Reformation Inc.

09/11/2026 | Press release | Distributed by Public on 09/11/2026 15:12

Quarterly Report for Quarter Ending June 27, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our annual audited consolidated financial statements and the related notes thereto for the fiscal year ended December 27, 2025 contained in our final prospectus (the "IPO Prospectus") filed with the Securities and Exchange Commission (the "SEC") on July 30, 2026 pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act"). This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions and beliefs, which involve risks and uncertainties. Our actual results may differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period.
All references to the "Company," "Reformation," "we," "our" and "us," unless the context otherwise requires, are to Reformation Inc., a Delaware corporation, and its consolidated subsidiaries and all references to the "Issuer" are only to Reformation Inc.
Overview
Reformation is a premium sustainable womenswear brand built to challenge the conventional fashion model and reimagine how brands interact and engage with customers. Our goal is to have a positive impact on people and the planet while delivering both impressive financial and environmental results.
We believe we are the largest sustainable womenswear brand on the planet and we operate within the highly fragmented fashion industry. With approximately 1,204,000 Active Customers (as defined below) in the United States as of June 27, 2026, and an estimated 94 million women aged 18-60 in the United States, our implied penetration is approximately 1%, highlighting the large opportunity ahead. We believe we are well positioned to capture significant growth over the long term. Our path forward is clear: we intend to grow by increasing our distribution through both our direct-to-consumer ("DTC") and wholesale channels, expanding our product assortment within existing and new product categories, growing in international markets, and driving operational excellence.
Initial Public Offering
On July 31, 2026, we completed our initial public offering ("IPO") pursuant to which we issued and sold 9,478,821 shares of common stock, and the selling stockholders sold an aggregate of 4,583,679 shares of common stock at a price per share of $15.00. On September 1, 2026, an additional 229,546 shares of common stock were sold by the selling stockholders pursuant to the underwriters' partial exercise of their option to purchase additional shares. We received aggregate proceeds of approximately $132.2 million from the IPO, after deducting the underwriting discount of $10.0 million.
Key Factors Affecting Our Performance
We measure our business using both financial and operating metrics. We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed below and in "Risk Factors."
Overall Economic Trends
The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote consumer spending across our channels, while economic weakness may have a negative effect. Macroeconomic factors that can affect consumer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates and inflation.
All the products and materials that we import are subject to import taxes and duties, including tariffs. Since the beginning of 2025, the U.S. government has imposed incremental tariffs, including International Emergency Economic Powers Act ("IEEPA") tariffs, at varying rates on certain imports. There has been significant volatility in U.S. tariff and customs policy, and trade negotiations between the United States and other countries are ongoing. If tariffs on countries from which we source products increase further, it may increase our cost of sales, and similar to all other potential cost increases, we may pass a portion of these costs through to customers. For additional information on related risks, please see "Risk Factors."
We have undertaken, and continue to evaluate, a series of actions and initiatives intended to mitigate the impact of tariffs, including diversifying our supply chain, engaging in cost-sharing discussions with our vendors, optimizing our product import logistics, and selectively adjusting product pricing. These mitigation efforts may take significant investment and time to implement. Ultimately, these efforts may not yield the intended results or be as effective as tariff policy changes, and could have adverse impacts on our business, financial condition and results of operations.
Ability to Increase Brand Awareness
As a lifestyle brand operating primarily in e-commerce and physical retail environments, we seek to establish and expand a strong brand presence in a competitive market. We deploy a deliberate and disciplined approach to brand building and marketing investment that leverages a combination of direct marketing, digital media, new store openings, wholesale expansion and strategic partnerships to reach new audiences and brand positioning across regions.
We believe that continued investment in brand awareness can support customer acquisition and retention, which contributes to revenue growth. We invest in innovative marketing strategies and use data analytics to evaluate the effectiveness of these initiatives. Our goal is to establish our brand as a leader in the fashion industry, recognized for quality, style, sustainability, and commitment to making our customers look and feel good.
Customer Acquisition
Our growth will depend in part on our ability to cost-effectively attract new customers. To continue to grow profitably, we intend to acquire new customers, retain those customers, drive repeat purchases and ultimately increase Active Customers and DTC Net Revenue per Customer at a reasonable cost. As of June 27, 2026, our total Active Customer base was approximately 1.2 million compared to 1.0 million as of the second quarter of 2025, reflecting continued customer acquisition and retention.
We invest in brand building and marketing across a range of channels to acquire new customers. It is important that the cost of these efforts remain aligned with the net revenue and contribution margin we expect to generate from the customers acquired through such initiatives. We take an integrated approach to acquiring new customers, evaluating performance across channels to inform our marketing investments and optimize return.
Customer Retention and Repeat Purchase Rate
Our continued success depends in part on our ability to retain and drive repeat purchases from our returning customers. In addition to investments in brand and marketing, we invest in our products, merchandising, and overall customer experience to promote long-term customer retention and repeat purchases. We track the retention, spend, and repeat purchase behavior of new customers over time from their initial purchase. These metrics provide insights into the effectiveness of our retention strategies and help us to identify areas for improvement.
Sourcing and Supply Chain Management
Effective sourcing and supply chain management are central to our ability to deliver high-quality products to our customers in a timely manner. Our cost of goods is primarily comprised of the procurement of finished goods and raw materials, labor-related expenses, and associated import costs.
We have established strong relationships with a diversified network of suppliers, both domestically and internationally. We are committed to the highest levels of ethical sourcing and sustainable business practices throughout our supply chain and require adherence to our Preferred Partners Guide, which sets standards for environmental practices and labor conditions. By incorporating sustainable materials and processes into our product offerings, we aim to meet the growing consumer demand for sustainable fashion.
