Revolve Group Q2 2025 Earnings Report

Revolve Group EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.12
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.21

Revolve Group Revenue Results

• Actual Revenue: $308.97 million
• Expected Revenue: $297.91 million
• Beat/Miss: Beat by +$11.06 million
• YoY Revenue Growth: +9.30%

Revolve Group Announcement Details

• Quarter: Q2 2025
• Date: 8/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 4:30PM ET

Revolve Group (NYSE:RVLV) operates as an online fashion retailer for millennial and generation z consumers in the United States and internationally. The company operates in two segments, REVOLVE and FWRD. It operates a platform that connects consumers and global fashion influencers, as well as emerging, established, and owned brands. The company offers apparel, footwear, accessories, beauty, and home products from emerging, established, and owned brands, as well as luxury brands through its websites and mobile apps. The company was formerly known as Advance Holdings, LLC and changed its name to Revolve Group, Inc. in October 2018. Revolve Group, Inc. was founded in 2003 and is headquartered in Cerritos, California.

Revolve Group Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revolve reported net sales of $309 million in Q2, up 9% year‐over‐year, and achieved 12% growth in adjusted EBITDA, yielding its highest margin in three years.
• Positive Sentiment: The company generated $52.4 million in free cash flow in H1 2025—424% higher year‐over‐year—and reduced inventory by 6% while ending Q2 with a record $311 million in cash.
• Positive Sentiment: International net sales grew 17% year‐over‐year, driven by a doubling of Mainland China sales over two years and a #1 ranking on the Tmall Global apparel store.
• Positive Sentiment: Gross margin expanded by 4 basis points to 54.1% thanks to increased mix of own brand offerings, effective tariff mitigation and upgraded markdown algorithms.
• Negative Sentiment: Tariff uncertainty persists, and a higher effective tax rate plus a $7.2 million swing in foreign‐currency and subsidiary charges led to Q2 net income of $10 million, or $0.14 per share (down from $0.21).

Presentation

[Operator]

Good afternoon, everyone, and welcome to Revolve's Second Quarter twenty twenty five Results Conference Call. After the speakers' remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Eric Randerson, Vice President of Investor Relations at Revolve. Eric, you may begin.

[Erik Randerson, Vice President, Investor Relations at Revolve Group]

Good afternoon, everyone, and thanks for joining us to discuss Revolve's second quarter twenty twenty five results. Before we begin, I'd like to mention that we have posted a presentation containing Q2 twenty twenty five financial highlights to our Investor Relations website located at investors.revolve.com. I'd also like to remind you that this conference call will include forward looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, the impact of tariffs and our mitigation efforts, our marketing events and their expected impact, our physical retail stores and our outlook for net sales, gross margin, operating expenses and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and Elsewhere in our filings with the Securities and Exchange Commission, including without limitation, our annual report on Form 10 ks for the year ended 12/31/2024, and our subsequent quarterly reports on Form 10 Q, all of which can be found on our website at investors.revolve.com.

[Erik Randerson, Vice President, Investor Relations at Revolve Group]

We undertake no obligation to revise or update any forward looking statements or information except as required by law. During our call today, will also reference certain non GAAP financial information, including adjusted EBITDA and free cash flow. We use non GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non GAAP financial information is not intended to be considered in isolation or a substitute for or superior to the financial information presented and prepared in accordance with GAAP, and our non GAAP measures may be different from non GAAP measures used by other companies. Reconciliations of non GAAP measures to the most directly comparable GAAP measures as well as the definitions of each measure, their limitations and our rationale for using them can be found in this afternoon's press release and our SEC filings.

[Erik Randerson, Vice President, Investor Relations at Revolve Group]

Joining me on the call today are our Co Founders and Co CEOs, Mike Karanikolas and Michael Mente as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Hello, everyone, and thanks for joining us today. Outstanding execution by our team within an incredibly dynamic operating environment led to strong second quarter results and continued market share gains. Our net sales increased 9% year over year outpaced by adjusted EBITDA increasing 12% year over year as we delivered our highest adjusted EBITDA margin in three years despite pressure from increased tariff rates. Improved inventory dynamics and our tariff mitigation efforts drove a slight expansion of our gross margin year over year as well as healthy cash flow generation. In fact, our $52,000,000 in free cash flow generated during the first six months of 2025 is nearly three times the free cash flow we achieved for the full year in 2024.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Looking beyond the numbers, I'm excited by the underlying drivers of our strong results that illustrate great progress in key areas of investment for long term success. Our customer base continues to increase and on average we are generating more revenue per active customer helped by a lower return rate year over year and our successful efforts to capture a greater share of the consumer's wallet. I'm also thrilled with our momentum and expansion within international markets and by the increasing mix of owned brands as a percentage of REVOLVE segment net sales that is accretive to our margins. With that as an introduction, I'll step back and provide a brief recap of our Q2 results before reviewing the progress on our longer term initiatives. Starting with Q2 results, as discussed on our Q1 earnings call, net sales for the 2025 had a slow start coinciding with the peak tariff uncertainty in April and historically low consumer sentiment.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Encouragingly, our net sales growth rebounded strongly from mid single digits in April 2025 into the low double digit growth territory for the months of May and June. All told, net sales for the full second quarter increased 9% year over year driven by domestic and international net sales increases of 717% year over year respectively. By segment, Revolve net sales increased 9% and Ford net sales increased 10% year over year within a global luxury market that declined year over year in the first quarter according to research from Bain Aldagamma. The underlying forward metrics are very encouraging further validating the efficacy of our forward investments over the past several quarters to capitalize on opportunities created by all the challenges among other luxury retailers. The biggest source of upside for the second quarter relative to expectations was our gross margin performance.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Despite the tariff pressures we discussed at LINK last quarter, we delivered a slight increase in consolidated gross margin year over year, significantly outperforming our guidance. Key contributors to our gross margin outperformance in Q2 were continued penetration growth for our own brand offerings, which generate higher margins than third party brands. The team's outstanding work on tariff mitigation relative to our prior assumptions, as well as the successful testing and rollout of enhancements to our markdown algorithms that drove meaningful improvements in the depth of markdowns in the second quarter relative to our recent performance on these metrics. Speaking of tariff mitigation, while there is still a level of uncertainty thus far, we have been able to successfully mitigate a significant majority of the tariff impacts. Importantly, the severity and abruptness of the tariff served as a catalyst for mitigation efforts that should be favorable to our long term margin structure, which is exciting.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Shifting to our bottom line results, our operating discipline allowed us to achieve a 10% increase in operating income and a 12% increase in adjusted EBITDA year over year, outpacing our net sales growth of 9% year over year. In addition to our top line growth and increased gross profit we discussed, contributing to our profitability gains were our successful efforts to drive efficiencies operations. Notably, our product return rate decreased by more than 1.5 points year over year in the quarter helping us to achieve nearly 60 basis points of leverage in our variable cost line items of selling and distribution and fulfillment. Most exciting is that our profitable growth once again converted very strongly to cash flow generation that serves as a key competitive advantage. It was our best second quarter performance for cash flow generation in four years helped by meaningfully improved inventory dynamics.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

