Revolve Group, Inc.

simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. 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 first quarter 2025 results. Before we begin, I'd like to mention that we have posted a presentation containing Q1 2025 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, the impact of changes in international trade policies and our plant mitigation efforts, our marketing events and our expected impact, 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 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 annual report on Form 10-K for the year December 31, 2024, 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 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 our SEC filings. Joining me on the call today are our co-founders and co-CEOs, Mike Karanikoulis and Michael Mente, as well as Jesse Timmermans, our CFO. Along with 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. Our strong execution within a dynamic environment resulted in outstanding first quarter results, highlighted by double-digit top-line growth, 57% growth in operating income year-over-year, and 45 million in operating cash flow that further strengthened our balance sheet. What's more, our adjusted EBITDA margin increased by 160 basis points year over year, and cash and cash equivalents on the balance sheet exceeded 300 million. It's a great start to the year in an environment that has become progressively more uncertain than when we last spoke at the end of February. We achieved these strong results while continuing to invest in key foundations for long-term success, including advancing our AI technology and personalization capabilities, international expansion, building our brands, capturing a greater share of wallet among existing consumers, and developing new owned brands. With that introduction, I will begin by drilling deeper into our Q1 results, then I'll talk about the current environment and global tariff uncertainty before wrapping up with progress on our longer term objectives. Starting with Q1 results, our healthy top line performance illustrates that our strategic initiatives are working and that we are gaining market share during an uncertain time when industry peers with weaker foundations have dialed back investment plans. Net sales increased 10% year-over-year, driven by domestic and international net sales increases of 9% and 12% year-over-year, respectively. By segment, revolved net sales increased 11% and forward net sales increased 3% year-over-year, our second consecutive quarter of growth within a luxury market that remains challenged. we see considerable opportunity for further gains amidst the disruption in the luxury market as evidenced by the recent bankruptcy and liquidation of Canada's iconic premium department store chain, Hudson's Bay. Now, let's unpack the strong bottom line results highlighted by a 57% increase in operating income and a 45% increase in adjusted EBITDA year over year. In addition to our top-line gains, contributing to our strong growth and profitability was our brand strength that helped drive meaningful marketing efficiencies year-over-year, as well as our successful efforts to drive efficiencies in our global logistics operations. In fact, our product return rate decreased by nearly three points year-over-year in the quarter, yielding significant operating efficiencies and contributing to further elevation of the customer experience. As an illustration of our progress, our operating income margin and adjusted EBITDA margin were the highest for any first quarter in three years. Our profitable growth converted very strongly to generation of cash flows, which is a particular advantage in the current environment. We generated $45 million in operating cash flow in the first quarter, increasing our cash position by $44 million in just three months. Now, I'll address the recent slate of tariff announcements that have created a great deal of uncertainty for our entire sector. The macro environment is facing geopolitical and macroeconomic uncertainty, particularly with the implementation of significant and broad-based tariffs presenting considerable challenges for our sector. It's very challenging to operate in an environment when applicable tariffs can change almost daily, yet our team is engaged, collaborating with brands and other partners daily to mitigate the impacts, and we believe we are fully up to the challenge. Importantly, our leadership team has a strong track record for navigating times of extreme uncertainty coming out stronger