We closely monitor key performance indicators related to our sourcing and supply chain management, including lead times, on-time rates, quality, and initial markups. These metrics provide valuable insights into the efficiency of our operations and help us identify areas for improvement. Production speed is important to our ability to respond to changing consumer demand. We utilize robust reporting and maintain close collaboration with our vendor partners to monitor development and production timelines, enabling disciplined execution.
Inventory Management
Effective inventory management is essential to our operations and plays a crucial role in our ability to meet customer demand while optimizing costs. As an apparel and accessories company operating primarily in our DTC channel, we recognize that maintaining the right balance of inventory is vital to our success. We utilize thorough inventory management systems and rigorous analytics to monitor inventory levels, sales trends, and customer preferences. This allows us to optimize our inventory mix, ensuring that we have the right products available at the right time. By analyzing historical sales data and market trends, we can make informed decisions about reordering and selling out of various styles. Accurate demand forecasting is central to minimizing excess inventory and stockouts. This proactive approach enables us to align our inventory levels with anticipated customer demand, reducing the risk of overstocking or understocking.
Seasonality
Our business does not exhibit the same seasonal patterns as traditional retailers, which typically generate a significant portion of net revenue in the holiday quarter. Historically, we have experienced increased sales during the early spring and summer months, resulting in higher net revenue in the second fiscal quarter compared to the first fiscal quarter. The third fiscal quarter typically sees a moderate increase in net revenue relative to the second fiscal quarter, given the timing of one of our twice-yearly promotional events beginning in August. We expect this seasonality to continue in future years, subject to the timing and structure of our promotional sales strategy, including our twice-yearly promotional sales event and our annual Black Friday Cyber Monday promotion. Our operating income has reflected these historical quarterly trends as a significant portion of our expenses are relatively fixed in the short term.
Fiscal Calendar
We operate on a 52/53-week fiscal year convention whereby our fiscal year ends on the last Saturday in December of each year, such that each quarterly period will be 13 weeks in length, except during a 53-week year when the fourth quarter will be 14 weeks. Fiscal 2026 will end on December 26, 2026 and will be a 52-week year. Fiscal 2025 was a 52-week year and ended on December 27, 2025.
Key Operating Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key operating metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. The following table summarizes our key operating metrics for the periods presented:
13 Weeks Ended
($ in thousands except DTC Net Revenue per Customer) June 27, 2026 June 28, 2025
Active Customers(1) (as of the end of period)
1,204,000 980,000
DTC Net Revenue per Customer(2)
$ 417 $ 423
Store Count(3) (as of the end of period)
70 53
Gross margin(4)
66.7 % 64.4 %
_____________________________________________________
(1)We define an Active Customer as a unique customer who has placed at least one order through our e-commerce platform or retail or outlet stores within the last rolling 12 months (excluding retail concession customers, employee orders, gift-card only orders, and face mask only orders, as purchased during the COVID-19 pandemic).
(2)We calculate DTC Net Revenue per Customer by dividing our DTC net revenue by the number of customers counted within the period in which an item in their purchase has shipped. As of June 27, 2026 and June 28, 2025, the number of customers was 1,202,000 and 978,000, respectively.
(3)We define Store Count as the total number of retail or outlet stores open at the end of a given period, excluding temporary store locations designated as pop-ups (which are typically open for one year or less) and our concession locations ("shop-in-shop").
(4)We define gross margin as gross profit as a percentage of net revenue.
Active Customers
The number of Active Customers is a key operating metric that we use to assess the reach of our direct channel, including both our e-commerce platform and physical stores, as well as the resonance of our brand and product offering. We define an Active Customer as a unique customer who has placed at least one order through our e-commerce platform or retail or outlet stores within the last rolling 12 months (excluding retail concession customers, employee orders, gift-card only orders, and face mask only orders, as purchased during the COVID-19 pandemic). While we devote effort to identify customers who may have created duplicate profiles and consolidate profiles, this number may still contain duplicate profiles and may include accounts utilized by multiple individuals in a single household.
The number of Active Customers has increased steadily over time as we attract new customers and retain returning customers. As of June 27, 2026, our total Active Customer base was approximately 1.2 million compared to 1.0 million as of the second quarter of 2025, an increase of 23%, as we continued to acquire and retain customers efficiently and expanded our store footprint from 53 stores to 70 stores over the same time period. This growth is a function of rising brand awareness driven by new store openings, international expansion, product category extension, continued marketing efforts, and the retention of returning customers.
DTC Net Revenue per Customer
DTC Net Revenue per Customer is a key operating metric that reflects our ability to grow the average value of our customers on a trailing 12-month basis, which is key to understanding broader revenue growth trends. This metric is calculated by dividing our DTC net revenue by the number of customers counted within the period in which an item in their purchase has shipped. As of the second quarter of 2026 and the second quarter of 2025, the number of customers was 1,202,000 and 978,000, respectively. We use DTC Net Revenue per Customer to evaluate trends in customer spending behavior, including the extent to which customers engage with our brand across our assortment and shop across our omnichannel platform, and to assess the effectiveness of our sales strategies, marketing efforts, and customer engagement initiatives.
We continuously monitor our DTC Net Revenue per Customer and analyze trends over time to identify opportunities for improvement. DTC Net Revenue per Customer for the second quarter of 2026 was $417, compared to $423 in the second quarter of 2025, a decrease of 1.4%. The expansion of our customer base through new customer acquisition will have a dilutive impact on our total DTC Net Revenue per Customer in the year in which they are acquired. New customers typically have a lower initial spend compared to our returning customers. As customer cohorts mature, we generally observe increases in customer spend and purchase frequency over time. As we continue to refine our strategies to enhance DTC Net Revenue per Customer, we are focused on the following initiatives:
•Scaling our channel distribution both domestically and internationally to offer customers an omni-experience and increased access to interact and shop with our brand;
•Expanding our product offerings across occasions and categories, through growth of existing categories, launching new categories and offering exclusive collections and collaborations that resonate with our target audience; and
•Increasing customer retention and order frequency through loyalty initiatives, personalized shopping experiences and other tailored marketing strategies.