As an illustration of our improved efficiency, our net sales increased 9% year over year while our inventory balance declined 6% year over year. Notably for the 2025, our free cash flow generation exceeded our adjusted EBITDA profitability by $10,000,000 As a result, cash and equivalents grew to an all time high of $311,000,000 as of June 30, an increase of 27% year over year. Now I'll conclude by recapping our exciting progress against our strategic priorities and growth vectors over the past few months. We have a lot of exciting initiatives in play and our team is doing an excellent job executing on the set of initiatives that we believe can deliver value for shareholders over the long term. First, we continue to efficiently invest to expand our brand awareness, grow our customer base and strengthen our connection with the next generation consumer.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

We had an extremely active and impactful second quarter for brand marketing featuring marquee events such as REVOLVE Festival, REVOLVE in the Hamptons and more that Michael will talk about in his remarks. Second, we continue to successfully expand our international penetration highlighted by 17% growth outside of The U. S. In the second quarter. Net sales increased across nearly all regions including China, which has become one of the top contributors for our REVOLVE segment.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

In fact, our REVOLVE segment sales in Mainland China have more than doubled over the past two years after we invested in a team dedicated to the China market. Their efforts have helped us to capitalize on exciting opportunities, including through successful marketplace partnerships that have fueled our growth acceleration. Revolve was recently named the number one cross border store on the Tmall Global Marketplace within the apparel category, and we recently launched a dedicated Revolve Man store on the Tmall Marketplace to further expand our reach. Our international results underscore our traction and the attractive growth opportunity overseas that is several times larger than The U. S.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Market. Third, we have continued to build on the successful expansion of our assortment to gain a greater share of consumer spending. Sales of fashion apparel, beauty, men's and home products each increased by a healthy double digit percentage year over year contributing to our reduced return rate and increased revenue per active customer year over year. This success expanding beyond our historical core further validates our opportunity to drive customer acquisition and expand our share of wallet among our loyal existing customers who trust in our brands and delight in our premium shopping experience. Finally, we are continuing to leverage AI to drive growth and efficiency initiatives across the company, including to refine our shopping experience and personalization capabilities.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Building on our successful recent launch of internally developed AI search algorithms for consumer product discovery on our e commerce sites, during the second quarter, we tested and launched into production enhancements to our AI search algorithms that are delivering great results, including a meaningful lift in conversion rate for search queries on our Revolve site. This exciting innovation by our data science team is driving incremental conversion gains on top of the incredible lift in performance that we achieved last year by replacing third party search technology with our internally developed AI search algorithms for on-site search. To wrap up, I'm very proud of the team for delivering such strong second quarter results and great progress on longer term initiatives that are critical building blocks for continued profitable growth over the long term, particularly in such an uncertain environment. I'd like to thank our team for your incredible agility, innovation and commitment that has helped us to navigate through all the tariff uncertainty while remaining focused on delivering excellence for our customers every day. With our talented team, powerful brands, operational excellence, data driven mindset and proprietary technology infrastructure, I'm confident that we have the ingredients to power profitable growth and further market share gains in 2025 and beyond. Now over to Michael.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Thanks, Mike, and hello, everyone. The core competitive advantages we have built over the last twenty years continue to set us apart and together with our strong team, enable us to deliver strong results and market share gains in the second quarter, demonstrating our ability to navigate through this volatile period with huge changes in the effective tariff rates from day to day. Even in such a dynamic environment in 2025 with wildfires, tariffs and macro uncertainty, In the first half of the year, our revenue increased 10%, our adjusted EBITDA increased 25%, and our free cash flow was more than five times higher year over year. With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and that we are especially excited about. Brand investments, merchandising, forward momentum within the luxury industry, expansion of own brands and physical retail exploration.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

First, brand building. Our brand elevating Revolve Festival held in April set the tone for the second quarter by delivering significantly greater marketing impact of reduced spending year over year. Aspirational content from Revolve Festival and the Coachella Valley dominated social media feeds during the one week period around our events. But we didn't stop there. We had a very active second quarter for brand building, exciting and delighting our passionate community of consumers, brands, content creators, and partners by hosting impactful events in New York, Miami, The Hamptons, and at Stagecoach Festival in California.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Particularly exciting was our multi week activation in The Hamptons. We engaged our community with Revolve summer activations attended by numerous A listers, co hosted the vibrant Palm Tree Music Festival, and hosted an experiential pop up shop in partnership with Dorvell that remains open through Labor Day. All told, it was our most efficient second quarter for brand building in four years based on the estimated value of impressions generated by our brand marketing investments. Second, merchandising. A key highlight from Q2 was our strong cash flow generation, which benefited from higher inventory turns year over year.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

