Lulu’s Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) Q4 2021 Earnings Conference Call March 31, 2022 5:00 PM ET
Company Participants
Naomi Beckman-Straus – General Counsel and Corporate Secretary
David McCreight – Chief Executive Officer
Crystal Landsem – Co-President and Chief Financial Officer
Mark Vos – Co-President and Chief Information Officer
Conference Call Participants
Mark Altschwager – Baird
Randy Konik – Jefferies
Oliver Chen – Cowen & Co
Brooke Roach – Goldman Sachs
Alice Xiao – Bank of America
Dana Telsey – Telsey Advisory Group
Oliver Chen – Cowen and Company
Operator
Good afternoon, and welcome to Lulu’s Fourth Quarter and Full Year 2021 Earnings Conference Call. Today’s call is being recorded and we have allocated one hour for prepared remarks and Q&A.
At this time, I’d like to turn the conference over to Naomi Beckman-Straus, General Counsel at Lulu’s. Thank you. You may begin
Naomi Beckman-Straus
Good afternoon, everyone, and thank you for joining us to discuss Lulu’s fourth quarter and full year 2021 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. Our future expectations regarding financial results. Outlook for the quarter and year ending January 1, 2023, market opportunities, product launches and other initiatives, and our growth, 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 investors.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, adjusted EBITDA margin and net debt. 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 is 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 filing.
Joining me on the call today is our CEO, David McCreight; our 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.
David McCreight
Thank you, Naomi, and good afternoon, everyone. I am proud to address you today with my partners and Co-Presidents, Mark and Crystal. We’ve had an exceptional first quarter as a newly public company. As you know, we completed our IPO during this past fourth quarter and fully paid off our long-term debt. With that milestone behind us and a strong balance sheet, we are well-positioned to build on our momentum and success through 2022 and beyond.
During Q4, we generated $96.7 million of revenue, a growth of 77% year-over-year and our adjusted EBITDA was $6.4 million versus a deficit of about a $100,000 over prior year’s fourth quarter. For the year, our revenues increased 51% to $376 million and our adjusted EBITDA amounted to $41 million, which represented a 119% gain from 2021. We are thrilled by the tremendous growth and active customers from both new and repeat customers reaching $2.8 million. All achieved with appreciably more efficient performance marketing spend, and even more impressive is that it was accomplished despite a dramatic reduction in promotional activity.
Clearly, our brand experience combined with our efficient marketing efforts and relevant assortment is resonating with our brand fans. From a merchandising perspective, we continue to be encouraged by the broad based response to our product offerings in FY2021 with both event and non-event categories again delivering double-digit demand growth.
We have identified material ways to further expand our pivotal event dressing category, and our team continues to make inroads inner closet by evolving our non-event categories. We’re in a strong moment for LVLU where both fashion direction and her return to pre-pandemic social activities are providing helpful tailwinds and the vital new product pipeline KPI is robust and on plan for achieving our future growth targets for 2022 and beyond.
These excellent results in FY2021 underscore the attractiveness of our digitally native model, which offers fresh fashion to Millennial and Gen Z women at an affordable price point. We win brand fans and deliver strong results by using data to optimize almost all of our – almost all elements of our business. The use of data and technology guides decision making throughout the company from logistics to product planning to marketing placement, but nowhere is this more pronounced than in our product creation and curation cycle.
About 70% of our revenue is from algorithmic driven purchasing. Our tests learn and reorder approach where nearly 100% of the assortment enters as a test in small order quantities, then successful styles graduate to our reorder algorithms. Our model refined over years decreases fashion risks, reduces markdowns and drives increased profitability. We stay connected with the pulse of our customer by engaging her where she is online throughout digital channels and social media, as well as on our own platforms through reviews, feedback surveys, and one-on-one interactions with our exceptional customer service team.
The LuCrew works every day to make our customer touch points special, which ultimately leads to stronger customer engagement and loyalty and increases word of mouth introductions to a growing community of Lulu’s brand fans. I still will delve into 2022 guidance in greater detail, but I wanted to express my excitement about our outlook for this year both from financial and capability perspectives.
For FY2022, we are targeting net revenue growth north of 28% and adjusted EBITDA to rise above $48 million even while continuing to invest for growth and incurring the costs of being a newly public company. We are keenly aware of the uneasiness in the markets due to Russia’s invasion of Ukraine, the ever present headlines about new Coronavirus strains and the mounting impact to supply chain pressures on inflation.
If you don’t mind, I’d like to address a few of the clouds over the market and how they relate to Lulu’s. Firstly, the Coronavirus. We recognize the status of the Coronavirus is ever evolving and perhaps due to increase confidence in immunities from vaccines or previous infections or general fatigue with safety protections unlike early in the pandemic, we did not notice a material change in traffic or conversion during the Delta and Omicron variant outbreak stages.
The supply chain, as many others have articulated in recent weeks, supply chains remain constraint, and we expect these constraints to continue for the balance of the year. What is so great about our market position and model is that we are not scrambling for air freight. To compensate, we now place orders about four weeks earlier than pre-pandemic times.