By focusing on increasing DTC Net Revenue per Customer, we aim to improve our overall financial performance and create long-term value for our shareholders. We believe that a strong emphasis on customer engagement, product quality and breadth, and personalized experiences will position us for sustainable growth in the competitive apparel and accessories market.
Store Count
Store Count is a key growth lever that reflects the scale of our owned, physical retail presence and our ability to reach consumers across markets. We define Store Count as the total number of retail or outlet stores open at the end of a given period, excluding temporary store locations designated as pop-ups (which are typically open for one year or less) and our concession locations ("shop-in-shop"). As of the second quarter of 2026, we had 67 full-price stores and three outlets. We regularly review the productivity of our stores and from time to time may decide to close a store due to, among other factors, underperformance, shift in consumer traffic trends, performance of retail hub in which a store is a part of or
changes in local customer and other retail demographics. Our results of operations have been, and will continue to be, affected by the timing and number of stores that we operate. The following chart represents our Store Count.
26 Weeks Ended
June 27, 2026
June 28, 2025
Beginning of Period
64 50
New Store Openings
6 4
Store Closures - 1
End of Period 70 53
Our store locations remain a key part of our growth strategy, and we view them as a valuable tool in helping us build our brand awareness as well as enabling our omnichannel capabilities. Our stores serve as valuable marketing vehicles for introducing new customers to our brand and driving repeat purchases and, in turn, positively impact Active Customers and DTC Net Revenue per Customer.
Gross Margin
We define gross margin as gross profit as a percentage of net revenue. Gross profit is equal to our net revenue less cost of goods sold. Cost of goods sold consists of all material, labor, and overhead costs incurred to manufacture or purchase merchandise sold to customers. Cost of goods sold also includes import duties, other taxes, inbound freight costs, storage costs during the manufacturing process, inventory valuation adjustments, shrinkage, and other miscellaneous costs.
Gross margin is impacted by the average price and volume of the products that we sell through our two channels and the impact of our twice-yearly promotional sales events and Black Friday Cyber Monday event.
Certain of our competitors and other retailers define cost of goods sold differently than we do. As a result, the reporting of our gross profit and gross margin may not be comparable to other companies.
Other Items
The following table provides a summary of our other items from continuing operations and the related favorable (unfavorable) impact on our gross margin ratio and selling, general, and administrative ("SG&A") ratio:
13 Weeks Ended 26 Weeks Ended
($ in thousands) June 27, 2026 June 28, 2025 June 27, 2026 June 28, 2025
Gross margin
Tariffs(1)
$ - $ (5,599) $ - $ (5,712)
Tariff refund(2)
- - 10,154 -
Total Other Items $ - $ (5,599) $ 10,154 $ (5,712)
Impact on gross margin ratio
- % (4.5) % 3.8 % (2.7) %
Selling, general, and administrative expenses
Los Angeles Distribution Center costs(3)
$ (406) $ (1,943) $ (862) $ (3,801)
IPO-related executive bonuses and CFO transition expenses(4)
(150) (753) (600) (953)
Department store customer bankruptcy(5)
(15) (139) 90 (581)
Total Other Items $ (571) $ (2,835) $ (1,372) $ (5,335)
Impact on SG&A ratio
(0.4) % (2.3) % (0.5) % (2.5) %
(1)Represents costs related to IEEPA tariffs imposed on imported goods. This does not reflect potential future tariffs that may be implemented as a result of various policy proposals currently under consideration by the President.
(2)Represents refunds submitted for IEEPA tariffs imposed on finished goods.
(3)Represents incremental costs incurred in connection with the transition of our company-operated distribution center to a larger leased facility, both located in Vernon, California, including the temporary overlapping rent and labor costs resulting from operating both facilities during the transition period.
(4)Represents incremental, one-time costs associated with IPO-related bonuses and Chief Financial Officer transition expenses.
(5)Reflects the expense arising from the bankruptcy of a significant department store customer, which is outside the Company's normal credit loss experience and reflects a customer-specific event.
Components of Results of Operations
Net Revenue
We generate revenue through selling our wide array of apparel and accessories, including clothing, shoes, and bags. The Company recognizes net revenue for the sale of a product at the point in time when its performance obligation has been satisfied and control of the product has transferred to the customer. A customer is deemed to have control once they are able to direct the use and receive substantially all of the benefits of the product, which occurs generally upon shipment of the goods for wholesale or e-commerce customers and upon purchase by retail customers.
Net revenue transactions are generally comprised of a single performance obligation for each individual product sold to customers through direct-to-consumer, and wholesale channels. Net revenue is measured based on a transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods to the customer.
DTC represents net revenue primarily from the Company's website and direct product sales made from retail stores located in the US, United Kingdom, Canada, and France. The Company manages and considers Online sales and Retail store sales as one collective DTC channel. Although sales data is captured separately at the transaction level, the Company reviews DTC channel performance on a combined basis for purposes of allocating resources and assessing customer behavior and business strategy. Wholesale and Other net revenue consists of sales made to third-party retailers such as department stores, online retailers and other wholesale partners, and other miscellaneous revenues such as sample sales and sales to distributors.
Net revenue in our DTC channel is driven by growth in the number of Active Customers and DTC Net Revenue per Customer. Net revenue in our Wholesale and Other channel is driven by the number of wholesale partners we sell to, the number of stores we are present in with each partner, and the average revenue per store.
Our focus on customer engagement drives our business and shapes how we evaluate net revenue performance. We measure our success through increases in Active Customer count and the depth of their spend, as measured by DTC Net Revenue per Customer. Because we manage a diverse array of products with thousands of SKUs at a broad range of price points, we believe analyzing volume and price does not provide a meaningful reflection of how we actively manage growth.