In fact, we achieved the highest second quarter inventory turns ratio for full price merchandise on a revolver of four years. The underlying drivers are exciting as well. Our vastly improved merchandising on the site and other consumer touch points in recent quarters is a key contributor to our improved inventory efficiency while also driving increased consumer engagement and category expansion. For instance, net sales from our Festival Shop and Revolve nearly tripled year over year in the 2025 on top of very significant growth last year. Our fashion and editorial merchandising are making it easier than ever for our customers to fund what they're looking for, driving improved inventory efficiency.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Our merchandising is also helping to generate increased demand in fashion apparel offerings outside of our historical core of event dressing. Sales of shorts have been incredible in the '25, also contributing to our improved inventory turns year over year. Leveraging our data driven approach, our merchandising team identified the shorts trends very early. We capitalized by highlighting the perfect short selling for the boho look or for wearing at the beach. I truly believe the combination of our merchandising, editorial, and photography that seemingly feeds into our brand marketing messaging is second to none and continues to improve.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Third, FORWARD. Our FORWARD segment delivered impressive second quarter results that further validate our strategy on investing through the cycle while the luxury industry continues to face near term challenges. While many luxury players have reported declining revenue, FORWARD net sales increased 10% year over year on increased margins as FORWARD gross profit increased by 16% year over year in the second quarter. And at a time when some of the largest luxury retailers are delaying payments to luxury brands for merchandise received, FORWARD continues to attract coveted luxury brands with new partners. Illustrating our brand assortment momentum, our recent launches on FORWARD by coveted luxury brands, including Phoebe Philo, Victoria Beck and Beauty, Ralph Lauren, and the launch of SKIMS x Roberto Cavalli collaboration.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Finally, luxury brands have also been creating in demand products that are exclusively available on Ford. In June, we launched our Ford summer club capsule that features exclusive Ford South for summer getaways from hot brands, including Christopher Esber, Fidre's, and Same. Consumer demand for the capsule has been outstanding, resulting in very positive feedback from other luxury brands who are eager to partner with us more closely going forward. Fourth, owned brands, where our team has been incredibly agile in navigating the evolving tariff landscape. Despite all the uncertainty, I am pleased to share that our momentum in owned brands continues to build strongly.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

In fact, year over year growth of our owned brand net sales improved for the fifth consecutive quarter in Q2 and is outpacing our overall growth, leading to increased penetration of owned brands. The increased owned brand mix of REVOLVE STEP and net sales year over year was a key contributor to our better than expected gross margin as owned brands generate much higher gross margins than third party brands. And since our owned brand collections are exclusively available through REVOLVE and FORWARD, owned brands are a key driver of traffic, new customer acquisition and net sales at full price. With the underlying metrics for owned brands performing better than ever and continue to outperform comparable metrics for third party brands, we are investing with confidence ahead of the launch of some exciting new owned brands in the next few quarters. I look forward to sharing more on this quarter's conference call.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Finally, physical retail. We continue to be very excited about the growth opportunity in physical retail over the long term. We are making significant progress developing our retail muscle as we continue to build out a team that continues to raise the bar on our go to market strategy and operations at our Aspen store, resulting in conversion gains, net sales growth, and phenomenal customer feedback. Our brands have taken notice of our Aspen success. An executive from an iconic Italian luxury brand that we've targeted for years to carry in our Ford assortment visited our Aspen store recently and was so impressed by our merchandising, service and overall aesthetic that we have begun discussions about carrying the iconic brand as part of our in store assortment.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

All of this is further validation of the attractive long term opportunity ahead in physical retail and will be an important driver of success at our soon to be open store in Los Angeles. We are on track to open our permanent store in Los Angeles in the fourth quarter just in time for the holiday season. The store design looks incredible inside and out and will beautifully showcase our brands in our prime space within the quintessential shopping destination at The Grove Los Angeles. Wrapping up, clearly have a lot of promising growth initiatives in the works that we are very excited about. Our strong financial profile sets us apart, especially in such a dynamic operating environment, illustrated by our profitable growth and cash flow generation that further strengthened our balance sheet to more than $310,000,000 in cash and cash equivalents as of June 30.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

This strategic view of management gives us the capacity to invest in long term success and initiatives that we believe we will continue to drive profitable growth for many years to come. Now I'll turn it over to Jesse for a discussion of the financials.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Thanks, Michael, and hello, everyone. Our ability to deliver profitable growth again in the second quarter while continuing to invest in long term growth drivers and at the same time further building our already strong balance sheet is a true reflection of the platform we have built, our operating excellence and the team's ability to execute. I am proud of the team for delivering strong second quarter results, particularly considering the volatile macroeconomic environment and our slow start to the quarter amidst all the uncertainty around the tariff policy announcements in early April. I'll start by recapping our second quarter results, then I will summarize our great progress on navigating tariffs before closing with updates on recent trends in the business and guidance for the balance of the year. Starting with the second quarter results, net sales were $3.00 $9,000,000 a year over year increase of 9%, representing an exciting milestone of delivering more than $300,000,000 in quarterly revenue for the first time.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Revolve segment net sales increased 9% and forward segment net sales increased 10% year over year in the second quarter. By territory, domestic net sales increased 7% and international net sales increased 17% year over year. Active customers, a trailing twelve month measure, increased 6% year over year. Total orders placed were $2,400,000 an increase of 7% year over year. Average order value was $300 a decrease of 2% year over year that was primarily due to a shift in product mix.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Consolidated gross margin was 54.1%, an increase of four basis points year over year and well above our guidance range. Contributing to the slight margin expansion year over year was a higher mix of owned brands as a percentage of REVOLVE segment net sales, partially offset by a lower but still very strong mix of net sales at full price. Now moving on to operating expenses. Fulfillment costs were 3.2% of net sales, a decrease of 10 basis points year over year, albeit slightly higher than our guidance. The year over year efficiency reflects a decrease in our return rate, partially offset by a lower AOB year over year.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Selling and distribution cost efficiency outperformed our guidance at 17.4% of net sales, a decrease of 45 basis points year over year. This strong result reflects a continued decrease in our return rate year over year as well as our team's successful execution in driving logistics cost efficiencies, partially offset by a lower AOB year over year. Our marketing investment represented 15.2% of net sales, essentially flat year over year and well below our average marketing investment for the second quarters over the past four years. General and administrative costs were $38,300,000 outperforming our guidance of $39,000,000 albeit an increase of 55 basis points year over year as a percentage of net sales. The increase in net sales and gross profit year over year and improved efficiency in our logistics costs help us to achieve solid growth in operating profitability.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Our GAAP income from operations increased 10% year over year in the second quarter. Now below the operating income line, there was a big swing year over year in other income expense that I'll walk you through next. In the second quarter of this year, we recorded other expense of $2,900,000 a decrease from recording other income of $4,300,000 in the 2024. This $7,200,000 decrease in other income year over year is primarily attributable to a $2,800,000 increase in unrealized foreign currency exchange losses year over year, a $2,400,000 non cash charge in the 2025 related to the disposal of a subsidiary as compared to a bargain purchase gain of $1,900,000 related to the acquisition of the same subsidiary in the 2024. Now let me provide some background on the disposal of a subsidiary charge in the 2025 and the related bargain purchase gain in the 2024.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Both relate to a very small acquisition we closed in the 2024. We made the difficult decision to cease funding the operations of our majority owned foreign subsidiary that had acquired the business of French designer, Alexandre Vautier, for approximately $400,000 in the 2024. Our disciplined approach to capital allocation guided our decision to move on and shift our focus to other initiatives with higher ROI that we believe will maximize the overall returns on our investments over the long term. Our tax rate was 33.7 in the second quarter as compared to 25.7% in the prior year. The higher than expected effective tax rate is primarily due to certain discrete tax items recorded in the 2025 that we previously expected to be reflected in the 2025.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Net income was $10,000,000 or $0.14 per diluted share compared to $0.21 per diluted share in the 2024. This decrease was primarily due to the significant year over year decrease in other income and the increased effective tax rate I just mentioned. Adjusted EBITDA was $23,000,000 a year over year increase of 12%, which outpaced our net sales growth of percent. Adjusted EBITDA margin was 7.4%, our highest quarterly margin in three years. Moving on to the balance sheet and cash flow statement. We delivered strong cash flows in the second quarter. Free cash flow was $9,600,000 for the quarter and $52,400,000 for the six month year to date period, a year over year increase of $42,400,000 or 424% compared to the six month year to date period in 2024. Improved inventory dynamics was a key driver of our strong cash flow generation as net sales increased 9%, while our inventory declined six percent year over year. Inventory at 06/30/2025, was $221,000,000 a decrease of $13,000,000 year over year.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Importantly, we are entering the third quarter with inventory that is healthy and clean, featuring newness that is resonating with our core customer. As of 06/30/2025, cash and cash equivalents were $311,000,000 an increase of $10,000,000 during the quarter and growth of $66,000,000 or 27% year over year, and we continue to have no debt. Our strong balance sheet and cash flow gives us capacity to continue to invest in the business to drive long term growth, including physical retail and AI, while at the same time, opportunistically evaluating strategic M and A and repurchasing Class A common shares to enhance shareholder value. During the second quarter, we repurchased approximately 93,000 shares of Class A common stock at an average price of $18.78 Approximately $56,000,000 remained under our $100,000,000 stock repurchase program as of 06/30/2025. Now a brief update on tariffs.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Over the past few months, our cross functional team has made excellent progress on tariff mitigation, working closely with our partners and brands to drive a successful outcome. As a result, in the second quarter, we estimate that we mitigated the significant majority of our tariff exposure. We expect that our diversification initiatives will enable us to slightly reduce our sourcing exposure to China for our own brand products starting in the second half of this year and into 2026. We remain thoughtful in our approach, however, keeping a close eye on where the tariffs across regions may ultimately land amidst all the continuing uncertainty. To illustrate the volatility we are dealing with, when we announced our first quarter results and gave guidance in early May, the incremental tariff for China was 145%.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