on the other end. In our more than 20 years of operating our business, we have successfully navigated through turbulent cycles, including the global financial crisis and COVID-19, and we have emerged stronger as a result. In contrast to many fashion e-commerce peers, we have a profitable and cash-generative business, proven financial discipline, a strong balance sheet, and key competitive advantages that together with our strong team enable us to confidently invest in the large opportunity ahead of us. Beyond the numbers and despite the current macro challenges, I'm excited by our team's execution that has led to measurable progress on our strategic priorities. Before turning it over to Michael, I will briefly recap our progress. First, we continue to efficiently invest to expand our brand awareness, grow our customer base, and strengthen our connection with the next generation consumer. A powerful example is our eighth annual Revolve Festival held last month, which handily exceeded our expectations for delivering marketing impact consumer engagement and efficiency, as Michael will talk about in his remarks. We are also encouraged that year-over-year growth and trailing 12-month active customers and average revenue per active customer accelerated in the first quarter, even while we achieved marketing efficiency of 100 basis points year-over-year. Second, we continue to expand our international presence, where we have made excellent progress and further improving the experience for our international customers by reducing friction in foreign currency payment processing and product returns among many other service enhancements. In the first quarter, international net sales increased 12% year-over-year, despite currency headwinds in most regions, and what we hope is temporary weakness in Canada due to boycotts of US retailers in response to US policy. These very solid results further validate the underlying strength of our international business and growth opportunity. Beyond international, we are relentlessly focused on further elevating the experience for all customers. Since the beginning, the customer has been at the center of our focus, so I'm thrilled to report that in the first quarter, we achieved a modern record for our customer satisfaction score. Shipping efficiency is a great example of our continuous improvement in service levels. Customers love our two-day express shipping offered in the U.S. free of charge. What's truly incredible is that we now deliver more than a third of our U.S. shipments to customers in just one business day, free of charge, exceeding our two-day promise by a full day. The percentage of US packages we deliver to customers in only one business day has increased by six percentage points in the past three years, underscoring our progress and raising the bar to delight our loyal customers. And lastly, we continue to leverage AI and other technology to drive growth and efficiency. I'm excited to share that we have internally developed AI algorithms that we believe will drive efficiency and even further elevate the customer experience. Our internal data science team has developed AI technology algorithms that now automatically transcribe customer service phone calls, providing greatly increased visibility into agent performance and greater awareness of customer issues. It is early days, yet we are excited about the potential for increasing operating efficiency, as well as improved learning and training opportunities for our customer service teams. We are also continuing to leverage AI to refine our shopping experience and personalization capabilities. I'm excited to share that in collaboration with a third party, we are testing a new AI-powered styling feature that enables shoppers on Revolve to virtually style recommended items by mixing and matching styles from our vast assortment. Virtual styling is a powerful use case for AI technology that we believe has the potential to elevate product discovery, increase consumer engagement and loyalty, and advance our efforts to reduce product returns. To wrap up, we delivered a strong first quarter and continue to strengthen our foundation for profitable growth over the long term. I would like to thank our team for your hard work, for staying nimble, and for your dedication to exceeding our customers' expectations. We are in a very challenging environment, yet I'm confident that we have the organizational discipline to manage our way through the uncertainty and gain further market share in 2025 and beyond. Now, over to Michael.