The additional lead time does not impact our brand as much as others because the vast majority of our orders are placed for previously tested product. Moreover, we are not a fast fashion company, so we have less product trend risk, and are less sensitive to delays. The current state of the global supply chain does however impede our ability to chase the small quantity of in season reorders for longer lead time products. But this was also the case for most of 2021, where we still posted exceptional results despite this constraint inflation.
We are aware of and have a decent line of sight into inflationary pressures impacting most lines of our P&L for the first half of 2022. We expect there to be continued pressure on shipping, labor, materials and digital marketing costs throughout 2022. Guidance we’re providing today is informed to the degree visible and accounts for those anticipated headwinds. And though, we are brand positioned in affordable luxury, our frequent testing indicates we continue to have strong product pricing power, which provides some protection for near-term inflation. And where these inflationary pressures to move from transitory to structural, we still have ample room in our business model to reduce costs in FY2023 and beyond to offset much of any of increases.
Notwithstanding those macro concerns, we are quite pleased with how the first quarter of 2022 is shaping up. Demand looks robust. Many of the metrics we monitor indicate the consumer continues the disruptive shift to digital shopping channels. And the apparel, footwear and accessory sectors seem to have regained momentum. We are pleased with the quality of our customer file and our basket economics. Based on the trends we’ve seen thus far, we have confidence in our 2022 guidance.
To deliver on our guidance and continue to delight our brand fans, I’d like to share a few of our key initiatives for the year. Customer insight, we will dedicate more resources this year to helping our decision makers better understand her mindset and desires and find new ways to delight our existing brand fans, increasing lifetime value and our first party data collection.
Next, introduce new customers to our brand. We know there are vast pools of untapped customers who have yet to meet our brand and by mining insights learn from our rigorous performance marketing testing, cautiously building awareness capabilities and encouraging more word of mouth introductions, we are optimistic about our file growth for years ahead.
Product expansion. Many of fans introduction to Lulu’s has come through event dressing and while event dressing continues to dominate mindshare when discussing our brand based on the work started in 2019 accelerated in 2020 and the results seen in 2021, we know we have – we can continue to expand successfully into non-event dressing. Not only will this provide meaningful revenue opportunity, but it will shape her engagement with the Lulu’s brand as she moves from less frequent to more frequent brand engagement occasions. Said differently, we are even better positioned to own more of her closet and engagement.
Conversion. We will invest even more in our on-site experience to improve conversion and overall customer satisfaction with deeper and more frequent conversion funnel analysis, and a goal of reducing our size out of stock ratios.
ESG. Whether it is support for women or reducing waste, social and environmental issues have always been important to our internal stakeholders at Lulu’s. In 2022, we are committed to increasing insights into our social and environmental impacts. We have already engaged third-party partners to evaluate our current practices and identify ways we can become better business stewards. We look forward to sharing our progress as we advance in our ESG journey.
Technology and innovation. We already have an impressive tech stack and analytics is part of Lulu’s DNA driving much of the decision making. But in 2022, we will invest even more in analytics, technology and machine learning to open new opportunities for revenue growth and increase our efficiency in areas like distribution allocation of marketing spend and better modeling of future product demand.
Mark Vos, our co-President and Chief Information Officer and his team have architected bunch of our approach to technology, algorithmic decisioning and distribution strategies. He will share with you our plans for further optimizing an already efficient logistic system and support continue to grow as well as increasing customer insight and engagement.
I will now turn the call over to Mark to discuss some of the key initiatives in greater detail. Mark?
Mark Vos
Thank you, David, and thank you everyone for joining us today. We are relentlessly focused on developing our infrastructure to continue supporting our long-term growth plans and continuing to delight our customers.
A key enabler of our affordable luxury positioning and customer delight is continuous improvement in our service levels and efficiency across our supply chain. In Q4 2021, we started operations from our new Lulu’s operated Southern California facility, which will be a key step in achieving these objectives.
The first milestone, which we completed in Q1 of this year was taking our vendor inbound inventory receiving and product quality control activities back in-house, as well as optimizing our shipments from Southern California, to our Northern California and Eastern Pennsylvania fulfillment centers.
We have already observed higher units per trailer shift to our fulfillment centers, which reduces the transportation cost per unit. We have also observed shorter dock to available for sale cycle times, which further improves our available time to sell a product in season and ultimately lower seasonal markdowns.
Throughout 2022, we expect to add additional logistics capabilities to our Southern California facility to further optimize inventory across our network, as well as order fulfilment and thereby improving our service levels at a lower shipping expense and environmental impact.
In Q1 of 2022, we also started our implementation of robotics in our Eastern Pennsylvania fulfillment center. Robotics will not only provide us with productivity gains, but also help us better attract and retain warehouse associates. And after a successful implementation and optimization phase, we will consider a robotics rollout in our Northern California logistics center for which CapEx budget is allocated in our 2022 guidance.
As David mentioned, we were able to deliver strong results as a result of using data to support all aspects of our business. From an assortments planning perspective, data helps us reduce fashion risk and the ensuing gross margin risk. We follow a test and learn philosophy with everything we do. And this is particularly evident in our reorders.