Shipping and Handling Fees and Costs
Shipping and handling fees charged to customers are included in net revenues. Revenue is recognized and cost is accrued when control is transferred to the customer. Freight costs associated with shipping merchandise to and from customers are recorded within selling, general and administrative expenses.
Cost of Goods Sold
Cost of goods sold includes all material, labor, import-related costs, and overhead costs incurred to manufacture or purchase the inventory. Cost of goods sold also includes other taxes, inbound freight costs, warehouse storage costs, inventory valuation adjustments, shrinkage, and other miscellaneous costs.
We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix from customer preferences, fluctuations in landed costs, and resulting demand and management of our inventory and merchandise mix. As we continue to grow, we expect our cost of goods sold to increase with revenue due to an increased number of orders and higher input costs, including the impact of tariffs. However, we maintain a geographically diverse supply chain that enables us to quickly adjust to optimize our cost of goods.
Gross Profit and Gross Margin
Gross profit represents net revenue less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenue. Over the past five years we have maintained an average gross margin above 60%. However, gross margin may fluctuate in the future based on a number of factors, including the average price and volume at which we sell our products through our two channels, level of discounting, and cost at which we can obtain, transport and manufacture our inventory, including the impact of tariffs.
Marketing Expenses
Marketing expenses consist of brand and performance marketing, including digital content, editorial content, public relations, customer insights, as well as other marketing and advertising costs. We expect our marketing expenses to increase in absolute dollars over time and to fluctuate as a percentage of net revenue depending on the timing of major marketing campaigns and the anticipated growth of our business.
Selling, General and Administrative Expenses
Selling, general, and administrative ("SG&A") expenses primarily consist of employee-related costs including salaries, benefits, bonuses, and stock-based compensation for our corporate and store employees, costs associated with shipping merchandise to our stores and customers, information technology, credit card processing fees, lease and other operating costs for stores and corporate facilities, legal, a portion of depreciation of property and equipment, amortization of intangible assets, and other administrative costs associated with operating the business. We expect our SG&A to increase in absolute dollars over time and to fluctuate as a percentage of net revenue due to the anticipated growth of our business and additional costs associated with being a public company. Additionally, in the event of a change of control, we will recognize accelerated stock-based compensation expenses related to our RSUs. For further information, see the section titled "-Critical Accounting Policies and Estimates."
Interest Expense
Interest expense primarily consists of interest expense associated with our Credit Agreement.
Interest Income
Interest income consists primarily of interest generated from our cash and cash equivalents balances, and is recognized as earned. We expect our interest income to fluctuate based on our future bank balances and fluctuating interest rates.
Other Income, Net
Other income, net, consists primarily of realized and unrealized gains and losses from foreign currency transactions and other income and expenses that are not part of our core operations. We expect our other income, net, to fluctuate primarily based on changes in the prevailing exchange rates between the U.S. dollar and the currencies of our international markets.
Income Tax Provision
Income tax provision consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business, adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets.
Results of Operations
Comparison of the Thirteen Weeks Ended June 27, 2026 and June 28, 2025
The following tables set forth our consolidated statements of operations data for the periods presented and as a percentage of net revenue.
13 Weeks Ended
Change
(in thousands except percentages)
June 27, 2026 June 27, 2026 June 28, 2025 June 28, 2025 $ %
Net revenue $ 155,233 100.0 % $ 125,073 100.0 % $ 30,160 24.1 %
Cost of goods sold 51,761 33.3 44,507 35.6 7,254 16.3
Gross profit
103,472 66.7 80,566 64.4 22,906 28.4
Operating expenses
Marketing expenses
14,490 9.3 11,250 9.0 3,240 28.8
Selling, general, and administrative expenses
69,958 45.1 56,728 45.4 13,230 23.3
Total operating expenses
84,448 54.4 67,978 54.4 16,470 24.2
Income from operations 19,024 12.3 12,588 10.1 6,436 51.1
Other (expense) income
Interest expense
(3,543) (2.3) (4,035) (3.2) 492 (12.2)
Interest income
185 0.1 414 0.3 (229) (55.3)
Other income, net
1,439 0.9 308 0.2 1,131 367.2
Total other (expense) income (1,919) (1.2) (3,313) (2.6) 1,394 (42.1)
Income (loss) before income taxes 17,105 11.0 9,275 7.4 7,830 84.4
Income tax provision
4,697 3.0 2,360 1.9 2,337 99.0
Net income
$ 12,408 8.0 % $ 6,915 5.5 % $ 5,493 79.4 %
Net Revenue
13 Weeks Ended
Change
($ in thousands)
June 27, 2026 June 28, 2025
$
%
Direct-to-consumer (DTC) $ 135,324 $ 111,682 $ 23,642 21.2 %
Wholesale and Other 19,909 13,391 6,518 48.7
Net revenue
$ 155,233 $ 125,073 $ 30,160 24.1 %
Net revenue increased $30.2 million, or 24.1%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. This increase was driven by an increase in DTC net revenue of $23.6 million, or 21.2%, and an increase in Wholesale and Other net revenue of $6.5 million, or 48.7%.
DTC net revenue grew 21.2% for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The increase was driven by an increase in Active Customers during the quarter of 22.9%, partially offset by a reduction of DTC Net Revenue per Customer of 1.4%. The growth in Active Customers was driven by an increase in customer retention and an increase in new customers. DTC Net Revenue per Customer declined primarily as a result of the increase in newly acquired customers that typically enter the brand at initially lower spend levels.
Wholesale and Other net revenue grew 48.7% for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025, driven by increased demand from our existing wholesale partners.