Thanks, Mike, and hello, everyone. I am extremely proud of our impressive first quarter results, particularly in light of the current macro environment. Our strong Q1 results were highlighted by double-digit top-line growth and very strong cash flow, as well as our outstanding progress on longer-term initiatives. Our success is the direct result of our continued strong execution by our team across the business, including in merchandising, site experience, marketing, own brands, technology, and international that collectively have further strengthened our connections with our engaged community of brands, consumers, and content creators. 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 building investments highlighted by our Revolve Festival event, expansion of own brands, and physical retail exploration. First, Revolve Festival. As our core consumer gears up for an active lifestyle event in the months ahead, we are making the most of this opportunity to further build our brand heat and expand awareness. On April 12th, we hosted our eighth annual Revolve Festival in Coachella Valley, bringing together the worlds of fashion, music, and culture in an exclusive and immersive experience. The atmosphere in the desert was electric, elevated by high-octane performances by our incredible lineup featuring Lil Wayne, Tyga, Jello, and special guest Cardi B, who took the stage in a custom Revolve Atelier look, designed exclusively for her by our own band team. The aspirational lifestyle event was very successful in elevating our brands and exciting and delighting our community of VIPs, brands, influencers, partners, and fans who were fortunate enough to attend the invite-only activations that WWD called a hot ticket and the biggest celebrity job of the weekend. The impressive range of A-list actors, musicians, athletes, celebrities, and content creators attending our weekend festivities included Lisa of Blackpink and White Lotus, Kendall Jenner, Kylie Jenner, Cara Delevingne, Charlie and Dixie D'Amelio, Dwayne Wade, Chris Brown, Tiana Taylor, Emma Roberts, Ariana Greenblatt, Jordan Childs, Julia Fox, Becky G, Wiz Khalifa, Landon Barker, Alex Earle, Christina Millian, Victor Cruz, Braxton Berrios, Ty Dolla $ign, Shibuzi YG, Victoria Monet, Gracie Hunt, Alex Kansani, Heidi Montag, and Spencer Pratt. Revolve Festival has evolved into a vibrant fashion show for the next generation of consumers, featuring trendsetting styles from Revolve and forward. Guests capture their looks across a variety of photo moments and immersive brand activations, generating incredible content that dominates social media feeds and reaching hundreds of millions of people through the vast follower count of our A-list attendees. The proof of our success is in the incredible numbers. On the heels of last year's stellar festival results, When we delivered significantly greater marketing impact while reducing spend by millions of dollars, we were able to raise the bar yet again as an encore. In fact, press impressions from Revolve Festival in 2025 increased by more than 40% year over year, while social media impressions increased by more than 25% year over year, achieved on reduced spending year over year. Most impressive is that according to a data insights company, Creator IQ, Revolve's earned media value ranked number one among brands from April 10th through April 20th, coinciding with the Coachella Festival. This is a true testament to our brand strength and our very strong execution by the team. Second, own brands, where our momentum has continued to build. In the first quarter, the mix of own brand net sales as a percentage of Revolve's segment net sales increased year over year for the first time in two and a half years. It is particularly exciting considering that own brands typically generate much higher growth margins than third-party brands and are exclusively available through Evolve and Forward. Most important, our underlying foundational metrics for own brands continue to improve in the first quarter and, in fact, significantly outperform our third-party brands on key comparable metrics. This progress reinforces our confidence to invest in an incredible portfolio of new own brand launches planned for the second half of 2025 and early 2026. Also notable is that in the first quarter, within our limited physical retail footprint, own brands continue to generate a meaningful higher percentage of sales than we generate online. Particularly with our upcoming launches, we believe we can further increase our own brand penetration or revolve segment net sales in the years to come. Third, physical retail. We continue to be very excited about the growth opportunity in physical retail over the long term. We are making great progress towards opening a permanent store in Los Angeles at the Grove, an open-air destination That is one of the highest grossing shopping and entertainment centers in the US. Construction is underway and we are on track to open our doors in the fall in our central location without standing foot traffic. Our journey has already validated the physical retail channel as a great source for brand building, acquiring new customers and merchandising our high margin own brands. The retail channel has also featured a much lower return rate as compared to our online channel and further strengthened our relationships with brand partners who view our premium retail environment as brand elevating. As founders focus on maximizing shareholder value over the long term, Mike and I are measured in our approach for this new opportunity. The Los Angeles build will be our second retail store and our first in a major metropolitan market. With Aspen and Los Angeles, we will have two unique destinations to leverage as we continue to test, learn, and iterate as we drive towards our internal performance goals. We have no plans to further expand our retail footprint beyond Los Angeles until we fully optimize and achieve our internal success targets within our existing footprints. To help ensure our success, I am excited to share that we hired a head of retail with deep industry experience. Our new leader brings a proven track record of success in opening and profitably operating retail stores for fashion and lifestyle brands. Her job number one will be to open our permanent Los Angeles store to grow and leverage the strength of our brands in connection with next-generation consumers to maximize this exciting opportunity. Before I close, I want to touch on an exciting partnership in the works with Grammy Award-winning performer and global style icon Cardi B. We believe this partnership can be especially powerful in that we are creating a long-term joint venture that is first-of-its-kind for both parties. The venture will leverage our strong operational, brand-building, and marketing expertise with Cardi's powerful brand transcending fashion and global audience that extends beyond our current core target demographic, both within the U.S. and abroad. The venture will be multifaceted and will include the launch of apparel and beauty line. After many successful brand collaborations together, Cardi is excited to create a much deeper and longer-term equity partnership for her namesake brand. She chose Revolve because it was important to her to find a partner that would stay true to her authenticity, and she's also completely aligned with our long-term focus. We believe Cardi choosing Revolve is a testament to the strength of our brands and the powerful platform that we have built. Wrapping up, our strong financial profile illustrated by the 45 million in operating cash flow we generated in the first quarter and the cash balance of over $300 million is a strategic advantage that gives us the capacity to invest for long-term success. As our Q1 results attest, our investments are working and I'm excited about the many initiatives underway that we believe will continue to drive profitable growth over the long term. Now I'll turn it over to Jesse for a discussion of the financials.