Q4 showed further improvements in sales attributable to reorder products compared to both 2020 and 2019, and was roughly 70% for the full year 2021. In other words, approximately 70% of our sales came from previously tested products. This high percentage of revenue generated by our reorder products allows us to place purchase orders with more optimal quantity and timelines. Reduced supply chain impacts, optimize our assortment and ultimately delight our customer.
Switching to our customers. We are very proud of the record engagement of our repeat customers in Q4, as well as all of 2021. That repeat engagement together with healthy numbers of new customers acquired in 2021 sets us up for continued momentum in 2022. Record AOVs fueled by more items per basket, as well as lower discounts and markdowns showed our customers growing desire for Lulu’s assortment.
In the fall of 2021, we launched a Lulu’s brand campaign and we gained some great learnings in new marketing channels, as well as new ad formats in existing channels. Based on brand monitoring information, our campaign resonated well with millennial women and especially well with Gen Z women. And we feel confident, we have a runway for access to untapped and engaged audiences.
Successful learnings from this campaign have been incorporated in our baseline awareness marketing program and we will continue to test and learn new marketing channels and ad formats throughout 2022.
As a reminder, and as presented in our S1 or for those that who are not familiar with Lulu’s marketing expenses and customer contribution margin over time, Lulu’s has been and is first order contribution margin profitable. In other words, our costs of acquiring a new customer is below the first order contribution margin after selling and fulfillment expenses. And despite the changes in challenges that iOS tracking limitations and privacy regulations in general have introduced, Lulu’s remains effective and efficient in attracting new customers and re-engaging existing customers.
Our proprietary data sets, tooling and analytics have continued to provide us with effective lines of site on what spent, in which channel for each audience is incrementally beneficial. As a result, our selling and marketing expenses as a percentage of net revenue remain in line with recent years. And we will continue to iterate and adapt to try to keep it that way.
In Q4, we finalized the recent platforming of our mobile app and successfully pushed this to our customer’s devices. We have been focused on further improving the customer experience and have already seen improved engagement and conversion as a result of updating the app. The immediate benefit of the app re-platform is that the personalization and product experiences in the app are now identical to the lulus.com website, which was highly desired by our customers and making for a seamless experience and reduces shopping friction.
We are very proud of our customer support team. That is always 100% focused on providing our customers the best possible experience, whether we are responding to shipment related questions or providing style and fit advice. In 2021, our customer satisfaction scores aka CSAT exceeded our 2020 scores. And top CSAT scores are not only a wonderful measurement of the Lulu’s brand hug we provide our customers. They are also a leading indicator for high net promoter scores and continued customer word of mouth advertising.
Lastly, in Q1, we re-launched our Love Rewards loyalty program. Whereas our previous reward program was a coupon discount program. The new Love Rewards program is focused on rewarding customer for their engagement with Lulus. Customers can earn points through purchases, providing us with first-party data and following Lulus on various social media channels. Points earned count towards four customer loyalty levels member, insider, icon and all access. And each level has increased benefits like priority in back in stock notifications and exclusive deals.
The flexibility of our points program offers us more ways to deepen the relationship with our customers, increase customer’s lifetime value and to occupy a larger share of her closet. We are looking forward to building out our loyalty program in 2022 and beyond. And now let me introduce my colleague Crystal Landsem Co-President and CFO, who will discuss the quarter in greater detail. Crystal?
Crystal Landsem
Thanks, Mark. And good afternoon, everyone. Our first quarter as a new public company has certainly been exciting for us and as expected, we’re pleased to be reporting continued strong financial results. As David mentioned, we delivered an outstanding quarter highlighted by year-over-year growth, across key financial metrics, including net revenue, gross margins, profitability and cash flows.
We also set new records for the number of active customers engaging with us in the fourth quarter, as our customers returned to their social calendars and continued to come back to us for their everyday fashion needs, most reflected in our increases in average units per order, average order value and average spend per customer. During Q4, we grew our net revenue by 78% to $96.8 million, a $42.2 million increase over the same period and 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 fourth quarter. We’re very proud of our large diverse community of loyal customers. In the 12 months ended January 2, 2022 we served 2.8 million active customers compared to 2 million active customers in the 12 months end of January 3, 2021. Representing growth of 38%.
Despite 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 success in Q4. Gross margins for the fourth quarter increased 200 basis points to 44.9% driven by two key factors. First, fewer markdowns and discounts compared to last year, driving more sales at full price. And second, the reacceleration of event dressing demand coupled with accelerated demand and non-event everyday dressing categories. Along with strong customer demand, our agile merchandising process facilitated inventory turn rates at an annualized rate of over eight times. While we delivered a very strong Q4, we believe we left demand on the table, just given how quickly we turned our inventory.