Cost of Goods Sold, Gross Profit, and Gross Margin
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Cost of goods sold $ 51,761 $ 44,507 $ 7,254 16.3 %
Gross profit $ 103,472 $ 80,566 $ 22,906 28.4 %
Gross margin
66.7 % 64.4 % 2.3 %
Cost of goods sold increased by $7.3 million, or 16.3%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The increase in dollar terms was primarily due to increased sales volume offset by reduced product costs as a result of a lower tariff environment.
Gross profit increased by $22.9 million, or 28.4%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The increase was driven by an increase in revenue and lower product acquisition costs.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased from 64.4% for the thirteen weeks ended June 28, 2025, to 66.7% for the thirteen weeks ended June 27, 2026. The increase was primarily driven by lower average tariff rates and higher average unit retail, partially offset by accelerated growth in the wholesale channel.
Operating Expenses
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Marketing expenses $ 14,490 $ 11,250 $ 3,240 28.8 %
Selling, general, and administrative expenses 69,958 56,728 13,230 23.3
Total operating expenses
$ 84,448 $ 67,978 $ 16,470 24.2 %
As a percentage of net revenue 54.4 % 54.4 %
Total operating expenses increased by $16.5 million, or 24.2%, during the second quarter of 2026 when compared to the second quarter of 2025. The increase in total operating expenses was primarily driven by increases in selling, general and administrative expenses.
Marketing expenses
Marketing expenses increased $3.2 million, or 28.8%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. As a percentage of net revenue, marketing expenses increased from 9.0% of net revenue for the thirteen weeks ended June 28, 2025 to 9.3% of net revenue for the thirteen weeks ended June 27, 2026, due to timing of spend in partnership campaigns and events.
Selling, general, and administrative expenses
SG&A expenses increased $13.2 million, or 23.3%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The increase was driven primarily by increased selling and shipping expenses of $6.1 million due to higher sales volume. Additionally, compensation and related benefits increased by $2.4 million due to increased corporate payroll and new store additions.
As a percentage of net revenue, SG&A expenses were approximately 45.1% and 45.4% for the thirteen weeks ended June 27, 2026 and June 28, 2025, respectively. The 30 basis points of SG&A improvement was the result of leverage on payroll expense and the lapping of costs associated with the relocation of our LA distribution center. The other items identified earlier in this section were approximately 0.4% and 2.3% for the thirteen weeks ended June 27, 2026 and June 28, 2025, respectively.
Interest Expense
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Interest expense $ (3,543) $ (4,035) $ 492 (12.2) %
Interest expense decreased by $0.5 million, or 12.2%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The decrease in interest expense was primarily due to lower average borrowings outstanding under the Existing Credit Facilities.
Interest Income
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Interest income $ 185 $ 414 $ (229) (55.3) %
Interest income decreased $0.2 million, or 55.3%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The decrease was driven by lower interest income due to lower average cash and cash equivalents balance during the quarter.
Other (Expense) Income, Net
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Other (expense) Income, net $ 1,439 $ 308 $ 1,131 367.2 %
Total other (expense) income, net, increased by $1.1 million, or 367.2%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. The increase was driven by insurance proceeds and increased foreign exchange transaction gains during the quarter.
Income Tax Provision
($ in thousands)
13 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Income tax provision $ 4,697 $ 2,360 $ 2,337 99.0 %
Effective tax rate 27.5 % 25.4 % 2.1 %
Income tax expense increased by $2.3 million, or 99.0%, for the thirteen weeks ended June 27, 2026, compared to the thirteen weeks ended June 28, 2025. Our effective tax rate increased from 25.4% for the thirteen weeks ended June 28, 2025, to 27.5% for the thirteen weeks ended June 27, 2026. The increase in income tax expense was primarily driven by the increase in pre-tax income. The increase in the effective tax rate was primarily due to a discrete tax expense related to the increase in reserves for uncertain tax positions associated with an ongoing tax examination.
Results of Operations
Comparison of the 26 Weeks Ended June 27, 2026 and June 28, 2025
The following tables set forth our consolidated statements of operations data for the periods presented and as a percentage of net revenue.
26 Weeks Ended
Change
(in thousands except percentages)
June 27, 2026 June 27, 2026 June 28, 2025 June 28, 2025 $ %
Net revenue $ 267,533 100.0 % $ 211,164 100.0 % $ 56,369 26.7 %
Cost of goods sold 85,064 31.8 78,720 37.3 6,344 8.1
Gross profit
182,469 68.2 132,444 62.7 50,025 37.8
Operating expenses
Marketing expenses
23,942 8.9 19,792 9.4 4,150 21.0
Selling, general, and administrative expenses
152,342 56.9 103,971 49.2 48,371 46.5
Total operating expenses
176,284 65.9 123,763 58.6 52,521 42.4
Income (loss) from operations 6,185 2.3 8,681 4.1 (2,496) (28.8)
Other (expense) income
Interest expense
(6,814) (2.5) (8,187) (3.9) 1,373 (16.8)
Interest income
498 0.2 1,069 0.5 (571) (53.4)
Other income, net
1,183 0.4 235 0.1 948 403.4
Total other (expense) income (5,133) (1.9) (6,883) (3.3) 1,750 (25.4)
Income (loss) before income taxes
1,052 0.4 1,798 0.9 (746) (41.5)
Income tax provision
792 0.3 434 0.2 358 82.5
Net income (loss)
$ 260 0.1 % $ 1,364 0.6 % $ (1,104) (80.9) %
Net Revenue
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Direct-to-consumer (DTC) $ 233,749 $ 186,378 $ 47,371 25.4 %
Wholesale and Other 33,784 24,786 8,998 36.3
Net revenue
$ 267,533 $ 211,164 $ 56,369 26.7 %
Net revenue increased $56.4 million, or 26.7%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. This increase was driven by an increase in DTC net revenue of $47.4 million, or 25.4%, and an increase in Wholesale and Other net revenue of $9.0 million, or 36.3%.