Thanks, Michael. And hello, everyone. I am very proud of our strong first quarter results on both the top and bottom lines, especially considering the current macroeconomic environment. I'll start by recapping our first quarter results, and then I will provide context on our tariff exposure and mitigation strategies before closing with updates on recent trends in the business and guidance for the balance of the year. Starting with the first quarter results, net sales were $297 million, a year-over-year increase of 10%. Revolve segment net sales increased 11%, and forward segment net sales increased 3% year-over-year in the first quarter. By territory, domestic net sales increased 9% and international net sales increased 12% year-over-year. Active customers, a trailing 12-month measure, increased 6% year-over-year, a slight uptick from the recent trend. With only 2.7 million active customers at quarter end within what is a very large addressable market, we see a great deal of opportunity to further expand our customer base in the years ahead. Total orders plates were 2.3 million, an increase of 4% year-over-year. Average order value was $295, a decrease of 1% year-over-year that was primarily due to lower AOV in the forward segment, driven by product mix. Consolidated growth margin was 52%, a decrease of 30 basis points year-over-year that primarily reflects a lower mix of net sales at full price and deeper markdowns year-over-year, partially offset by an increased mix of own brands year-over-year. As illustrated by the year-over-year AOV decline in the first quarter, and with many consumers feeling pressure in the current environment, we are seeing customers begin to move to more accessible price points. Importantly, our operating discipline enabled us to meaningfully outperform our guidance for operating expenses by a much greater amount than the slight miss on gross margin. So, now moving on to operating expenses. Fulfillment costs were 3.2% of net sales, a decrease of 32 basis points year-over-year. Selling and distribution costs showed greater than expected efficiency at 16.8% of net sales, a decrease of 106 basis points year over year. This impressive result reflects a meaningful decrease in our return rate year over year, as well as great execution by our teams to drive efficiency in our logistics costs, partially offset by a lower AOV year over year. Our marketing investment was also more efficient than expected, representing 14.3% of net sales, a decrease of 100 basis points year-over-year that was primarily due to efficiencies in our brand marketing investments. General and administrative costs were $37.9 million, outperforming our guidance of $39.5 million, albeit an increase of 58 basis points year-over-year as a percentage of net sales. The increase in net sales and gross profit year-over-year and the meaningfully improved efficiency in our marketing and logistics costs helped us to achieve exceptional growth in operating profitability. Our GAAP income from operations increased 57% year over year in the first quarter. As a reminder, below the operating income line, in the first quarter of 2024, we recorded a non-routine gain from an insurance recovery of $2.8 million, which was reflected in other income last year. This largely explains the decrease in other income year over year in the first quarter. Our tax rate was 27% in the first quarter, up slightly from 26% in the prior year. Net income increased to $11 million, or $0.16 per diluted share, up from $0.15 per diluted share in the first quarter of 2024. The insurance recovery in the prior year was equivalent to approximately $0.03 per diluted share. Adjusted EBITDA was $19 million, an impressive increase of 45% year over year. Moving on to the balance sheet and cash flow statement. We delivered strong cash flows in the first quarter. Net cash provided by operating activities and free cash flow were $45 million and $43 million, respectively, an increase of 18% and 17% year-over-year that further strengthened our balance sheet. As you think about modeling cash flow for the balance of the year, we expect the build-out of our permanent store in Los Angeles to add $8 to $9 million to our CapEx in 2025 as we customize our space at The Grove ahead of the opening of this experiential retail destination later this year. Improved inventory dynamics were a key driver of our strong cash flow generation. Inventory at March 31st, 2025 was $214 million, a decrease of $16 million, or 7%, compared to year-end 2024. Inventory increased 6% year-over-year, which was outpaced by our 10% net sales