Our AOV reached an all time high of $121 driven by increase items per cart as well as lower discounts and markdowns due to the lower promotional activity. With AOV increasing 22% over 2020 and 12% over 2019. Moving down to P&L to give some insights into expense line items. Our selling and marketing expenses consists primarily of marketing expenses, payment processing fees and other advertising. Q4 selling and marketing expenses were $17.7 million up $5.8 million from the same period in the prior year due to the return of online performance marketing spend to a more normalized state and in line with the increase in our net revenue. And as Mark mentioned earlier, we also launched our first ever brand awareness campaign.
General and administrative expenses amounted to $30.3 million for the quarter, an increase of $17.3 million compared to the prior year. This increase reflects higher fixed headcount costs as the previous year’s costs were suppressed due to furloughs related to the COVID-19 pandemic. Variable payroll and benefits expenses were in-line with higher sales volumes. Higher bonus expenses due to improve business results and an $8 million increase in equity based compensation, primarily related to stock options and special awards where vesting with a one-time acceleration triggered by the IPO.
We also began to incur increased insurance and professional service costs and other public company related expenses that we did not have in Q4 of the prior year. Interest expense fell by $2.4 million to $1.7 million. The result of paying off our long term debt with proceeds from the IPO. Following the IPO, we had $25 million of debt outstanding representing a draw against our $50 million revolver. For the quarter, we reported a loss per share of $4.69 down from a loss per share of $0.24 in the fourth quarter of 2020. Primarily due to a one-time deemed dividend due to an anti-dilution feature included convertible preferred stock and triggered at the time of our IPO.
The dilution associated with this transaction only impacted shareholders and management who held shares prior to the IPO. Removing the impact of the one-time non-cash items, the deemed dividend, $122.9 million, the stock dividend $3.5 million and other non-recurring stock based compensation of $8 million related to our initial public offering are adjusted diluted net loss per share with $0.03 for the fourth quarter. Our full year 2021 loss per share of $6.08 was greater than the prior period loss per share of $1.13.
However, removing the impact of the afore mentioned non-recurring non-cash items in connection with our IPO are adjusted diluted earnings per share was $0.57 compared to the prior year adjusted diluted net loss per share of $0.13. And finally adjust the EBITDA for the fourth quarter was $6.4 million swinging to a positive from our $98,000 loss in the same period of 2020. Our Q4 adjusted EBITDA margin was 6.6% up from a 0.2% loss in the same period in 2020.
Moving on the balance sheet and cash flow statement. During the fourth quarter, we continued to invest in building up our inventory balance to better serve and meet our increasing customer demand, and to prepare for our upcoming spring and summer peak season. We completed our IPO on November 15, 2021 with net proceeds of $82 million after underwriting discounts and commissions, and other issuance costs. We repaid 100% of the long-term debt balance and borrowed $25 million against the new revolving facility. We are paying in our long-term debt positions as well to focus on our growth initiative.
We closed the year with net debt of $13.6 million comprised of a cash balance of $11.4 million and revolver balance of $25 million as of January 2. For inventory, we ended the quarter with $22 million, an increase of $5.3 million or 31% higher compared to $16.9 million at the end of Q4 2020. We’re able to combine high revenue growth with fast inventory turns due to our data-driven approach to buying for both new and reorder products, and considerably reduced fashion risk as a result. In Q4 and also the full year 2021 overall, we believe our inventory turns were industry leading.
We operate a highly capital efficient business that positions us to generate significant positive free cash flow. For the year we generated $26.9 million in cash flow from operations. Capital spending for the year amounted to $3 million as we invested in equipment for our general operations, software and hardware purchases, and internally developed software.
Moving on to guidance, I’ll walk you through our expectations on the upcoming year. As we continue to build on the successes in 2021, we see tremendous opportunity for growth in the years ahead. The strong start to 2022 gives us great confidence in our ability to continue attracting new customers to our brand as well as reengaging our existing loyal customer base at even higher levels. We have deep conviction in our product merchandising model, the LuCrew, and our ability to navigate the current macro environment.
We’re accepting 2022 full year net revenues between $480 million and $490 million, which represents year-over-year growth of 28% to 30%. As you think about modeling revenue for our business in a normalized year, our net revenue is typically highest in our second and third fiscal quarters due to demand seasonality for event dressing.
Adjusted EBITDA is expected to be between $48.5 million and $50 million, which represents growth of 17% to 21% over 2021. This equates to an adjusted EBITDA margin of 10.2% compared to 11% in 2021. Our adjusted EBITDA margin rate guidance captures a decrease over the prior year, primarily driven by a roughly 4 million – 4.5 million of expected incremental expenses related to being a public company for the 2022 fiscal year, compared to the less than two months of public company expenses recognized in 2021.
Our guidance targets are for a full year of 2022. However, to set expectations for modeling purposes, our quarterly adjusted EBITDA margin rates have similar seasonality fluctuations as our net revenues and will likely fluctuate above and below our full year guidance rate depending on the quarter. Additionally, we expect adjusted EBITDA margins to be somewhat lower in the second and third quarters this year, compared to the second and third quarters of last year directly related to higher public company expenses, as well as timing of expenses for infrastructure investment initiatives, which will require some redundant operations.
