but there could be opportunity for upside here.

What would you articulate as key drivers to improve your net promoter score?.

Oliver, why don't -- we'll unpack those 3 questions. And Mark, do you want to start with the app, and then Crystal, you can talk about the margins. .

Yes. We -- as mentioned, launched -- or relaunched our app on a new platform and the primary reason to do so is that the -- all platform that we were on, we have some limitations, as it relates to what we could stream from a brand experience perspective, as well as from a personalization perspective.

I would say, where we are today, is that step 1 was essentially a lift and shift, so that we did not lose functionality, so to say, but make the switch so that we can now, on this new foundation, work towards improving that brand experience, get that a real feel of the Lulu's, just like when you're on the website that we can also have that in our app, as well as have a better -- a more real-time personalization going forward.

So that is -- I think, to answer your question, that is absolutely the reason why we made that switch. .

And Oliver, I'll jump in on the net promoter score then -- I'm sorry, Mark, are you continuing?.

No, please [indiscernible] that too. So, go ahead. .

And jumping in on the net promoter score before we get to Crystal addressing some of your margin questions. .

Yes. So, as you had highlighted, we've had terrific net promoter scores, particularly as we compare ourselves to the core market set and we look at it and we score it very well for value, style, a number of things, wonderful customer service. We do know there's opportunities that we can look to improve.

And the call-outs we tend to hear from, are primarily, the largest hands down outside of some requests for additional free shipping is to be in stock. The second would be size range offering. .

And we -- when you're growing to the pace Lulu's is growing and with these kind of turns, we know we have an opportunity to increase our service levels with inventory. But we're both thrilled with the pace and the sell-through. And like you said, it's not leaving a much hangover for clearance.

But at the same time, we're going to have to balance that in the future with capturing, and making sure that the on-site shopping experience or engagement with a customer in that space, that we don't risk losing any customer engagement through that, because that has been the largest area complained by far.

And so, we're planning to look at that and find ways to do that in 2022. .

And as it relates to margin and the sustainability -- sorry, David, were you going to say something?.

No, I'm good. .

Okay.

As it relates to margins and just our overall sustainability of the margins that we've been experienced, I would say that our affordable luxury price points or fast inventory turns, as well as our buying model approach really allows us to be methodical and intentional with our inventory purchases, and in our ability to drive consistent margins over time.

And the only caveat to that, I would say, is that as we're expanding into other less mature businesses and trying to invest in growth and scale and prioritizing that versus trying to get every last margin dollar, there could be some fluctuation in that, but it would be small, any material changes there.

So I would say, we're fairly optimistic about our ability to drive some consistent margins over time. .

That's all very helpful.

On the interplay between inflation and pricing, what are you seeing in terms of your product cost inflation in labor and materials and overall? And then, how does that interplay with how you're thinking about pricing, just to make sure you continue to offer your customer a clear value, et cetera?.

So we take a pretty surgical approach to pricing across all of our products, and we find that there is quite a bit of elasticity there. We've been slightly less impacted, I would say, than others in the space have talked about, and I think that really comes from our already affordable luxury price point.

So where we in price pressures, we've been able to flex and adjust our pricing with minimal, if not, any impact to our customer or her perceived value of our products. That said, I wouldn't want to give the impression that we're going to be increasing prices across the board.

So it's really more of a SKU-by-SKU demand and price value question, and we're evaluating it on a real-time basis. .

Our next question comes from the line of Ed Yruma with KeyBanc. .

I guess, first, on the product delays, you guys obviously navigated a difficult environment pretty well.

I guess, what are the knock-on effects? Are you having to change temporarily test and react? Are you seeing certain classifications, where you're seeing lighter-than-expected inventory, I guess, for the next quarter or 2? And then, just as a housekeeping question, how should we think about share count for the fourth quarter?.

David, I can jump in on the timeliness. And just as a reminder to everybody, for the first half of 2021, we actually saw our best on-time delivery rates that we've had as a company. So in that sense, it's been a bit of a unique year for us compared to others in the space.

And we saw some modest impacts on the timelines and deliveries in Q3, mostly driven by smaller product classes where the impact to revenue would be smaller and less noticable from a P&L impact. .

Just to give an daily-driven nature of how we manage our buying, we've been able to mostly navigate through a lot of these delivery timeliness issues just by padding our in-house states with our vendors who've been great partners for us and have always worked with us to optimize our inventory flows.

And really, we've been able to consistently receive most of our product during desired selling windows. So in that sense, we've contemplated in the model that there would be more delays than we've been experiencing. But crossing our fingers, that's not going to be the case for us. .

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. .

Nice to see the progress. Just touching on pricing again, have you taken price for how much price have you taken? How do you think about price? And does it differ by category and the percentage you would take? And then also, you mentioned in the opening remarks that you're not as affected by supply chain.

Can you expand on that a little bit and how you're thinking about supply chain for the first half of the new calendar year?.

From a pricing perspective, it certainly does differ by product classes, and it's difficult to say how much we've done in total or to provide guidance on that.

I will say, we've taken prices up on products, we've taken prices down on products, and we're really evaluating every single product based on sell-through, and overall, margin targets are really driven by the maturity of the business.

So dresses where we've been a key leader in that space for a while might have higher markup than maybe a newer category that we're trying to expand in and we're more focus on growth. So, it's a difficult question to answer because we're looking at pricing on a real-time basis.

Outside of COVID, normal business environment, we're looking at it pretty regularly across each individual SKU. .