By comparison, today, the incremental tariff for China is 30%. While still high, we view the current China tariff level as much more manageable, particularly with our great progress on tariff mitigation achieved in the past few months. Importantly, looking beyond the current tariff challenges that we will continue to navigate for the balance of the year and into 2026, we believe our team's great work on tariff mitigation initiatives has the potential to improve our gross margin over the long run. So while the tariff landscape remains very uncertain, we feel much better today about our ability to navigate through the tariff landscape than we did just three months ago, and this is reflected in our improved gross margin outlook I will discuss shortly. Now let me update you on some recent trends in the business since the second quarter ended and provide some direction on our cost structure to help in your modeling of the business for 2025.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Starting from the top, our net sales in the month of July increased by approximately 7% year over year. Now before we get into guidance, let me caveat that our outlook is based on the current status of tariffs as of today, 08/05/2025, and our estimate of the impact of potential mitigating activities that are currently underway. Our outlook for gross margin is especially susceptible to variability, given the uncertainty surrounding the timing and level of tariffs that will ultimately be in effect as well as the timing and magnitude of the potential impact resulting from our mitigation efforts. With that, let's discuss our updated guidance for gross margin, which includes our best estimate for the impact of tariffs net of our mitigation efforts. We expect gross margin in the 2025 of between 51.251.7%, which at the midpoint implies a slight increase year over year.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

For the full year 2025, we now expect gross margin of between 52.152.6%, which is considerably higher than our prior guidance. At the midpoint, the new range implies a slight decrease year over year. Again, this guidance reflects our best estimate at this point, but there are a lot of moving pieces and a considerable amount of uncertainty that remains. Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.2% for the 2025, a slight decrease year over year.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

For the full year 2025, we expect fulfillment to represent between 3.13.2% of net sales. Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.5% for the 2025 and the range of 17.2% to 17.5% for the full year 2025, unchanged from last quarter. Embedded in our assumptions are that we will face more difficult return rate comparisons going forward after five consecutive quarters of year over year decreases in our return rate. Marketing.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

We expect our marketing investment to be approximately 14.5% of net sales in the 2025 and between 14.815% of net sales for the full year 2025, a slight decrease from our prior guidance. General and administrative, we expect G and A expense of approximately $38,500,000 in the 2025 and between $152,000,000 and $154,000,000 for the full year 2025, also lower than our prior full year guidance range. And lastly, we now expect our effective tax rate to be approximately 28% to 29% for the full year 2025. As previously mentioned, the higher than expected tax rate in the second quarter is primarily due to certain discrete tax items that we had previously expected to be reflected in our tax provision in the 2025. For the 2025, we expect our effective tax rate to be approximately 27%.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

To recap, we delivered strong Q2 results during what continues to be a challenging and fluid environment. With our highly capable team, healthy cash flow, and rock solid balance sheet, we are well positioned to navigate the current uncertainty while continuing to invest in the exciting longer term growth opportunities ahead of us. Now we'll open it up for your questions.

[Operator]

Thank you, sir. We'll take the first question from Nathan Feather, Morgan Stanley.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

Hey, everyone. Thanks so much for the question and congrats on the strong results. You mentioned in the prepared remarks that some of the tariff mitigation efforts you have put in place so far should help the margin structure long term. Can you help and dig in on what's happening there and the potential magnitude of the benefits? Thank you.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yes, definitely. So without getting into specific details, the pressure of the tariffs opened up a lot of opportunities for us to partner with our brands at a deeper level to come up with win win solutions that apply in this increased tariff world as well as world without the increased tariff. So we think those partnerships and changes will provide long term benefits for us. And then with regards to the margin impact of tariffs themselves, we believe that over time, that the pressure from the tariff increases will start to flow through prices over the longer term. And we'll see base margins renormalize while still reaping the benefits of those long term partnership opportunities.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

Great. That's helpful.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

And then I guess how should we think about the pricing path when it comes to tariffs and when you might see some of those increases come through both in the owned brands and on the partner side?