As a result of paying down our long-term debt following the IPO, we expect interest expense of less than $1 million for the year compared to $14.2 million last year, which included a $1.4 million loss on extinguishment of debt. We expect a weighted average, fully diluted share count of 40.6 million shares, which is higher than the prior year as the prior year included three and a half quarters of lower shares outstanding leading up to our IPO date.
This year share count includes a full year of higher post IPO share counts weighted across all four quarters. Being off the capital expenditures, I’d like to highlight the following investment areas going forward. First, we’re planning to continue investing in our logistics capabilities to even more efficiently serve our customers as we grow in scale. These initiatives include plans to continue investment in our third logistics facility, which began in Q4 of 2021. We expect some inefficiencies and distribution center operations during the first half of the year, while we continue to ramp up those operations with efficiencies and cost savings beginning in the second half of the year.
Once we’ve completed a successful robotics implementation in our e-fulfillment center, we will evaluate the return on investment and consider launching robotics in our Northern California facility.
We’re also planning to continue improving our platforms to ensure that we maintain and improve our customer-centric shopping experience and marketing personalization with investments in our customer data platform and customer insights.
And lastly, we’re planning to further invest in internal and external software and technology to enhance our operational efficiencies. With the roll out of these initiatives, we expect capital expenditures of between $5 million to $7 million for the full 2022 fiscal year.
David McCreight
On behalf of Crystal, Mark and I, we’d like to thank the LuCrew brand fans board and of course our shareholders. Without your support, we could not have delivered such a successful fourth quarter and fiscal 2021. We believe Lulu’s is a high growth capital light business with fast inventory turns, a strong balance sheet and growing EBITDA. And a merchandising model that obviates much of the concerns with fashion risk. We are quite pleased with the start to the year and look forward to building new capabilities and setting new performance records in FY 2022. We have the chance to do something quite special here at Lulu’s.
Thank you for your time. We will look forward to hearing your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Mark Altschwager with Baird. You may proceed with your question.
Mark Altschwager
Thanks. Good afternoon and congrats to the – on the strong close to the year. With respect to the revenue growth guidance plus 28% to 30%, how are you thinking about growth and active customers versus revenue per customer? And then, bigger picture, back half of 2021 revenue growth was up about 16% versus 2019. So the 2022 guide implies a pretty big step up in the growth rate. Maybe just talk a little bit more about what’s giving you confidence in that acceleration?
Crystal Landsem
To say from a revenue generation perspective, we’re anticipating sales to come from both re-engagement and repeat customers because we’re seeing a very healthy improvement in that as well as the spend per repeat customer. But we’re also seeing really great trends across our new customers acquired where their average order value, average transactions per year, and basically all of the economics around how frequently they’re transacting with us is improving equally right in line with our repeat customers. So we’re seeing improvements across the board there. And from our product class expansion and our non-event classes, we’re also gaining momentum, which is driving up new PTS [ph] just across the board as well. So it it’s a combination of basically everything hitting all at once really effectively.
Mark Altschwager
That’s great. And quick follow up, just it’s great to see the healthy growth and active customers, the year end figure pretty much back in line with where you were in 2019. I believe curious how much of the growth this year was reactivation of some of the lapsed customers from COVID versus new customers to the platform?
David McCreight
It was both really like Crystal was saying, we had a slower start in 2021 due to lower inventory levels, how we got into the year, but then progressing through 2021. We clearly saw that the reengagement, as well as that new customer acquisition both performing in a healthy manner.
Mark Altschwager
Thank you. Best of luck.
Crystal Landsem
Thanks, Mark.
Operator
Our next question comes from the line of Randy Konik with Jefferies. You may proceed with your question.
Randy Konik
Hey guys, sorry. I’m an airport, but just wanted to kind of just elaborate on the inventory terms really great turns there. Crystal, you talked about leaving a little on the table, I think in the third quarter and then in the fourth quarter as well. It’s a great problem to have. How are you guys – how are you thinking about inventory kind of growth throughout the year of 2022? How do you want to think about that? And are you kind of thinking about inventory turns staying at the same rate, going down a tad or continuing to move a little bit higher. How should we be thinking about that? Thanks.
Crystal Landsem
Yes, that’s a good question. So we do have the luxury problem where we turn inventory pretty fast and we’re able to generate some pretty interesting growth rates. With that said with our test learn and reorder buying model where we’re continuously testing into slowing down our turns to capitalize on that upside and demand, but we do everything in a low risk testing way. So as we think about 2022, we do plan to slow turns, but we have this really nice problem where the more we buy, the more we sell. So I’d hate to commit to permanently slowing our turns down, but we are looking at ways to continue to push upside and growth and potentially, so those turns down a little bit.
Randy Konik
Super helpful. I guess my last question would be, if you can kind of unpack marketing a little bit more, obviously it sounds like there’s a very successful response to your first ever brand marketing campaign. So can you just give us some perspective on, different things you saw in the business related to that campaign, how you’re thinking about altering or keeping the campaign kind of the same going into 2022, you’re just – your general marketing expense levels would be helpful.
