Revolve Group, Inc.

If you would like to withdraw your question, again, press the star 1. Thank you. At this time, I'd like to turn the conference over to Eric Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's second quarter 2024 results. Before we begin, I'd like to mention that we have posted a presentation containing Q2 financial highlights to our investor relations website located at investors.revolve.com. I would 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 operating initiatives, industry trends, our marketing events and impact, our partnerships and strategic acquisitions, 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-K for the year ended December 31, 2023, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we 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 is a substitute for or superior to the financial information prepared and presented 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 a rationale for using them, can be found in this afternoon's press release and in our SEC filings. 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.

Hello, everyone, and thanks for joining us today. We delivered a strong second quarter, highlighted by a return to top line growth, net income more than doubling year over year, and nearly 350 basis point increase in our adjusted EBITDA margin year over year. Contributing to the significant growth in profitability was meaningfully better than expected marketing efficiency, as well as increased logistics efficiencies that also outperformed our guidance, helped by improving trends in our return rate as many of our return rate initiatives began to take hold late in the second quarter. Most importantly, we achieved these strong results while continuing to invest in initiatives to drive profitable growth and market share gains over the long term. With that introduction, let me step back and provide a brief recap of the second quarter. Net sales were $282 million, an increase of 3% year-over-year that was driven by improved year-over-year trends in both segments relative to our comparisons in the first quarter of 2024. Net sales in the revolved segment increased 4% year-over-year, our best performance in six quarters. This was partially offset by a 4% decline in forward segment net sales, an improvement of 10 points from Ford's year-over-year comparison in the first quarter of 2024. While we continue to see headwinds in a dynamic luxury environment where Ford competes, as one of the financially strongest operators of a multi-brand luxury e-commerce platform, we are actively pursuing opportunities to capitalize on the current environment by investing in strategies to gain market share. Along these lines, Michael will talk about our acquisition of a majority interest in the revered luxury brand and longtime brand partner of Ford, Alexandre Fautier. Net income for the second quarter was $15 million, or 21 cents per diluted share, an increase of 111% year-over-year. Adjusted EBITDA was $20 million, an increase of 97% year-over-year, driven by a nearly 350 basis point expansion of our adjusted EBITDA margin. Beyond the numbers, I'm excited by our team's execution that has led to continued great progress on the strategic priorities we have outlined on prior calls. I will discuss some of the key highlights since our update last quarter. First, I am pleased to report that we delivered even greater efficiencies in our logistics costs year-over-year than last quarter, contributing to our exceptional growth and profitability in the second quarter. Expressed as a percentage of net sales, selling and distribution expense decreased approximately 70 basis points year-over-year, and fulfillment expense decreased 15 basis points year-over-year. It was our first year-over-year decrease in fulfillment costs as a percentage of net sales in two and a half years. I'd like to acknowledge great execution by our operations team for driving these efficiencies in the U.S. and international markets. Shifting to the outlook for driving future efficiency gains, I'm thrilled to report that we are beginning to see early tangible benefits from the initiatives outlined on recent calls designed to reduce our return rates. As a proof point, our return rate declined year-over-year in the second quarter, representing the first year-over-year decline for any quarter in more than three years. The financial benefits of potentially reducing our return rate in the future are compelling, considering that for every one point decrease in our return rate, we'd expect to realize cost savings of approximately 30 to 50 basis points in reduced selling and distribution and fulfillment costs. Importantly, many of our efforts to reduce the return rate further elevate the customer experience. including by providing improved size guidance and leveraging technology and data for more personalized merchandising of products less likely to be returned. Second, we delivered strong results in expanding our international presence in the second quarter as net sales from international markets increased 13% year-over-year. Net sales increased across nearly all major regions, including China, where outstanding growth during the important 618 shopping festival in China led Revolve to be recognized as the second largest seller of fashion merchandise on Tmall Global. The 618 Festival is the second biggest event of the year in China for driving online sales, trailing only Singles Day in November. I'm also excited that we've recently launched a branded retail presence on the Douyin and Red e-commerce marketplaces that serve more than 750 million monthly active users on a combined basis. These incredibly popular platforms serve a young Gen Z demographic that skews female. a highly relevant audience for our fashion, beauty, and lifestyle offerings. Third, we remain committed to efficiently investing to expand our brand awareness, growing our customer base, and further strengthening our connection with the next generation consumer. Our team delivered outstanding results in the second quarter across brand and performance marketing channels, leveraging the strength of our brands. For instance, the second quarter was our most efficient quarter for performance marketing investments in nearly four years, based on our performance marketing investment calculated as a percentage of net sales. Michael will talk about important wins in brand marketing efficiency measures that are also a key contributor to the increased marketing efficiency reflected in our updated 2024 guidance for marketing investments. And lastly, we continue to leverage AI technology to drive growth and efficiency while further elevating the customer experience. A perfect example is our recent development and successful launch into production of an internally developed AI search algorithm on our forward site. For years, consumers have searched for products on our sites through a third-party search platform. With the emergence of AI and as part of our data-driven mindset, I challenged our team to develop and test our own AI search capabilities and test it against the incumbent retail search platform developed by a very large third-party technology company. It is incredibly impressive that our internal team of data scientists developed a solution that outperforms the third-party search technology, driving higher revenue per search and at a much lower operating cost. With this success, our internally developed AI search algorithm is now live on forward, and we are currently A-B testing the algorithm on our Revolve site with promising early results. To wrap up, we still have work to do, yet I feel great about the important progress we have made in the first half of the year. We begin the third quarter of 2024 with solidly positive year-over-year growth in net sales for the month of July 2024. And there is momentum building across key growth and efficiency initiatives that we believe may further improve our foundation for profitable growth in the years to come. Now, over to Michael.