growth for the first quarter. Importantly, the net sales growth to inventory growth differential was positive on both the revolve and forward segments. As of March 31st, 2025, cash and cash equivalents were $301 million, surpassing $300 million for the first time. Our balance of cash and cash equivalents increased by $44 million, or 17%, in just three months compared to year-end 2024, and we continue to have no debt. In the last five years, we have increased our net cash and cash equivalents balance fourfold, an increase of $227 million in five years net of borrowings. while returning more than $40 million to shareholders through our stock repurchase program. Now let's discuss our tariff exposure and mitigation strategies in more detail. First, our tariff exposure. We purchased the majority of our inventory from third-party brands under structures where we are not the importer of record. And so for these inventory purchases, we are not directly impacted by higher tariffs. More specifically, using 2024 as a benchmark, approximately 78% of our total inventory purchases of last year came from third-party brands where the products were imported into the U.S. by our brand partners. Again, in these instances, we do not pay the tariffs. Now, that leaves approximately 22% of our 2024 inventory receipts where we were the direct importer of record and where we do pay the tariffs directly. This bucket is composed of our own brand products, and from a limited number of third-party branded products where we are the importer of record. So to summarize, we have no direct tariff exposure for around 78% of our inventory receipts, whereas we do have direct tariff exposure for around 22% of our inventory receipts. Now, given the very high tariff rate currently in place on China imports, let's talk about our China sourcing exposure. As mentioned, based on our 2024 data, approximately 22% of our inventory receipts have direct tariff exposure. Within that 22%, approximately 72% related to products we directly imported from China. Taking it one level deeper, the vast majority of our own brand products were imported from China and a much lower but still significant portion of third-party products that we imported directly originated from China. Said differently and to summarize, approximately 16% of our total inventory purchases in 2024 were directly imported from China. For the 78% of inventory that was not directly imported by us, the percentage of products that have a China origin is much lower. Now let's talk about our mitigation strategies. Our focus is on the products that we directly import, primarily within our own brands, and to a lesser extent, in the limited number of instances where we are the importer of record for third-party branded products. The biggest area of mitigation opportunity is in own brands, given the very high concentration of products imported from China. We are actively engaged in cost sharing discussions with our own brand manufacturing partners. And while there is a longer lead time, we are also working to diversify our manufacturing sources outside of China. Other mitigation measures that we expect will help us to offset some of the increased costs due to tariffs include optimizing our product import logistics, selectively increasing prices for our products, and further optimization of our supply chain. We are also working hard to mitigate the tariff impact for the limited instances where we are the importer of record for third-party branded products, primarily by partnering with our third-party brands to reduce the direct tariff impact, and to a lesser extent, selective price increases in partnership with our brand partners. Now, for the approximately 78% of products that are not directly imported by us, We have a brand roster of over 1,000 brands that source from dozens of countries all over the world, which provides us with optionality and flexibility in sourcing and product assortment. We are actively working with these brand partners to manage through what is hopefully a transitory period of economic and supply chain disruption. Our confidence and our ability to navigate through the tariff pressures that Mike alluded to is supported by our track record. We successfully navigated through the global financial crisis the first wave of Trump tariffs in 2018 and 2019, and the COVID-19 pandemic, in all cases, coming out stronger. We are on even stronger footing today than we were during these previous cycles, and we continue to have the financial discipline, balance sheet strength, and long-term focus to support investing through