DTC net revenue grew 25.4% for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase was driven by an increase in Active Customers during the quarter of 22.9%, partially offset by a reduction of DTC Net Revenue per Customer of 1.4%. The growth in Active Customers was driven by an increase in customer retention and an increase in new customers. DTC Net Revenue per Customer declined primarily as a result of the increase in newly acquired customers that typically enter the brand at initially lower spend levels, and the timing of customer shipments.
Wholesale and Other net revenue grew 36.3% for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025, driven by increased demand from our existing wholesale partners.
Cost of Goods Sold, Gross Profit, and Gross Margin
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Cost of goods sold $ 85,064 $ 78,720 $ 6,344 8.1 %
Gross profit $ 182,469 $ 132,444 $ 50,025 37.8 %
Gross margin
68.2 % 62.7 % 5.5 %
Cost of goods sold increased by $6.4 million, or 8.1%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase in dollar terms was driven by an increase in revenue, partially offset by a $12.3
million reduction to cost of goods sold related to our refund of tariffs paid under IEEPA on imported goods for which we were importer of record. Of this $12.3 million, $10.2 million related to sales recorded in fiscal 2025.
Gross profit increased by $50.0 million, or 37.8%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase was driven by an increase in revenue and lower product acquisition costs.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased from 62.7% for the 26 weeks ended June 28, 2025, to 68.2% for the 26 weeks ended June 27, 2026. The 550 basis points increase was primarily due to the recognition of a receivable for a refund of IEEPA tariffs on imported goods, of which 381 basis points related to sales recorded in 2025. The remaining basis points increase was primarily driven by lower average tariff rates and strong full-price selling.
Operating Expenses
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Marketing expenses $ 23,942 $ 19,792 $ 4,150 21.0 %
Selling, general, and administrative expenses 152,342 103,971 48,371 46.5
Total operating expenses
$ 176,284 $ 123,763 $ 52,521 42.4 %
As a percentage of net revenue 65.9 % 58.6 % 7.3 %
Total operating expenses increased by $52.5 million, or 42.4%, during the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase in total operating expenses as a percentage of net revenue was driven by increases in selling, general and administrative expenses.
Marketing expenses
Marketing expenses increased $4.2 million, or 21.0%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. As a percentage of net revenue, marketing expenses decreased from 9.4% of net revenue for the 26 weeks ended June 28, 2025 to 8.9% of net revenue for the 26 weeks ended June 27, 2026, driven by increased efficiencies in marketing spend.
Selling, general, and administrative expenses
SG&A expenses increased $48.4 million, or 46.5%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase was primarily due to the impact of a stock-based compensation modification during the 26 weeks ended June 27, 2026, which resulted in compensation expense of $23.8 million. The remaining increase was driven by increased selling and shipping expenses of $12.4 million due to higher sales volume. Additionally, compensation and related benefits increased by $4.9 million due to increased corporate payroll and new store additions.
As a percentage of net revenue, SG&A expenses were approximately 56.9% for the 26 weeks ended June 27, 2026, compared to 49.2% for the 26 weeks ended June 28, 2025, primarily due to the impact of stock-based compensation modification during the 26 weeks ended June 27, 2026. As a percentage of net revenue, the other items identified earlier in this section were approximately 0.5% and 2.5% for the 26 weeks ended June 27, 2026 and June 28, 2025, respectively.
Interest Expense
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Interest expense $ (6,814) $ (8,187) $ 1,373 (16.8) %
Interest expense decreased by $1.4 million, or 16.8%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The decrease in interest expense was primarily due to lower average borrowings outstanding under the Existing Credit Facilities.
Interest Income
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Interest income $ 498 $ 1,069 $ (571) (53.4) %
Interest income decreased $0.6 million, or 53.4%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The decrease was driven by lower interest income due to lower average cash and cash equivalents balance during the 26 weeks ended June 27, 2026.
Other (Expense) Income, Net
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Other (expense) Income, net $ 1,183 $ 235 $ 948 403.4 %
Total other (expense) income, net, increased by $0.9 million, or 403.4%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. The increase was driven by insurance proceeds and increased foreign exchange transaction gains during the 26 weeks ended June 27, 2026.
Income Tax Provision
($ in thousands)
26 Weeks Ended
Change
June 27, 2026 June 28, 2025
$
%
Income tax provision $ 792 $ 434 $ 358 82.5 %
Effective tax rate 75.3 % 24.1 % 51.2 %
Income tax expense increased by $0.4 million, or 82.5%, for the 26 weeks ended June 27, 2026, compared to the 26 weeks ended June 28, 2025. Our effective tax rate increased from 24.1% for the 26 weeks ended June 28, 2025, to 75.3% for the 26 weeks ended June 27, 2026. The increase in income tax expense was primarily due to a discrete tax expense related to the increase in reserves for uncertain tax positions associated with an ongoing tax examination. The effective tax rate increased compared with the prior-year period primarily because the prior year included a discrete tax benefit resulting from the remeasurement of the Company's deferred tax assets and liabilities for changes in the state statutory rate.
Non-GAAP Financial Measures
In addition to our condensed consolidated financial statements, which are prepared in accordance with GAAP, we present certain non-GAAP measures in this Quarterly Report on Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our operating performance.
The following table summarizes our key financial metrics and non-GAAP financial measures for the periods presented:
13 Weeks Ended 26 Weeks Ended
($ in thousands) June 27, 2026
June 28, 2025
June 27, 2026
June 28, 2025
Net revenue $ 155,233 $ 125,073 $ 267,533 $ 211,164
Net income $ 12,408 $ 6,915 $ 260 $ 1,364
Adjusted EBITDA(1)
$ 25,423 $ 16,516 $ 41,279 $ 16,194
Adjusted EBITDA margin(2)
16.4 % 13.2 % 15.4 % 7.7 %
________________________________________________________
(1)We define Adjusted EBITDA as net income before interest, taxes, and depreciation and amortization as further adjusted for stock compensation expense, transaction costs, and other costs not indicative of our ongoing core operations.
