Lulu's Fashion Lounge Holdings, Inc. Fair Value Disclosure

3.Fair Value Measurements

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

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

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

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

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

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

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

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As of the annual goodwill and tradename impairment assessment date performed on the first day of the fourth quarter, for fiscal year 2024, the Company performed a qualitative assessment of its goodwill and tradename and determined that it is more likely than not that the fair value of its reporting unit exceeds the carrying value of the reporting unit. However, during the fourth quarter of 2024, due to a sustained decline in its stock price coupled with continuing net losses the Company concluded that they were significant enough factors to warrant a quantitative assessment of its goodwill and tradename. For goodwill assessment, the Company utilized a combination of (i) the guideline public company method applying revenue and EBITDA multiples of similar companies and (ii) the discounted cash flow method. The fair value determination used in the impairment assessment requires estimates of the fair values based on present value or other valuation techniques or a combination thereof, necessitating subjective judgments and assumptions by management. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. As a result of the goodwill impairment test conducted in the fourth quarter ended December 29, 2024, the Company concluded that the carrying value of the Company’s single reporting unit exceeded the fair value, and a goodwill impairment charge of $28.4 million was recorded. No goodwill impairment was recorded for the year ended December 31, 2023. The carrying values of goodwill is $7.0 million as of December 28, 2025, and December 29, 2024. For fiscal year 2024, for tradename assessment, the Company utilized the income-based relief-from-royalty method to value the trademark intangible assets. Under this method, revenues expected to be generated by the trademark are multiplied by a selected royalty rate. The royalty rate was selected based on consideration of (i) royalty rates received by market participants in industries similar to the Company’s and (ii) the current operating performance of the reporting unit. The estimated after-tax royalty revenue stream is then discounted to present value using the reporting unit’s WACC plus a spread that factors in the risk of the intangible asset. There were no additions to, disposals of, or impairments of the tradename during 2025, 2024 and 2023. There was no accumulated impairment of the tradename as of December 28, 2025, and December 29, 2024.

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