this current cycle. Now, let me update you on some recent trends in the business since the first quarter ended and provide some direction on our cost structure to help in your modeling of the business for 2025. Starting from the top, our net sales in the month of April increased by a mid-single-digit percentage year-over-year, with international growth outpacing the U.S. For modeling purposes, for the balance of 2025, given the challenging backdrop with U.S. consumer confidence declining every month in 2025 to a five-year low and U.S. consumer sentiment having declined 30% year-to-date, it is clear that the consumer is feeling increasingly uncertain about the future. While we do not give revenue guidance, the increasingly uncertain backdrop has led us to moderate our internal revenue growth expectations for the full year. And as a result, we are taking a measured approach to planning our inventory buys for the balance of 2025. Now, before we get into guidance, let me caveat that our outlook is based on the current status of tariffs as of today, May 6, 2025, and our estimate of the impact of potential mitigating activities that are currently underway. Our outlook for growth 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 growth margin, which includes our best estimate for the impact of tariffs, net of our mitigation efforts. We expect growth margin in the second quarter of 2025 of between 52 and 53%. which assumes some tariff impact later in the second quarter. By comparison, we expect the magnitude of tariff impacts to increase in the third quarter, and particularly in the fourth quarter of 2025. As a result, for the full year 2025, we now expect growth margin of between 50 and 52%. For additional context, the high end of the guidance range reflects a minimal tariff impact with the assumption that we are able to mitigate the vast majority of the impact and or tariffs are reduced to a much lower level relative to where we stand today. The low end of the guidance range assumes elevated tariff rates and our best estimate of the impact of our mitigation efforts. Again, our guidance reflects our best estimate at this point in what is a very dynamic situation with a number of variables at play, all of which are very uncertain. We expect fulfillment as a percentage of net sales of approximately 3.1% for the second quarter of 2025, and between 3 and 3.2% of net sales for the full year 2025, unchanged from our previous guidance. Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.9% for the second quarter of 2025. And we now expect a range of 17.2 to 17.5% for the full year 2025. The slight increase from our prior range primarily reflects our expectation for lower average order values in the coming months, given the current macro environment. For context, lower average order values are a headwind to logistics efficiency because a lower AOV means that our shipping costs comprise a larger percentage of the revenue we generate on a per-order basis. Marketing. We expect our marketing investment in the second quarter of 2025 to be approximately 15% of net sales, a slight decrease year over year. For the full year 2020, we expect our marketing investment to represent between 14.9% and 15.1% of net sales, unchanged from our prior guidance. General and administrative, we expect G&A expense of approximately $39 million in the second quarter of 2025 and between $154 and $157 million for the full year 2025, a slight decrease from our prior full-year guidance range. And lastly, Due to some discrete items affecting our tax rate this year, we now expect our effective tax rate to be approximately 27 to 28% for the full year 2025, with the highest quarterly tax rate expected in the third quarter of 2025. In 2026, we expect our effective tax rate to return to our previous guidance range of between 24 and 26%. To recap, we delivered strong Q1 results in an environment that has become increasingly challenged, With our strong performance over the last few quarters and our very healthy balance sheet, we are entering into this time of turbulence on solid footing. We believe we are well positioned to navigate through the current tariff uncertainty and other macro challenges ahead, considering our financial strength that is supported by a premium price point and healthy gross margin, operating discipline and agility, our technology and data-driven DNA, our powerful brands, and our connection with the next generation consumer. Now, we'll open it up for your questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Mark Altschwager with Baird. Your line is now open.