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yes, sure. So we are starting to see more impact from price increases over time. So in Q3, we're seeing about a mid single digit broad based price increase from certain party brands. And then with Q4, the data is still early, but we're starting to see a bit of an uptick from that. So I think we will start to see price increases flow through over time as brands react to the increased cost pressure.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And then with regards to own brand, our strategy on the own brand side is just to stay with the market. So whatever the market is doing, we'll generally be adjusting prices alongside with what the broader market is doing.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

Very helpful. Thank you.

[Operator]

The next question today comes from Oliver Chen from TD Securities.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Hi, Mike and Jesse. Regarding U. S. Versus international, what would you say you're seeing in terms of the plus 7% within The U. S.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

And categories that have been stronger versus weaker? Would love color on dresses as well. And then as we think about the margin, Jesse, you called out a lower mix of full price sales. Is that up against a tough full price comparison? Will that trend continue in terms of that being a headwind?

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

And then lastly, the owned brand capabilities. You've been through different versions of this. It sounds like it's much more broad based now and you're seeing good momentum, but it might be helpful to contrast like your what you like, your capabilities in own brands, you know, versus the past. I know it's evolved, in a in a really positive way. Thank you.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. Maybe I'll start with the, full price question, Oliver, and then kick it over to you guys. Full price mix was really healthy in q two. It was lower year over year, but still very healthy and and generally in line with what we were seeing in 02/2019. So very happy with where full prices came out.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

We are up against what comes from last year. In the back half of the year, you know, it's probably plus or minus in the same zone as we saw last year. So feel good about the mix of inventory, the mix of full price, and then also the great progress we did on markdown margin. So kind of across the different cuts of margins, seeing really good health there.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And then just with regards to US versus international, I'll comment a bit there and then maybe turn it over to Michael for comments on fashion and the known brands. So, yes, international, we saw particular strength in Q2. Was very broad based. Almost all major regions were up by double digits with just a couple of exceptions. Notably, as we mentioned in the earlier remarks, China has been a great story for us as we invested a couple of years ago in a more localized team to and leadership in that area to really help develop that market for us.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And over the past two years, we've more than doubled that business. So we're, for on the Revolve side of things. So we're really starting to see the efforts of that pay off as well as a lot of our efforts in other regions. Very happy with those international trends.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Regarding dresses, dresses continue to be a strong category for us. We continue to grow. We're growing actually faster this quarter than this quarter last year, so there's a little acceleration there. We're super proud of our progress across all other categories as we mentioned. Shorts doing quite well, intimate jewelry, pants, so there's a mix.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

So we're getting a lot of strength there. That has been driven by, you know, partner brands, but also been driven by own brands own brands. We've been investing for years to really diversify our product offering, and we're having great steady success. I think this is three, five quarters of steady year over year growth and, you know, more diversified penetration, ultimately, you know, offering more needs for our customer across the board versus just that going out. Just categories are still really great there.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Also noting that it's still quite brilliant, that journey, and that there's still a lot of opportunities for all brands to continue to expand across categories, across end users and, you know, other aspects of our customers' lives.

[Operator]

Our next question today comes from Anna Andreeva from Piper Sandler.

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

Great. Thanks so much, and congrats, guys. Nice results. On July '7, should we think Forward and international are outpacing revolve and domestic?

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

Any other color you could share? I remember last quarter you talked about the shift to more accessible price points. I don't think we heard that this time around. Did that continue in 2Q or quarter to date? And then we had a follow-up as well.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. So on July, we're not gonna get too specific there just because on a monthly basis, there's a lot of volatility. There was a little more pressure on a comp basis on the international side of the business, again, it's just a month. We don't wanna get into too much there. On the kind of accessible price point, you you had commented last quarter, we were seeing pressure on AOP, and that started to improve kind of as we exited April and into May, June.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

And that was the case, but we are seeing great progress out of our category diversification. So fashion apparel was up 13% versus dresses, kind of that event wear, which was up 5%. So there is some impact there and just product category diversification, which is a good thing and part of the strategy.

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Okay. That's perfect. That's very helpful. And just as a follow-up on gross margin, did you say what was the impact of tariffs in the second quarter?

[Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies]

And 3Q guide is based on gross margin up only slightly despite that easier compare. And inventories look very similar. So should we think tariffs will be a greater impact post mitigation in 3Q?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. So in the in the quarter, in q two, there was a negative impact on tariff. Now that was smaller given that a lot of the receipts weren't rolling into the back half of the year, but there was an impact there. That was more than offset by the improvements we made on the markdown margin, markdown algorithm. And then also the great expansion we saw on own brands, and that led to the year over year increase in gross margin.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

And then if you look at the back half of the year and our guidance there, a slight increase in q three. And then, you know, for the full year, about 30 basis points below where we were at the beginning of the year. So that does reflect some negative tariff impact greater than it was in q two, but, again, offset by some of the great progress we've made both on owned brands and that margin.

[Operator]

Our next question today comes from Jay Sole from UBS.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. Two part question. One is, can you just talk a little bit about the progress you continue to make in lowering the return rate? And maybe talk about prospects for seeing that return rate continue to improve as we go through the rest of the year into next year?

[Jay Sole, Managing Director at UBS Group]

And then Mike, just on AI, just want to follow this thread. It's been a topic of conversation on the calls for the last few calls. Can you just talk about the progress you made in the last ninety days, if you're seeing still good opportunities in AI or if you're starting seeing sort of stumbling blocks and roadblocks and hurdles that maybe would prevent utilizing opportunities maybe the way you envisioned before?