And then I think the last quarter you touched on thinking about at some point a little bit of international marketing spend. So just want to be curious about how you’re thinking about that as well. Given you’re seeing a really good response to what happened in, I guess in the fourth quarter. Thanks guys.
Mark Vos
Sure. So when it comes to the brand campaign that we started in the fall, we had, like I said, some great learnings there. And basically you can bucket those learnings in three areas. That’s learnings around content, there’s learnings around new channels, and there’s learnings around new app formats in existing channels. And the learners you’ve got to think along the lines of when, for example with content is to better understand what type and format of content works well, in which channel versus approaching generic audiences or targeted or more specific audiences. And so what we’ve done with that is to, to better understand also from the channels, but for example, the Brent lifts are, and applying that, and incorporating that into our – we call it our evergreen awareness marketing that we were always doing.
And in that way we have incorporated that going forward, but also obviously we will be continuing to test and learn in 2022, that that will not stop. I think the reason why we talked about a brand campaign or formulated in a brand campaign is because we were – it was really the first time for Lulu’s to talk about Lulu’s instead of, specifically about the products. So that was a content change that we had last year, which was like I said, very, very successful and very interesting to see how that resonated both with millennial as well as Gen Z.
David McCreight
Hey, Randy, let me add on to Mark’s comments on that. As you know, we’ve grown primarily through a word of mouth and friends and family, and so that’s still important for us and we’re continuing to push on it. And we’ve been absolutely outstanding with our efforts in performance marketing, but based on the capital structure previously it wasn’t brand building, it wasn’t brand marketing, it wasn’t a muscle we were able to exercise and develop. So this was really our first forays into it and still the spend year-over-year will be heavily weighted towards – if you have to think about the performance versus brand, which we’re not necessarily certain we do, it still will be weighted much more of the spend with what we’ve been doing for years. And continuing, as Mark said to test and learn our way into those disciplines and build up the capabilities, but we’re pretty happy with the response.
Randy Konik
Super helpful. Thanks guys.
Crystal Landsem
Safe travel, Randy.
Operator
Our next question comes from the line of Oliver Chen with Cowen & Co. You may proceed with your question.
Oliver Chen
Hi. Thank you. The average order value was very impressive as we look ahead, particularly as we think about new versus existing customers in any factors, do you expect that momentum to continue amongst the UPT and AUR transactions? And then on – on better modeling to predict future demand, I know you have a pretty advanced artificial intelligence bench there. So I was curious about what better modeling is feasible? And a follow up on infrastructure investments and logistics, there’s a lot happening at Lulu’s. What’s the customer in terms of the biggest unlock as you pursue those, I assume its speed? Thank you.
Crystal Landsem
So I’ll tackle the average order value question. So what we experienced was really an increase in UPTs, as well as a reduction in markdowns and discounts compared to prior years. And our expectation is that will remain relative stable. It wasn’t an – I would consider a non-recurring item for last year with the exception of pushing potentially higher up UPTs around product class expansion in our non-event areas with a separate tops and bottoms and so forth. So I wouldn’t – I also wouldn’t expect a massive increase in AOV either as we’re trying to push strategically growth in other product classes. But we’re not going to be aggressively looking at pricing versus more wanting to push growth in those product class areas. So from AOV perspective, again, yes, we’re expecting continued momentum, but I would temper expectations to give us some room to grow and take more mind share versus going after every dollar from our customer.
Oliver Chen
With model?
Crystal Landsem
So as it relates to modeling and being able to forecast demand. We are always evolving how we look at our business and we like to triangulate from different areas and functions within the business, whether from marketing, planning or our P&A team. And I would say its constantly evolving process as well as integrating with our data team to continue optimizing on how we can do capture that demand, especially in these challenging supply chain times but we’re not as sensitive to lead times as maybe others might be. So there’s – I’d say there’s plenty of room for optimization. I think we’re pretty good at it, but I think we can become really great at it. So I still feel it a lot of upside in that area.
David McCreight
And then your last question also as it relates to our infrastructure and investments that we’re making there, it’s indeed all about speed and surface levels. That’s why we took essentially the activities that we had outsourced through 3PL as it relates to the receiving of our goods from our vendors, as well as the quality control back in house. So that we have essentially data sooner and can also better control essentially the outflow of product from the Southern California facility to the Northern and California and Eastern Pennsylvania facilities. And we’ve already seen basically faster time that that we kept products online available for sale, which is about speed. And it’s also about essentially reducing markdowns ultimately because we have a longer sellable than window. And then when we add the logistics capabilities further to that facility throughout this year, then also from a fulfilling perspective, we will be closer to a nice size off the population where we deliver orders in Southern California, Nevada, and in those regions.
Oliver Chen
Thank you. Great quarter, best regards.
Crystal Landsem
Thank you, Oliver.
David McCreight
Thank you.
Operator
Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. You may proceed with your question.
Brooke Roach
Good afternoon, and thank you so much for taking our question. I’d love to hear a little bit more about some of the trends that you’ve seen to date throughout 2022. I’d love to hear if you could unpack your expectations of the growth sequence for the year in a little more detail, and perhaps provide some context as to how you’ve seen customer engagement trend, as you’ve navigated the January omicron variant and also some of the rising wallet pressures that we’ve seen on the consumer in the past couple of months?
