Revolve Group, Inc.

Hello, my name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's fourth quarter and full year 2024 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. At this time, I would 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 fourth quarter and full year 2024 results. Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 2024 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 in operating and innovation initiatives, industry trends, marketing events, and their expected impact, our partnership 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 risk 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 Exchange Commission, including without limitation our quarterly report on Form 10Q for the quarter ended September 30th, 2024, and our annual report on Form 10K for the year ended December 31, 2024, which we expect to file with the SEC on February 25th, 2025, 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'll 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. Presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for They're 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 in RCC 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 finished the year with an outstanding fourth quarter, highlighted by double-digit top-line growth year-over-year and a more than doubling of net income and adjusted EBITDA year-over-year. Most importantly, we achieved these strong financial results while continuing to invest in key initiatives that we believe set us up well for profitable growth and market share gains over the long term. I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2024 accomplishments and closing out with our key priorities of 2025. Starting with the fourth quarter recap. Net sales were 294 million, an increase of 14% year-over-year, driven by improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2024. In fact, net sales increased by a double-digit rate year-over-year across Revolve, Forward, Domestic, and International for the first time in two and a half years. Net sales in the Revolve segment increased 15% year-over-year, and net sales in the Forward segment increased 11% year-over-year. Forward return to growth for the first time in seven quarters as our investments begin delivering results within a luxury landscape that remains challenging. Gross margin increased by approximately 50 basis points year over year, well ahead of our gross margin outlook shared last quarter. Net income for the fourth quarter of $12 million, or 17 cents per diluted share, was more than triple the 3 million in the prior year quarter. Adjusted EBITDA was 18 million, an increase of 114% year over year, driving a 290 basis point expansion of our adjusted EBITDA margin. In addition to the gross margin expansion, contributing to our exceptional growth and profitability were significant marketing efficiencies and meaningful efficiencies in our logistics costs, which benefited from a more than two point decrease in our return rate year over year. Beyond the numbers, I'm excited by our team's execution that has led to continued great progress on the strategic priorities we outlined on prior calls. I will now shift to a review of our performance and accomplishments for the full year 2024 before touching on our key areas of focus for the coming year. Entering 2024, our most critical objective was to return to growth and meaningfully improve our net sales performance. We executed extremely well on this priority as our net sales growth rate improved measurably each quarter throughout 2024, exiting with solid double-digit growth in the second half of the year. Net sales growth in our core domestic market improved every quarter throughout 2024, and we exited the year with double-digit growth in the U.S. during the fourth quarter. International net sales increased 14% year-over-year, driven by growth across nearly all regions that also improved as the year progressed. In 2024, we achieved record net promoter scores in international markets, underscoring our successful investments to further elevate the shopping experience for our international customers. We continue to drive impressive net sales growth in adjacent product zones. Sales of beauty, men's, and home products each increased by a healthy double-digit percentage year over year, more than tripling our consolidated growth rate on a combined basis and further validating our opportunity to expand our share of wallet. As a company focused on profitable growth, I'm very pleased that our 2024 profitability increased at a much faster rate than net sales. Net income and adjusted EBITDA increased 73% and 60% year-over-year, respectively. Unpacking the drivers of profitability growth, reducing our global logistics costs was a top priority for us in 2024. We achieved a nearly 130 basis point reduction in our variable logistics costs as a percentage of net sales, driven by strong execution on initiatives designed to drive operating cost efficiencies and to reduce our return rate. Importantly, many drivers of this lower return rate in 2024 even further elevate the customer experience, such as our size and fit initiatives. Marketing was also a powerful driver of our profitability in 2024. We achieved a nearly 130 basis point reduction year-over-year in marketing spend as a percentage of net sales fueled by efficiency gains across both the performance and brand marketing channels. Operating in a highly competitive environment, we successfully