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yes, definitely. So on return rates, we feel great about all the progress we've made and the initiatives over the past year. As we get into the back half of the year, it's tougher compares, as Jesse mentioned. We would caution moderation as far as expectations there. We saw the number of projects in the pipeline, including some where they require a bit more partnership with the brands than with just everything going on with the tariffs right now.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

It's just the brands have their hands full. So we also want to be just smart about how we go about things in terms of the timing of driving improvements there. But a lot of stuff in the R and D phase, I think probably more limited impact in terms of new things in the back half of the year. But I'm hopeful as we enter H1 twenty twenty six, we'll start to see some acceleration there in terms of kind of projects and initiatives that can bear fruit on that side. And then in terms of AI, yes, I think 2024 was an incredible year for us in terms of delivering AI enhancements.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

We still have a lot in the works this year, including continued improvements on the AI search, which was exciting for us. Our original AI search already beat sort of third party market leader or one of the market leaders in that space. And then we improved it even further with further conversion rate gains in most recent quarter. We've deployed voice to text technology recently on the customer service side to help us out there. We have some great things in the R and D phase across the board.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

On the marketing side, we've had some early success with landing page optimization that's driven by AI and that AI really enables in a way that wasn't possible before. So we're seeing some nice early results there. Continuing to experiment with AI content in terms of videos, imagery on the marketing side. So I think a lot of nice things there. Continued upgrades to personalization, recommendation, algorithms on the website utilizing AI.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And then, of course, some some bigger things that are more in the r and d type phase that could be a bit more transformational just in terms of how consumers shop the website and including some things that are early stage in terms of testing out with with consumers like virtual try on and things of that nature. So, yeah, I think we're just scratching the surface, but the nature of anything r and d is, you know, you'll have some some big wins one quarter and then maybe some more incremental wins another quarter. But when those R and D projects hit, they can hit in a big way. So we're continually very excited with what we're working on there.

[Operator]

Up next is Dylan Carden from William Blair.

[Dylan Carden, Research Analyst - Consumer at William Blair]

Curious on the inventory initiatives, if you can share anything there, because that discrepancy in sales growth versus inventory growth, which is clearly a positive. And I'm curious then sort of trickling it down to the gross margin line, how much of that is the upside there kind of on the guide is more tariff related in that sort of swing in China? And how much is sort of just better inventory management?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yes. No. Really proud of the progress we made on that inventory versus sales dynamic. And this has been in the works for a couple of quarters, and we made progress over the last couple of quarters. But really good to see that come through in a big way, And importantly, in a really healthy position as we enter the back half of the year and very balanced.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

And that inventory differential and the benefit there is across both segments, so great to see both segments really in a healthy position. And on the gross margin, you know, again, feel really good about the tariff mitigation, and then we've had some upside from the markdown algorithm adjustments, the really healthy inventory, and then also the own brand expansion. I think as Michael mentioned in his prepared remarks, seeing the best full price, turns we've seen in over four years. And if you pull out kind of that COVID post COVID peak, you know, it's the best we've seen in plus ten years. So really good inventory management. The team's been doing a great job there.

[Dylan Carden, Research Analyst - Consumer at William Blair]

And I know you don't wanna get into it as far as sort of the quarterly desal, but any any context you can give? I know comparisons get harder is where I'm going with it. Anything you can kind of provide, stack trends, or, you know, kinda how things might progress?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. Yeah. I yeah. Again, not much to get into there. To your point, the comp comps do get tougher, in the back half of the quarter based on what we said last year, and into the fourth quarter.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

But, you know, I think really good performance in Q2 and continue to just drive and manage through the environment.

[Dylan Carden, Research Analyst - Consumer at William Blair]

Thanks.

[Operator]

And the next question is Rick Patel from Raymond James.

[Rick Patel, Managing Director at Raymond James Financial]

Thank you and well done on the great execution in a tough environment. I had a follow-up question on international performance. So any updates to share in terms of anti American sentiment that could be holding back even stronger growth in international markets? And then how do we think about the durability of the international growth rate going forward?

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yes. So we've seen those effects moderate, but I wouldn't say they've completely gone away. And I called out almost every region is growing in double digits, but one notable exception is Canada. So we're still, I believe, seeing impact of the negative sentiment regarding America in that region, but it's moderated from its peak, which I think is a great sign. And then in terms of the durability, we feel great about the international road map and the growth durability.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And China is in the very early stages, growing at very significant double digit growth rates right now. And so as that region becomes larger and more important to Revolve, of course, the effect of high growth rates can have an even bigger impact on international. So I think we have a lot of good things going for international over the longer term, a lot of untapped opportunities and feel great about our roadmap there.

[Rick Patel, Managing Director at Raymond James Financial]

Can you also expand on the enhancements in the markdown algorithms that are benefiting gross margin? It sounds like there's a material tailwind. So just any way to frame how much it benefited gross margins this quarter? And how do we think about the ability to drive further improvement from here?

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

So I'll leave to Jesse any commentary on the impact level to the extent that we disclose it. But yes, would say it's a meaningful impact. It was definitely more than just hit the margins. And I think it goes back to how we are constantly investing and improving our systems and technology and processes to get better and better over the long term. And we think that will continue to be a long term gross margin.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And yet, a very meaningful impact on the quarter. And we're excited as we continue to make upgrades in that area and deploy improvements, particularly as AI becomes more important in that area that there's a lot more to come there as we continue to make investments.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. No specific disclosure on the impact, you know, other than, you know, what we've disclosed in that margin did increase, and that offset some of the tariff impact. And this only took place, call it, midway through the quarter. So just in the early stages of seeing the impact there, and that's reflected in the full year guidance.

[Rick Patel, Managing Director at Raymond James Financial]

Thanks very much.

[Operator]

Moving on to Trevor Young with Barclays.

[Trevor Young, Director & Senior Internet Equity Research Analyst at Barclays Capital]

Great. Thank you. Michael, just back to the comments on owned brands. Is the potentially lower tariff environment changing how you're thinking about investing behind some of those upcoming launches in the back half, maybe allocating greater portion of marketing budget behind those? And also how is it influencing how you think about owned brand mix and how quickly that could ramp here medium term?

[Trevor Young, Director & Senior Internet Equity Research Analyst at Barclays Capital]

Some of the comments in the prepared remarks sounded incrementally more confident around that owned brand initiative. And just lastly, any implications for inventory growth from some of those efforts to push owned brands?