Crystal Landsem
So we’re happy to report that we are – we’re less sensitive to some of the inflation pressures that everyone is speaking about on the market. And that really comes from our affordable luxury and price value persecution from our customers. And we take a surgical approach to pricing. We always have, we always will. And in that sense, we feel we have room of course, to adjust pricing, but we’re also optimizing for sell through and value perception for our customer. I can’t say we’re not affected by the inflation because we certainly are, but as we continue to grow and get scale and economies of scale from our purchasing process, we’re possibly less exposed to that than maybe others would be. And the beautiful thing about our customer is that our, if we do change prices and we take them up a lot of times it increases sell through versus reducing it. So we’re really grateful for her for that, but in that sense we’re not really seeing any of those pressures. At least not to the extent that others are talking about in the market. And again, it goes back to our product, how we do our buying and how surgical we are with, with our pricing, as well as when we’re bringing in inventory and at what quantities.
Brooke Roach
Great. Thank you. And then just a follow up for me on the enhanced loyalty program; I’d love to hear a little bit more about some of the early reads that you’re getting from that program? And maybe the biggest opportunity that you see for that program to contribute to better consumer engagement over time? Thank you.
Mark Vos
As it relates to loyalty that has early learning’s would be too early, and it literally was rolled two or three weeks ago. So I cannot speak to that. Other than that the rollout itself went successful. Our customers received it well. There were not too many questions or issues that popped up. So in that sense, we’re very happy about that particular aspect. As it relates to the opportunity, yes, I think that is what we really are talking about. The previous LOVELULUS rewards program was kind of, there was not a lot of options to use that as for, for example, to broaden our customers process for example, because it was purely just transactional and discount upon oriented. And now we can truly focus on that engagement with our customers, worth wait for that engagement, whether that is buying more or buying different products or talking about us, word of mouth advertising, et cetera. So the flexibility and the opportunity that provides us to do so is what we’re really excited about. And we are happy to have laid that – now that foundation on which we can build.
Crystal Landsem
And so far she’s responding well to the offering.
David McCreight
Yes, she is, but if you think of, as Mark was talking about it. The early program was very transactional and this one is being the foundation’s being laid so that it can become more of that brand hug and a great engagement tool that Mark alluded to where, again it also gives us a great deal, more first party data, a number of things that this is going to help us to, again from an advertising expense, loyalty tracking is going to be great for a company that’s so focused on a customer. We sort of had one hand behind our back, we are not having a really robust plan. So this is Phase 1, and I suspect the plan Mark shares with you next year this time about what Phase 2 and Phase 3 look like both on the learnings, you’ll see kind of morphic size pretty dramatically.
Brooke Roach
Thank you so much.
Operator
Our next question comes from the line of Lorraine Hutchinson with Bank of America. You may proceed with your question.
Alice Xiao
Hi, this is Alice Xiao on for Lorraine Hutchinson. Thanks for taking our question. Since 1Q is pretty much concluded. I know you’re not guiding specifically to that, but could you please give some color on how that went? Which non-event categories have been outperforming in particular, and if 1Q trends are largely consistent with 4Q or if there’s anything specific to call out?
Crystal Landsem
So generally speaking, we’re all very optimistic about Q1 and things have been progressing very nicely. As it relates to product classes what, we’re not sharing details in terms of overall penetration for each business, but because we’re known for our dresses and more specifically event dresses. We do believe we’re experiencing a bit of a disproportionate benefit from our customers return to their social calendar, especially in Q1 and as we run into Q2, that the expectation would be the same.
That said the concentration of sales from our non-events classes also increase in 2021, continue to increase and over pre-pandemic years. We’re just gaining traction and building more awareness in all of our affordable luxury offering for that everyday wear. So I say, we’re firing off on all cylinders. We’re very optimistic about the business and things are going great.
Alice Xiao
Thank you.
Operator
Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. You may proceed with your question. Dana, your line is live.
Dana Telsey
Hi, this is Dana. I’m here now. Congratulations.
David McCreight
Hi, Dana.
Dana Telsey
Hi, congratulations on the nice progress with the quarter, as you think about the tech investments that you’re making, what are the markers that we should be watching for that shows it’s on track? How should we be evaluating it? And that, and it sounds like it’s multi year. So what is the journey that we’re on that? What do we accomplish this year or next year? How do you think of the markers?
David McCreight
So, and before Mark jumps in, let me just, I mean, so way we’re thinking about them are we have some things we have to do structurally that add capability for growth, right? We’re a high growth company and we’ve always sort of built just in need and just in time and along the way, Mark and team have been not only doing that, but enhancing the capability sets in those. Then there’s a great deal of work and team are doing around customer insight, analytics, data analytics capability, the number of things. But I could do nothing. I’ll give it short shift if I try to answer, so Mark jump in.