(2)We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net revenue.
Adjusted EBITDA and Adjusted EBITDA margin
We define Adjusted EBITDA as net income before interest, taxes, and depreciation and amortization as further adjusted for stock compensation expense, transaction costs, and other costs not indicative of our ongoing core operations. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net revenue. Adjusted EBITDA and Adjusted EBITDA margin are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. We caution investors that amounts presented in accordance with our definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA and Adjusted EBITDA margin in the same manner. We present Adjusted EBITDA and Adjusted EBITDA margin because we consider these metrics to be important supplemental measures of our performance and believe that both measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management believes that investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
Management uses Adjusted EBITDA and Adjusted EBITDA margin:
•as measurements of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, since they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget and financial projections; and
•to evaluate the performance and effectiveness of our operational strategies.
By providing these non-GAAP financial measures, together with a reconciliation to the most directly comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation, or as alternatives to, or substitutes for net income or other financial statement data presented in our condensed consolidated financial statements as indicators of financial performance. Some of the limitations are:
•Adjusted EBITDA does not reflect all our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
•Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, Adjusted EBITDA and Adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of interest, income tax provision (benefit), depreciation and amortization, stock-based compensation expense, transaction costs, and other costs. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal results of operations and results of operations of other companies over time. In addition, Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record following our IPO. Each of the normal recurring adjustments and other adjustments
described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following table presents a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to the most directly comparable GAAP measure, net income, for the periods presented:
13 Weeks Ended
26 Weeks Ended
($ in thousands)
June 27,2026
June 28,2025
June 27,2026
June 28,2025
Net income
$ 12,408 $ 6,915 $ 260 $ 1,364
Interest and other expense (income) 1,919 3,313 5,133 6,883
Provision for income taxes 4,697 2,360 792 434
Depreciation and amortization 4,245 3,015 8,407 5,876
Stock-based compensation expense(1)
1,795 259 25,866 568
Transaction costs(2)
- 393 375 768
Legal costs(3)
349 149 420 162
Other one-time costs(4)
10 112 26 139
Adjusted EBITDA
$ 25,423 $ 16,516 $ 41,279 $ 16,194
Net revenue $ 155,233 $ 125,073 $ 267,533 $ 211,164
Net income margin 8.0 % 5.5 % 0.1 % 0.6 %
Adjusted EBITDA margin
16.4 % 13.2 % 15.4 % 7.7 %
_______________________________________________________
(1)Represents non-cash expenses primarily related to equity-based compensation programs, which may vary significantly from period to period depending on various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, modifications or settlements of awards, and the impact of repurchases of awards from employees.
(2)Represents costs incurred in connection with pursuing various strategic alternatives, including legal and accounting costs directly attributable to preparing for an IPO, and other strategic sell side and investment alternatives.
(3)Represents one-time legal costs and settlements.
(4)Represents one-time costs directly attributable to activities that are not indicative of our ongoing core operations, including, but not limited to, system implementation and duplicative expenses associated with store relocation.
Liquidity and Capital Resources
As of June 27, 2026, we had cash and cash equivalents of $76.6 million. Our operations have been funded through cash flows from our operating activities, including the sale of our products.
Our primary liquidity requirements are to fund our operations and other general corporate purposes and to service our debt. Our ability to generate cash from our operations depends on our future operating performance, which is dependent, to some extent, on general economic, financial, competitive, market, legislative, regulatory and other factors, many of which are beyond our control, as well as other factors including those discussed in this section and the section entitled "Risk Factors." We believe our existing cash and cash equivalents, funds available under our revolving credit facility, and cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months. The following tables show our cash and cash equivalents, accounts receivable and working capital as of the dates indicated:
(in thousands)
As of
June 27,2026
December 27, 2025
Cash and cash equivalents $ 76,627 $ 65,473
Accounts receivable, net $ 18,584 $ 18,407
Net working capital $ 77,073 $ 54,769
Our future capital requirements will depend on many factors, including, but not limited to, revenue growth rate, growth in the number of stores, expansion of our geographies and product offerings, ability to execute new marketing initiatives, and the timing of investments in technology and personnel to support the overall growth in our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. There can be no assurances that we will be able to raise additional capital. In the event additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If we are unable to raise additional capital when required or on favorable terms, or if we cannot
expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Credit Facility
On May 2, 2024, LYMI Inc., a wholly owned subsidiary of Reformation Inc., entered into a financing agreement with JPMorgan Chase Bank, N.A., Citibank, N.A., Morgan Stanley Senior Funding, Inc. and Royal Bank of Canada (the "Credit Agreement"), to secure a five-year term loan of $165.0 million ("Term Loan") and a revolving line of credit ("Revolver") with a maximum borrowing capacity of $30.0 million (together, the "Credit Facility"). Proceeds from the Term Loan were used to fund the Company's share repurchase on May 2, 2024.
On June 17, 2026, the Company entered into an amendment to its Credit Agreement (the "Amendment"). The Amendment, among other things, (i) provided for an additional $52.0 million of term loan borrowing (ii) provided for an incremental $40.0 million delayed draw term loan facility, of which, $40.0 million was funded on June 17, 2026 (iii) extended the maturity date of the term loan facilities and the revolving credit facility to June 17, 2031, and (iv) revised the scheduled principal amortization of the term loan facilities to reduce required principal payments over the remaining term of the debt. Upon completion of the Amendment, the Company had $246.7 million of term loan borrowings outstanding on June 17, 2026. Borrowings under the Amended Term Loans bear interest at a variable rate based on SOFR plus an applicable margin.