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

The stability in the tariff situation gives a lot more confidence. You know, over over the past several years, we've been increasing our brand constantly investing into product, and it is come with great, great, great results. Some of our best performing home brand product to some of our most expensive home brand product. So some of the upcoming launches are investments into that zone. So feeling really good about that.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

There will be some you know, we've we'll invest meaningful meaningful for an own brand launch given us our confidence what the product is, given our our confidence of what our customers are looking for gaps in the marketplace and gaps in our assortment. So super excited about that. Think home brand percentage of inventory will be steadily increasing. There's been a lot of investments both in terms of new brands as well as new capabilities, so there'll be a steady ramp up there. I think we've we've been have staff that, you know, too aggressive, you know, could be, you know, challenging or a little too risky.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

So we see a nice low the one thing that really could enhance own brands is our physical stores, and we're seeing our physical stores really, really perform well. Own brands product in physical stores is performing really, really well, of course, off a small base in terms of the small stores. We've seen the integration there will be quite natural, quite synergistic, super exciting.

[Trevor Young, Director & Senior Internet Equity Research Analyst at Barclays Capital]

Great. Thank you.

[Operator]

The next question is Ashley Owens, KeyBanc Capital Markets.

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

Great. Thank you so much for taking the question. So quickly just on owned brands again in tariffs. As you look to make price increases in line with the broader market, just how are you thinking about balancing those actions with demand elasticity to sustain the momentum within owned brands?

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

And then with the mitigation measures in place, how was your view on the need for additional pricing shifted compared to three months ago?

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

When we look at our own brand product, we're really compare comparing to just the broader third party mix. And we've done some blind tests where we're moving tax and testing things against luxury and seeing that home brand pricing is, you know, magnitudes for, you know, greater, you know, on the lower side, but seeing quality very, very, very comparable. So long term, super optimistic, super excited that as we invest in better, higher quality product, the customer, you know, buys our higher price points, but also still feels that they are very accessible and quite, you know, value compared to the luxury marketplace. So I think that there's a huge, huge opportunity there. Of course, as we invest into world class, you know, talent as well as, you know, world class brand, we think we're giving a luxury proposition at a premium price point, and a customer has has really connected with it.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

So a lot of lot of ramp there. And, yeah, can't be more proud of the team and the execution there.

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

Alright. Super. And then just a follow-up too really quickly. On m and a, I know that you see funding of Alexander Voltai, but you mentioned potentially being opportunistic around some of the future acquisitions in the prepared remarks. What are you looking for now as you evaluate the market?

[Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets]

And how do you think about the right type of opportunities that could complement the broader portfolio?

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

I see that there's big gaps in our merchandising mix still. So we're really strong in certain areas, but we know our customer shops for other needs in other zones. So I think that the right m and a opportunity could really integrate with what a customer comes to us for, but, also, we're not necessarily We can really accelerate things in that zone. So we decided to, you know, explore.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

I think our customer has a deep trust in us, and we ultimately have to give her a broader offering, a more diverse offering. Ultimately, we can gain greater share of wallet, greater getting a bigger share of closet and more mind share as well. It also unlocks, you know, other marketing opportunities and such. So that's the primary thing where we can leverage our scale and subscription expertise into strategic zones that we know are synergistic with our customer base.

[Operator]

The next question is Matt Koranda, ROTH Capital Partners.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Thanks. A lot of Vanessa answered, but maybe just a clarifying question on the gross margin for the third quarter. Is that guidance range taking into account the full impact of tariffs and vendor price increases? Or is there still some benefit of sort of the inventory brought in prior to price increases from vendors?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yes. No, that factors in everything, and that's our best estimate, not only of the tariff rates and where they ultimately land because there's still some uncertainty there, but also our best estimate of our mitigation efforts and the pricing that we're seeing.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. And then, just on the OpEx, I guess it implies some reinvestment given some of the line items that you guided there, Jesse, for the second half of the year, especially on marketing and selling and distribution. Can you guys maybe just address either specific marketing campaigns or just additional expenses that are impacting s and d, in the second half of the year that caused the deleverage?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. On selling distribution first, this compares to last year, q three and q four, where we saw the meaningful decreases in return rates. So we're up against those comps, and we're factoring that in as we look ahead. We're still optimistic over the long term that we can continue to work return rate down, but we are up against those tough comps where you saw that great benefit from the return rate reduction. And then on marketing, just continue to invest in the core, continue to acquire customers, continue to retain our existing customers.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

And importantly, in the back half of the year, we have the own brand launches coming up in the next couple of quarters that we'll invest ahead of. And then also the opening of the growth store in LA that will take some marketing dollars.

[Operator]

Our next question will come from Peter MacGeldrick from Stifel.

[Peter McGoldrick, Vice President at Stifel Financial]

Hi, everyone. Thanks for taking my question. Active customer growth accelerated year to date I was hoping you could quantify the areas where you're picking up new customers whether it be from category expansion, luxury, retail, international or picking up lapsed revolve customers. Anything you can help with sizing there?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. I think if you look at relative strength, it, you know, probably lines up with the relative net sales growth that we saw. And then and then sorry. The second piece. Oh, on the existing customers, really exciting to see the productivity from those existing customers.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

So it increased both sequentially and year over year in the revenue per active customer and then a sequential increase in orders per active customer. So really good results from the existing customer then continue to acquire those new customers.

[Peter McGoldrick, Vice President at Stifel Financial]

Very good. And then fashion apparel plus 13 year over year, that's the largest dollar contributor to revenue growth. Can you parse the contribution from expanding assortment from underlying growth within the core product categories?

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yes. I think it's hard to get too specific on person and outfits. Category expansion and just investments in the categories that we have historically been known for as much played a big role in the growth in fashion apparel. But it's all going be a mix between just nuances of fashion trends changing over time in terms of where the dollars go. But 100%, our continued investment into other categories are starting to play dividends.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And I think we're in the very early stages there, and the long term opportunity is quite big if we can make a mark outside these areas we've been traditionally known for.

[Operator]

The next question is Janine Stichter

[Janine Stichter, MD & BTIG Consumer Retail and Lifestyle Brands Analyst at BTIG]

Hi. Thanks for taking my question. Can you talk a little bit more about forward? It's really impressive the results you've had there just given how tough luxury has been. So maybe speak about some of the investments you're making there and then how you see the share gain opportunities going forward as we go through the next year.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Overall, forward share gains, we really good about, you know, Really across the board is not necessarily one thing. I think the buying merchandising mix has been awesome. The ability to add new brands, especially in a time when some of our most, you know, direct competitors, especially in The US marketplace, are increasingly weaker and weaker. Those have been a lot of efforts in higher touch consumer sales. That's been an early, early area for us.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

We're seeing great, great progress there. So, of course, being like a smaller business, there are still lots of untapped zones for us to invest in, you know, kind of drafting behind what we've learned from Evolve, what our SPs there. So great progress by the team, but also a long way to go. Really, really great, you know, improvements in a number of areas across the board.