Mark Vos
I think it’s an interesting question. I’m trying to think about the markers that you were looking for, because that’s not necessarily the way I think about it. I think, well.
Crystal Landsem
Its inventory – is marketing efficiency. I mean, tech and data is an everything we do. So I would say our financial performance would be an indication of the, the advancements we’re making on our tech. So…
Mark Vos
Okay, financial performance, I think that would be then, the main
Crystal Landsem
Tech supports everything we do.
David McCreight
You may see may, we believe over time through all, some of the programs we’re doing. I wouldn’t be surprised if we start to see, that AOV creep up beyond our current price points because we have better insights and we’re going to start the offering will change the frequency purchasing over the year. You’ll start to see change the sort of behavioral economics that were very from a purchase behavior for bias towards event will start to move as well. Okay.
Mark Vos
Yes. And I think the other part, is our OpEx, right? I mean the technology is really there besides on the sales side, it’s also the operation side and it’s really about, how do we scale more efficiently overtime? Know that’s why we’re introducing for example, robotics. And there’s other things that we we’ll be implementing in order to scale. That’s more efficiently, as our volume increases.
David McCreight
Yes. And as we’ve learned, as we tap into these sort of the untapped pools, knowing that we’re a young brand and not as well known, we may be able to scale growth faster where some people be worried so that the capabilities Mark talk about whether it could be inventory purchasing, right. But these turns, it’s very hard to fulfill and have size and talks, integrity with these, blistering fast turns in the market. So those are all kinds of things you’re going to see Dana markers that’ll support the growth in the near term.
Dana Telsey
Got it. And then just following up on the AOV with the category extensions, how do you think about the impact on AOV and what would impact AOV the most in terms of category extensions in your view?
Crystal Landsem
I would say that the, the biggest impact is going to be UPTs what early reads are showing that see shops more of our non-events classes. We’re seeing those up UPTs creep up. It’s a different shopping behavior than shopping seasonally per event. And so UPTs would be the biggest, the biggest factor affecting AOV at least in the near term.
Dana Telsey
Thank you.
David McCreight
Thank you, Dana.
Operator
Our next question is a follow up from Oliver Chen with Cowen and Company. You may proceed with your question.
Oliver Chen
Hi, thanks a lot. Non-event dressing is a really nice opportunity. It continues to be, would just love some points around how that’s advancing in a key focus areas. And second and finally as you bring on new customers, how are you thinking about LTV relative to CAC and the nature of that behavior, if it’s interesting or relevant distinction in terms of churn and acquisition costs. Thank you.
Crystal Landsem
So our merge teams are doing an exceptional job of building out our non-event classes, and we are seeing in spite of this massive reacceleration of our events business, we are gaining share and overall contribution to our business and our non-events, we’re not guiding anywhere towards actual numbers, but I will tell you, we are making strides and building out that overall concentration of non-events apparel, shoes and accessories especially compared to pre-pandemic levels
David McCreight
And something else that’s going on Oliver, as we do that, if you think about our history and legacy as a company with event dressing, we had a preponderance and this is on the softer side of the question. We had a preponderance of neutral safe colors, and you’re seeing the team recently begin to broaden that. And as we move into, so in it in dresses, as well as the non-event dressing we’re seeing that as well. So we’re learning how to outfit, we’re understanding the relationships and the power of seasonal color expressions.
We also have the history of being very dominantly solid versus using print patterns, and you’re going to see us grow. So when you think about the ability for us to grow in those spaces, these are real nice stages. What’s so heartwarming and I guess confidence instilling is – that we’re continuing to grow. And we know we have the fashion retail responders in dresses, but there are subcategories of dresses that remain on tap force as well. So again, this is going to be a great ride in big pools of resources coming in the market.
Mark Vos
And then as it relates to your question around CAC and LTV, if you look at the initiatives that we have taken and started to put ourselves on a different foundation for example, with the loyalty program when we are looking at expanding the, our assortment and getting also awareness around, the everyday where that all leads to more, more opportunities to, for our customers to engage with us. David already spoked about higher UPTs, but there’s also, of course the frequency there’s a higher repeat and all those initiatives are essentially driving towards a higher LTV for the customers both, sorry from a repeated apparel perspective as well.
And then as it relates to the customer acquisition cost obviously, the market is certainly influx right with all the privacy changes and iOS and tracking changes and our, it’s our job to maintain. And what we will try to do is maintain that, that historical cost of acquisitions that we have had over the last couple of years, to keep that’s also going forward so that we can truly leverage the benefits of the increases of our LTV going forward.
Crystal Landsem
And we need be contribution margin profitable, on a first order. So I think, that’s pretty special with Lulu’s.
Oliver Chen
Thank you.
Operator
Thank you everyone. At this time, we have reached the end of the question-and-answer session and I would now like to turn the call back over to Mr. McCreight for any closing remarks.
David McCreight
Thank you all. You obviously can hear our pride and what the LuCrew achieved this past year and quarter. And again, we’ve already mentioned, we’re thrilled with the start of the year. As I look forward to updating you further. So thank you for your time.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you everyone for your participation and have a great day.
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