Good afternoon. Thank you for taking my question. Appreciate all the detail here. Jesse, maybe if we could drill a little bit more into some of the tariff math and assumptions as we try to unpack that. So if I understand correctly, the low end of your gross margin guidance assumes the tariff costs with little mitigation. Is that right? And then I guess if I look at the gross margin guidance reduction, 240 basis points at the low end on consensus revenue this year, that's about $30 million of gross profit dollars. I guess, is that a rough approximation of the gross costs you're thinking about for the back half of the year. Maybe let's just start there, and then I have a follow-up.

I need to clarify on the loan guidance. This assumes, I think you got the first part right, it assumes the elevated tariff rates that are in place today are our best estimate of our mitigation efforts. So I think that's the key difference from what you said, where it's not minimal mitigation efforts, it's our best estimate of mitigation efforts. And then, yeah, you can do the math on the gross margin impact given the guidance that we gave, but it is a meaningful impact on a dollar basis.

And how quickly could you theoretically pivot to a higher percent of the third-party sourced inventory? Or ask another way, maybe help us better understand the inventory commitments or flexibility you have on the owned brand front.

Yeah, we can flex pretty quickly. I wouldn't say it's necessarily a shift from own brand to third party. We're still very optimistic on the own brand expansion, especially this quarter, and see a great opportunity there in the future, especially given the premium margin that own brand carries. Now, if you think about diversification of own brand sourcing out of China, that is a longer lead time. We can make some progress this year, but it's more of a 2026 story there.

Thank you. And then just finally on the demand backdrop, are you seeing the tariff news and weaker sentiment affecting customer traffic and conversion trends at this point? Or maybe what gives you the confidence you can sustain growth, especially in the U.S., as we look at the steeper comparisons in the coming quarters here? Thank you.

Yeah. Yeah, I think... Based on what we said in the prepared remarks, what we're seeing now is just that shift to more accessible price points, so that's impacting AOV. It's certainly having an impact on consumer confidence, and that's where we are moderating our expectations as we look ahead through the balance of this year, assuming that the current state of play is in place.

All right, your next question comes from the line of Oliver Chen with TD Cowen. Your line is now open.

Hi there. Thank you for taking our question. This is Katie on for Oliver. I'd like to kind of go back to the own brand strategy and just kind of learn more about how you're thinking about launches for own brands and sort of that product development specifically around the second half. Are you delaying any innovation there to shift to third party. And then I'll have one follow up after that. Thank you.

Yeah, we've definitely taken that into account. And there's been some, you know, pushback in some ways and some don't. We also have very, very, very exciting things launching in H2. So there's been adjustments, but, you know, we have to be nimble in this environment. And we think we have some awesome product our customers will love coming very, very soon. Excited to share with you guys.

Okay. And then as a follow-up to this selling and distribution expense line item, could you just talk a little bit more about really the savings there and, you know, just thinking about what we can leverage to have any incremental savings this year? Thank you.

Yeah. Yeah, we did guide up slightly for the second quarter based on what we're seeing in average order values, increases that selling and distribution as a percentage of net sales now that's not to take away from everything that the team has been doing they've been doing a phenomenal job in making that line item especially more efficient there's also a significant impact from a lower return rate on that line item so that's that's the largest driver of the decreases we've been seeing and then the team's been doing great work there but we do we do anticipate some pressure from that lower average order value that we've been seeing for the last month or two

All right, your next question comes from the line of Ana Andreeva with Piper Sandler. Your line is now open.

Great. Good afternoon, and thank you for taking our question. And Jesse, thank you for all the color on tariffs. Very helpful. We wanted to ask, you mentioned higher markdowns in 1Q and also the shift to more accessible price points as of late. Are you guys planning to pull the promotional lever more to stimulate demand Are you starting to see the industry get incrementally more promotional so far in the second quarter? And just curious, there's been some anecdotal evidence of demand pull forward ahead of tariffs, at least in some categories out there. Do you expect to still see that here in early 2Q?

Yeah, maybe on the markdown strategy first. As we mentioned, we are seeing customers shift to more accessible price points, whether that means shifting out of full price into markdowns or, you know, higher markdowns within that markdown component. But we're not necessarily shifting our markdown strategy in response to that. We typically, you know, based on our algorithms, we do what's right for the inventory balance for the customer, for the P&L. So no direct response to that or what anybody else is doing out there. We'll do what's right for the business on a whole. Now, on the pull forward, you know, based on our customers' buy now, wear now behavior, We didn't see any meaningful indication of a pull forward in our business.