[Janine Stichter, MD & BTIG Consumer Retail and Lifestyle Brands Analyst at BTIG]

Great. And then, maybe just a follow-up. Curious what you're seeing on beauty, what you've been seeing in that category, and how you see the the opportunity there go forward as well.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Great progress on beauty, but also still early. I do think, you know, good healthy growth there, but also knowing that there are a lot of blocking and tackling, a lot of nuts and bolts that need to improve basic site experience and, of course, you know, big marketing. We have not invested much of the marketing side at all. It's really been driven by assortment. You know, the next kind of phase that we think will be, you know, game changing will be site experience, a long way to go there, but seeing, know, the initial progress there being, you know, quite satisfying.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

And, ultimately, when we're seeing that the merchandising mix is, you know, world class and our site experience is world class, then we can really unleash marketing. So early stages, steady, steady progress in growth, growing faster than the core business, but also a long, long way to go in a big attractive market.

[Janine Stichter, MD & BTIG Consumer Retail and Lifestyle Brands Analyst at BTIG]

Great. Thanks so much.

[Operator]

Next up is Michael Binetti, Evercore ISI.

[Carson Paull, Senior Associate - Equity Research at Evercore]

Hey, guys. It's Carson on for Michael. First off, congrats on a nice quarter. Could you break down the merchandising strategy for the rest of the year to help us think about AOB? And what is the updated outlook embed for markdowns in the second half?

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

Yeah. Maybe I'll comment on the AOB first. You know, I think we had seen some pressure in q one and q two. Our internal internal modeling has us about flat for the back half of the year. That has some tariff related price increases impacting that on the plus side.

[Jesse Timmermans, Chief Financial Officer at Revolve Group]

And then offsetting that would be just that product category diversification again where we we already are seeing great growth in those other categories that generally have lower price points than the core event dressing. And then there's, of course, just quarter to quarter shifts on full price markdown mix and the forward versus revolve mix. So but our internal model modeling is about flat.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

And as far as merchandising strategy, I think it's, you know, back half of year kind of there is our long term strategy. It's really enhance the core, really be the best of what we're really known for, as well as expand, you know, the front to really make progress in areas that we're not necessarily known for. Last year, we had a great progress in sweaters and knits, outerwear, ski, kinda cold weather, things that were historically not in our LA nature, and we're anticipating more of the same. But overall, I feel good about that, continued expansion of own brands and launching new own brands, which should be very, very exciting for us. So looking forward to the back half of the year.

[Carson Paull, Senior Associate - Equity Research at Evercore]

Great. Thanks guys.

[Operator]

Our final question today comes from Janet Kloppenburg, JJK.

[Janet Kloppenburg, President at JJK Research Associates]

Hi everybody and congrats on a nice quarter. I I had a question on on pricing and on and on mix. And I I don't know if I'm right on mix, but it seems to me that the way you're assorting the website and the categories you're invested in are driving down the average price point. And I I'd love you to clarify that for me. And then secondly, I was just wondering that as you passed higher prices along in July, have you see because of the tariff impact, have you seen some resistance or any resistance from your core customers? Thank you.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

Yeah. So so I'll I'll start with the July question. The early read is we aren't seeing significant signs of of resistance from customers on on some of the price increases we've seen. But, the data is still early. I'd say the sample set is not large enough to draw a conclusion.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And also, as we mentioned, the price increases that we're seeing from third party vendors do tick up a bit as we enter Q4. So I think the early read is positive, but we have to see how things continue to play out over the course of the year. And then in terms of the price point and how merchandising mix can be affecting things, I think it's a combination. So for Q2, it was a bit of a tale of two halves. In the front half, we did see some impact at times where consumer sentiment was particularly low on the pricing side of things, and that played a role.

[Mike Karanikolas, Co-Founder, Co-CEO & Director at Revolve Group]

And then I I think on on the other front, you know, you're right that that there was a bit of a of a mix from from merchandising assortment, which can vary quarter to quarter as we make investments in areas of of opportunity. So, I think we'll see that moderate significantly through the back half of the year just from a strategic standpoint and then also with those vendors starting to pass through those price increases as well. So you know, we we shouldn't we don't expect to see the the same trend there in the back half of the year.

[Janet Kloppenburg, President at JJK Research Associates]

Okay. Thank you very much.

[Operator]

And everyone, that's all the time we have for questions today. I will turn the call back to management for closing remarks.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

Thank you guys for joining us for this quarter, and thank you most importantly to our team. Really proud of, you know, all the work that's been done. We agree it's been a nice quarter, a solid quarter, but it doesn't reflect all the hard work that really sets the foundation for great quarters ahead. The macro and, you know, macroeconomic uncertainty really is you know, requires a lot of hard work. It also allows us to really invest and separate ourselves strategically from our competition.

[Michael Mente, Co-Founder, Co-CEO & Director at Revolve Group]

So excited for the investments that we have and excited for the future and excited for you guys to join us, for the journey ahead.

[Operator]

This does conclude today's conference call. You may now disconnect.

Participants

Executives

• Erik Randerson, Vice President, Investor Relations
• Mike Karanikolas, Co-Founder, Co-CEO & Director
• Michael Mente, Co-Founder, Co-CEO & Director
• Jesse Timmermans, Chief Financial Officer

Analysts

• Nathan Feather, Equity Research Associate at Morgan Stanley
• Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen
• Anna Andreeva, MD & Senior Research Analyst at Piper Sandler Companies
• Jay Sole, Managing Director at UBS Group
• Dylan Carden, Research Analyst - Consumer at William Blair
• Rick Patel, Managing Director at Raymond James Financial
• Trevor Young, Director & Senior Internet Equity Research Analyst at Barclays Capital
• Ashley Owens, VP & Senior Equity Research Analyst at KeyBanc Capital Markets
• Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Peter McGoldrick, Vice President at Stifel Financial
• Janine Stichter, MD & BTIG Consumer Retail and Lifestyle Brands Analyst at BTIG
• Carson Paull, Senior Associate - Equity Research at Evercore
• Janet Kloppenburg, President at JJK Research Associates