The Credit Facility also contains customary representations and warranties, affirmative and negative covenants and restrictive covenants for facilities of this type. The restrictive covenants limit the borrower and its subsidiaries' ability to, among other things, incur indebtedness, create liens, make restricted payments, make cash payments on junior financing, make investments, merge, amalgamate or consolidate, dispose of assets, enter into transactions with affiliates and enter into sale and lease back transactions, in each case subject to customary materiality thresholds and other exceptions. The Credit Facility also provides for customary events of default. The obligations under the Credit Facility are guaranteed by REF Holdings, Inc. and certain of the borrower's material, wholly owned domestic subsidiaries and secured by a first- priority lien on substantially all assets of REF Holdings, Inc., the borrower and certain of the borrower's material, wholly owned subsidiaries, in each case, subject to certain customary exceptions and exclusions.
As of June 27, 2026 and December 27, 2025, the Company had $246.7 million and $158.8 million outstanding under its Term Loan, respectively, and no borrowings under its Revolver. In July 2026, the Company received aggregate proceeds of $132.2 million from the IPO, after deducting the underwriting discount of $10.0 million. The Company made a $110.0 million repayment on the Term Loan in August 2026 using proceeds from the Company's IPO.
The borrower is subject to financial maintenance covenants which are measured on a quarterly basis. The borrower was in compliance with all financial covenants contained in its debt agreements as of June 27, 2026. See Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
(in thousands)
26 Weeks Ended
June 27, 2026 June 28, 2025
Net cash provided by (used in) operating activities $ 26 $ (14,210)
Net cash used in investing activities (13,216) (21,060)
Net cash provided by (used in) financing activities 24,823 (2,023)
Effect of exchange rate changes on cash and cash equivalents (479) 777
Net change in cash and cash equivalents $ 11,154 $ (36,516)
Cash Flows Provided By (Used In) Operating Activities
Net cash provided by operating activities was $26,000 for the 26 weeks ended June 27, 2026, which resulted from net income of $0.3 million, adjusted for non-cash charges of $44.4 million and net cash outflow of $44.6 million. Non-cash charges primarily consisted of depreciation and amortization expenses of $8.4 million, changes in operating lease right-of-use assets of $10.5 million, and stock-based compensation expense of $24.4 million. The changes in operating assets and
liabilities were primarily driven by increases in accrued expenses and deferred revenue totaling $5.0 million, offset by an increase in tariff receivables which was primarily attributable to the recognition of a $15.0 million receivable for IEEPA tariffs refunds on imported goods for which we were importer of record, prepaid expenses, and inventory to support the growth of our business.
Net cash used in operating activities was $14.2 million for the 26 weeks ended June 28, 2025, which resulted from net income of $1.4 million, adjusted for non-cash charges of $15.4 million and net cash outflow of $31.0 million. Non-cash charges primarily consisted of depreciation and amortization expenses of $5.9 million and changes in operating lease right-of-use assets of $8.8 million. The changes in operating assets and liabilities were primarily driven by increases in accrued expenses and deferred revenue totaling $5.8 million, offset by the timing of collections of accounts receivable and vendor payments, and an increase in prepaid expenses, and inventory to support the growth of our business.
Cash Flows Used In Investing Activities
Our primary investing activities have consisted of purchases of property and equipment to support our distribution center relocation, store footprint expansion and our overall business growth. Purchases of property and equipment may vary from period-to-period due to timing of the expansion of our operations.
For the 26 weeks ended June 27, 2026 and June 28, 2025, net cash used in investing activities was $13.2 million and $21.1 million, respectively, which was primarily related to our investment in our relocated distribution center and the build-out of new stores.
Cash Flows (Provided by) Used In Financing Activities
Our financing activities primarily consist of repurchases of our common stock, proceeds from the exercise of stock options, dividend declarations, tax withholdings on share-based payment awards and borrowings and repayments related to the existing term loan and line of credit, when applicable.
For the 26 weeks ended June 27, 2026, net cash provided by financing activities was $24.8 million, which was primarily related to the principal payments of our term loan, debt issuance cost, and the payment of dividends declared, offset by $92.0 million in borrowings from the Credit Agreement.
For the 26 weeks ended June 28, 2025, net cash used in financing activities was $2.0 million, which was primarily related to the principal payments of our term loan.
Contractual Obligations and Commitments
Our operating lease commitments relate primarily to our store, warehouse, distribution and office locations. The Company's lease terms may include options to extend or terminate the lease and are, therefore, included in the operating lease right-of-use assets and operating lease liabilities when such options are reasonably certain to be exercised. These leases expire on various dates through 2040. For additional discussion on our operating lease obligations, see Note 13 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
The Term Loan Facility requires quarterly principal and interest payments, with any remaining unpaid principal and any accrued and unpaid interest due on the maturity date of June 17, 2031. The Term Loan Facility may be prepaid in whole or in part prior to the maturity date and is subject to certain lender fees if converted, assigned, or paid on a day other than the end of the interest period. As of the second quarter of 2026, the outstanding principal balance under the Term Loan Facility was $246.7 million and the carrying value was $241.5 million, net of unamortized debt issuance costs of $5.2 million.
Purchase obligations primarily include agreements for a licensed platform with minimum usage commitments. Purchase obligations do not include agreements that are cancelable without penalty.
Off-Balance Sheet Arrangements
We enter into standby letters of credit to secure certain leases in lieu of a cash security deposit. We had issued letters of credit of $3.6 million as of the second quarter of 2026, under our Credit Facility. We did not have any other off-balance sheet arrangements as of the second quarter of 2026.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
There have been no material changes to our critical accounting policies and estimates disclosed in the IPO Prospectus. For additional information about our critical accounting policies and estimates, see the disclosure included in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in the IPO Prospectus as well as Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
Emerging Growth Company Status
We are currently an "emerging growth company," as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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