Is Lulu's Fashion Lounge Holdings (NASDAQ:LVLU) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Lulu's Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Lulu's Fashion Lounge Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Lulu's Fashion Lounge Holdings had US$10.1m of debt, an increase on US$6.00m, over one year. However, it does have US$8.62m in cash offsetting this, leading to net debt of about US$1.47m.

How Strong Is Lulu's Fashion Lounge Holdings' Balance Sheet?

We can see from the most recent balance sheet that Lulu's Fashion Lounge Holdings had liabilities of US$91.8m falling due within a year, and liabilities of US$16.0m due beyond that. Offsetting this, it had US$8.62m in cash and US$5.29m in receivables that were due within 12 months. So it has liabilities totalling US$93.9m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$13.2m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Lulu's Fashion Lounge Holdings would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Lulu's Fashion Lounge Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Lulu's Fashion Lounge Holdings

Over 12 months, Lulu's Fashion Lounge Holdings made a loss at the EBIT level, and saw its revenue drop to US$303m, which is a fall of 11%. We would much prefer see growth.

Caveat Emptor

While Lulu's Fashion Lounge Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$26m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$58m in the last year. So we think buying this stock is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Lulu's Fashion Lounge Holdings (including 1 which makes us a bit uncomfortable) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.