optimized spend across our marketing channels and leveraged the strength of our brands to reduce our average cost to acquire customers year over year. Another key contributor to our improved profitability in 2024 is that our customer is increasingly spending with us at full price. The percentage of our net sales at full price improved three points year over year to approximately 82%, which we believe is appreciably higher than the industry benchmarks. The increased percentage of net sales at full price helped to drive gross margin expansion of 65 basis points year over year. Cash flow generated from operations in 2024 further strengthened our balance sheet, all while deploying capital to reduce the number of shares outstanding through stock repurchases as part of our efforts to enhance shareholder value. Finally, we meaningfully advanced our AI technology and personalization capabilities, further elevating the customer experience and contributing to our strong financial results. Here are a few highlights. On our e-commerce websites, we launched AI-powered search algorithms for improved product discoverability. In product merchandising on our sites, we drove increased consumer engagement and conversion through AI-driven product recommendations and other site optimizations. In marketing, our AI algorithms expanded the reach in one of our largest performance marketing channels. In operations, we created AI algorithms to intelligently route customer service inquiries and used our data and algorithms to intelligently balance inventory units across our multiple global locations. And finally, AI served an important role in reducing our return rate through a number of initiatives. As a powerful illustration of our core competency, in a variety of instances, our internal solutions handily outperformed AI solutions from third-party technology vendors. I will wrap up with a discussion of our key priorities for 2025. As co-founders and the company's largest shareholders owning more than 31 million shares of Revolve common stock, or approximately 45% of the total shares outstanding, Michael and I are very aligned and focused on maximizing value over the long term. Our strategic priorities for 2025 are guided by this long-term owner mindset. We are focused on extending our momentum in driving attractive top line and bottom line performance while continuing to invest in exciting growth opportunities imported to the long term, such as own brand expansion, deploying AI technology, and exploration of physical retail expansion. As we look ahead, we see multiple levers for growth that we believe will enable us to gain market share for the years to come. First and foremost, we will continue to invest in expanding our brand awareness, acquiring new customers, and strengthening our connection with the next generation consumer. We will continue to focus on the core and invest in marketing, leveraging our brand strength and strong merchandising to acquire new customers, further engage with existing customers, and expand our market share. In addition, a new and exciting way we are increasingly engaging with consumers is through physical retail. Michael will talk more about these initiatives in his remarks. Second, we will continue to build on the successful expansion of our assortment to gain a greater share of our customers' spending on apparel, beauty, footwear, and accessories. We have earned our customers' trust and proven that with the right merchandising, they are eager to expand their purchases with us. In fact, as just one example, revenue generated from our curated ski shop increased more than 850% year-over-year in the fourth quarter. With the strength of our brands and our outstanding customer experience, we see an incredible amount of white space to deepen customer relationships in many zones beyond the core event dressing and going-out wear often associated with Revolve, including beauty, men's, home, and premium essentials. Third, we will further expand our international presence where we are investing in a market opportunity that is several times larger than the U.S. The great progress we have made to improve the international customer experience in recent years now allows us to confidently invest marketing dollars to drive profitable growth in key international markets. Finally, we will further enhance our technology stack and leverage AI and other technologies across our platform to drive growth and efficiency. Since our founding, our teams have operated with a data-driven mindset and culture of technology innovation, leveraging our proprietary technology stack that is ingrained in nearly all aspects of our operations. Our increasing success with AI technology in 2024 further confirms our competitive advantages and reinforces our commitment to invest as we expand the use of AI throughout the organization. In short, we view our outstanding top and bottom line results in the fourth quarter as a direct outcome of our team's strong execution on our strategic priorities. I would like to thank our talented and passionate team for their incredible efforts, innovations, persistence, and amazing ability to simply get things done that drove such strong execution in the fourth quarter. As our results attest, we believe we are gaining market share and further strengthening our foundation for future growth. I feel great about our current momentum and the exciting opportunities ahead, in 2025 and beyond. Now, over to Michael.