And do you mind repeating your other question? Sorry about that. .

Our next question comes from the line of Oliver Chen with Cowen. .

On your inventory composition, as you think about international and also non-event, what are your thoughts on breadth versus depth of the assortment and how it should manifest to generate consistent attractive growth? And then, second, on your comments earlier on categories that you're unable to chase, could you be more specific about which categories or was that broad-based?.

Sure. Thank you, Oliver. So regarding the assortments, internationally, like we talked about, it will be a completely test environment. And as Crystal has articulated nicely in the past, we look for our customers to sort of dictate the assortment to us.

We'll start off with our edit that's shaped based on attributes and learnings from other customers and we'll not take deep positions, because in my experience, internationally, the assortments and the responses by country can vary by season as well.

So, it is an optimal environment, really, for Lulu's to enter and our test, learn and reorder model is perfect in some ways, versus many countries when they try, whether they're coming to the United States, United States going to Asia or going to Europe, often stub their toe or actually stumble quite severely by trying to project what those markets want to desire.

So our model is perfect for that. .

As we look at the non-event dressing, our -- the whole flywheel to the test, learn and reorder model works by finding new styles that we bought in small batches and learn from them to quickly chase and reorder into them.

And so we will continue to do that with our non-event categories, and the goal there is getting product -- new products that are adopted. That is the leading indicator for us. So if you were to watch our business model, that success is the best predictor of future growth for those categories.

So when we actually are reporting progress in growth in many ways, it's a lagging indicator of success we've seen earlier. .

And then, remind me of the other part of your question, sorry. .

David, it was just about regarding the inability to chase upside. .

Right. Right. Yes, absolutely. So that was more broad-based.

When you're turning as quickly, so one of the things we can often do and that the team has worked on has had the ability in season, as I say, beginning in spring, getting a reach, chasing into summer or seeing something that's tracking in summer and quickly chasing and adjusting sleeve length handling, the shape of the product into getting some early fall performance from it.

And so, with what's going in the marketplace, it's -- we can't be as nimble right now with that. And we can't necessarily get that additional upside, still with the 95% year-over-year growth. Organic, some quite strong performance there. .

As it looks at the Chinese New Year, the team, as Crystal talked about, had placed orders and tried to anticipate potential slides with the dating and delivery dating going on in our product. And plus, if we're able to actually buy to deeper quantities then, we should have an extra week supply of product, which could also provide some upside.

But that's what we're still working through as we forecast in the near term. So it was broad-based in ability to necessarily give that last little bit of incremental upside. .

Our next question comes from the line of Erinn Murphy with Piper Sandler. .

A couple of thoughts for me.

First, I was curious if you could speak to what you're seeing in terms of return rates now versus pre-COVID levels? And then secondly, just on the promotional backdrop, as we kind of head into the final stages of the holiday season, what are you seeing from your competition out there versus kind of the lower markdown levels that you've talked about within your own business?.

We see, from the... .

I think I can take it. .

Appreciate it. Go ahead, Crystal. And I'll go after you. .

I was just -- just quickly on the returns front. I would say, we've seen return rates normalize back to rates consistent with where we were, pre-COVID. So, nothing interesting to report there, really, upwards or downwards. .

And then, on the promotional landscape and just what you're seeing out of your competition here?.

Yes. So Erinn, thank you for the question. So what we saw, interestingly, was -- particularly as we went to, let's say, Black Friday, Cyber Monday going into it, we saw people still continue to pull promotions forward.

As you know, Lulu's actually, was reducing the number of promotional days during that time period compared to last year and the year before that. So it was interesting to see how much people sort of thought to pull it forward.

I don't know if that was driven based on concern to grab share early, or whether that was concerned about logistics from UPS, FedEx and other challenges. But it's probably similar to, in certain areas, you can see some people who are actually a little more promotional even with the scarcity of goods out there.

We expected some of the stronger players to actually have less promotions than last year. .

So, overall, when we look at within our own, we were able to be much less -- have many fewer promotional days than we did the prior year. .

And then, just last question for me, just on -- can you just share what you saw during the third quarter from a traffic perspective versus last year? And then, conversion as well? I would love to hear those metrics. .

I can speak to that.

In general terms, I don't have the actual numbers off hand, but certainly, our traffic was still significantly -- by the way, are you specifically talking about Black Friday, Cyber Monday? Or are you talking about Q3?.

Just for the third quarter in totality. Yes. .

Yes. So, both traffic and conversion rates were up compared to last year. .

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. .

I just wanted to follow up on the supply chain. Are there -- it sounds like you don't have as many headwinds as others from what you said in the opening remarks.

Can you expand on that, please?.

It's really not that we don't have the headwinds just that our buying model and the way we approach merchandising is different in the sense it's very data-driven and meticulously calculated.

So we're able to strategically pull inventory forward or put some buffer around on-time delivery so that we can get product on the site in the optimal selling season. So I would say that there certainly are delays, everyone is experiencing it.

But for us, we've been able to get ahead of it and just mitigate it, so that we're not as affected in our ability to meet our plan. .

At this time, we have reached the end of the question-and-answer session. And I will now turn the call back over to David for any closing remarks. .

Well, thank you all for joining us on our first quarterly call. I know, many of you will be spending time with follow-up questions in the coming hours and look forward to presenting our Q4 results in the next few months, and also giving insight into our goals and strategies for FY '22. Have a great holiday season. Thank you. .

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day..