Lulu's Fashion Lounge Holdings, Inc. Income Taxes Disclosure
9.Income Taxes
All of the Company’s loss before income taxes is from the U.S. The following table presents the components of the income tax benefit (provision) (in thousands):
| 2025 | | 2024 | | 2023 | ||||
Current: |
| |
| |
| | |||
Federal | $ | — | $ | — | $ | (401) | |||
State |
| (104) |
| 2,282 |
| (464) | |||
Total current benefit (provision) |
| (104) |
| 2,282 |
| (865) | |||
Deferred: |
| ||||||||
Federal |
| (32) | (3,698) | 2,204 | |||||
State | (52) | (917) | 337 | ||||||
Total deferred benefit (provision) |
| (84) |
| (4,615) |
| 2,541 | |||
Income tax benefit (provision) | $ | (188) | $ | (2,333) | $ | 1,676 | |||
U.S. state and local taxes refunded (in thousands):
| For the Fiscal Year Ended December 28, 2025 | ||
| Amount | ||
California refund | $ | 2,974 | |
Other states refund (net) | $ | 69 |
The table below is a reconciliation of the components that caused the Company's benefit (provision) for income taxes to differ from amounts computed by applying the U.S. federal statutory rate of 21% for the year ended December 28, 2025 (in thousands except for percentages):
| For the Fiscal Year Ended December 28, 2025 | |||||
| Amount | | Percent | |||
U.S. federal statutory income tax rate | $ | (2,840,267) | 21.0 | % | ||
Domestic state and local income taxes, net of federal effect (1) | 211,407 | (1.6) | ||||
Nontaxable and nondeductible items: | ||||||
Excess tax expense on executive compensation limitation [Sec 162(m) officers' compensation] | 229,230 | (1.7) | ||||
Excess tax expense on equity-based compensation expense | 746,980 | (5.5) | ||||
Meals | 34,002 | (0.3) | ||||
Other Permanent Differences | 36,488 | (0.3) | ||||
Changes in valuation allowances | 1,787,396 | (13.2) | ||||
Changes in prior years unrecognized tax benefit | (37,396) | 0.3 | ||||
Other | 20,542 | (0.2) | ||||
Total tax provision (benefit) and effective income tax rate | $ | 188,382 | (1.5) | % | ||
| (1) | State taxes in made up the majority (greater than 50%) of the tax effect in this category. |
As previously disclosed for the years ended December 29, 2024, and December 31, 2023, prior to the adoption of ASU 2023-09, the table below is a reconciliation of the components that caused the Company's benefit (provision) for income taxes to differ from amounts computed by applying the U.S. federal statutory rate of 21%:
2024 | 2023 | |||||
Federal statutory rate |
| 21.0 | % |
| 21.0 | % |
State income taxes, net of federal tax benefit |
| 6.3 |
| (0.4) | ||
Non-deductible equity-based compensation expense |
| (1.2) |
| (9.1) | ||
IRC Section 162(m) limitation | (0.5) | (3.0) | ||||
Change in uncertain tax position |
| 0.4 |
| (0.3) | ||
Change in valuation allowance | (28.2) | — | ||||
Goodwill impairment | (1.9) | — | ||||
Other |
| (0.2) |
| (0.2) | ||
Effective tax rate |
| (4.3) | % |
| 8.0 | % |
Deferred income taxes reflect the net effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The following table presents the significant components of the Company’s deferred tax assets and liabilities (in thousands) as of:
December 28, | December 29, | |||||
2025 | 2024 | |||||
Deferred tax assets: |
| |
| | ||
Accruals and allowances | $ | 2,359 | $ | 2,774 | ||
Interest disallowance |
| 2,163 |
| 2,140 | ||
Inventory capitalization and other adjustments |
| 1,780 |
| 1,958 | ||
Deferred revenue |
| 3,488 |
| 2,730 | ||
Equity-based compensation | 1,087 | 1,433 | ||||
Net operating losses and tax credit carryforwards |
| 5,926 |
| 2,679 | ||
R&D capitalization | 2,972 | 4,255 | ||||
Lease liabilities | 4,134 | 6,469 | ||||
Other |
| 7 |
| — | ||
Gross deferred tax assets |
| 23,916 |
| 24,438 | ||
Deferred tax liabilities: |
| |
| | ||
Depreciation and amortization |
| (4,539) |
| (3,978) | ||
Lease right-of-use asset | (3,575) | (5,919) | ||||
Other |
| — |
| (443) | ||
Gross deferred tax liabilities |
| (8,114) |
| (10,340) | ||
Valuation Allowance | (16,700) | (14,912) | ||||
Net deferred tax assets (liabilities) | $ | (898) | $ | (814) | ||
Net DTLs are included in other noncurrent liabilities on the consolidated balance sheets as of December 28, 2025 and December 29, 2024.
The tax benefit of net operating losses, temporary differences and credit carryforwards is required to be recorded as an asset to the extent that management assesses the realization is “more likely than not.” Realization of the future tax benefit is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. A valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the DTA will not be realized. Management must analyze all available positive and negative evidence regarding realization of the DTAs and assess the likelihood of sufficient future taxable income. The Company has provided a valuation allowance on our federal and state DTAs as we have determined that it is more-likely-than-not that they are not realizable based upon the available evidence such as cumulative taxable income and estimated future taxable income.
As of December 28, 2025, we had approximately $23.9 million in gross DTAs and $8.1 million in gross DTLs, which resulted in a net DTA of $15.8 million. These DTAs include approximately $5.9 million related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. Some of these net operating loss carryforwards will expire if they are not used within certain periods. At this time, based on evidence currently available, we consider it more likely than not that we will not have sufficient taxable income in the future that will allow us to realize the DTAs. Due to the weight of objectively verifiable negative evidence, we established a valuation allowance in the prior year of $14.9 million and increased the allowance to $16.7 million as of December 28, 2025, which reduced the tax benefit recognized in the current year, impacting our results of operations.
On December 28, 2025, the Company has federal and state net operating loss carryforwards of $22.9 million and $17.6 million, respectively. The federal net operating loss can be carried forward indefinitely and the state net operating loss carryforwards will begin to expire in 2028 if unused. The Company also has state tax credit carryforwards of an immaterial amount. The state tax credits will begin to expire in 2026 if unused. Lastly, the Company currently has $9.4
million of a Federal disallowed interest expense carryforward under Section 163(j) of the Internal Revenue Code, which can be carried forward indefinitely.
Utilization of our net operating loss carryforwards, interest expense carryforwards, and tax credits may be subject to an annual limitation due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code and similar state provisions. These ownership change limitations may limit the amount of net operating loss carryforwards or interest expense carryforwards and tax credits that can be utilized annually to offset future taxable income and tax, respectively.
As of December 28, 2025, December 29, 2024, and December 31, 2023, the Company’s uncertain tax positions and related accrued interest and penalties were not material. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in the financial statements as a component of income tax expense.
The Company’s federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2022 and 2021, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 30, 2026 | Showing above |
| 2024 | Mar 27, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 31, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.