Next question comes from the line of Jay Sewell with UBS. Please go ahead.

Great. Thank you so much. I just want to ask, you mentioned, I think you said you're moderating your internal sales expectations. Can you just give us a little bit more color on that, like the magnitude of that? And does that include any impact from some of the tariff mitigation strategies? In other words, if you're assuming that you have to raise price, do you assume that there's sort of a, the OS50s are such that maybe there's a disproportionate negative impact on unit volumes? Just any color around that would be super helpful. Thank you.

Yeah, I think the key point there is that we are seeing some softening, and what we want to communicate is that we are moderating our inventory buys accordingly, so we want to keep everything in check. Now, we need to be careful in the case that tariffs are reduced and everything opens up again, so we have to be very nimble there. And yeah, in terms of units versus dollars and how we're planning for inventory and price increases, it is very dynamic, and we're taking all of that into consideration with our inventory buys And then maybe on the elasticity point, you know, I think it's one that you can't look at in isolation. It's not necessarily one, you know, percentage of price increase that would impact the consumer's behavior. You really have to factor in kind of everything else that's going on out there, how she's feeling, consumer sentiment, etc. And vary case by case, product by product, price point by price point.

All right, our next question comes from Lorraine Hutchinson with B of A Securities. Your line is now open. Thank you. Good afternoon.

I was wondering, for the 78% of inventory purchases from third-party brands, what are you hearing from them on price increase? Is that a strategy they intend to take? And how do you balance that with the customer kind of looking for better value in a tighter spending environment?

Yeah, we are partnering very closely with those third-party brands, and we are seeing some price increases, again, very product by product, brand by brand, and also keeping in mind prices comparable across different destinations, across different products, but we are seeing some of that. And then I lost your second part of that question.

Oh, and then... Any customer pushback or feedback from that?

Yeah, yeah, nothing yet. It's still very early, though, and this is all, you know, just rolling in kind of, you know, as we speak over the last few weeks.

Thank you.

Your next question comes from Dylan Cardin with William Blair. Your line is now open.

Thanks. I get that the dollars decreased significantly. as your sales projections decrease, but keeping marketing spend that kind of 15% level, can you sort of walk through your thinking there? And then we've heard, albeit sort of early in the earnings season, some improvement in the efficiency of marketing or other brands sort of pulling back in marketing. Does that help you, particularly if you're, you know, you'd spoken last quarter about some AI sort of embedded in some of your engagement marketing? Thanks.

Yeah, so I can jump in on the marketing side. So the marketing projection is just based off the current trends that we're seeing and what we think is going to be the right zone for the business to spend at for the balance of the year. In terms of the softness on the marketing side, you're right that historically we've seen when there's any kind of economic weakness, often brands pull back on marketing spend and that can open up marketing opportunities. From what we've seen thus far, we haven't seen anything major in that way. And of course, I think we're still early in the development of what happens with the tariffs and do they stay, do they go away? So that's something that we could see more of. But at this point, we haven't seen any major trends there as far as reduced marketing CPMs or marketing opportunities on that side. That said, I think the team did an incredible job this quarter in terms of delivering marketing efficiencies with better tactics and strategies, and then certainly continuing into Q2 with the remarkable execution of Revolve Festival by the team. So we feel good about our marketing playbook for the rest of the year, but at this point, from an environment standpoint, it's more similar to what we've seen. Thanks.

All right. Your next question comes from Michael Bonetti with ISI. Your line is now open.

Hey, guys, thanks for taking our question. There's a couple maybe on the model. So nice to see the improvement on product return percentages again there. Does that start to slow in our models as we look out over the next few quarters as you start to latch some of the real big improvements a year ago? Or do you have some incrementals that you can tell us about that will keep driving it lower year over year? And then on... I'm curious if you're seeing any hesitation or similar shift to accessible price points outside the U.S. as well. And then one last one on the model. I'm curious on the selling and distribution in 2Q. I think it's quite a bit higher than the rate you were talking about for the year. Is there anything unique in 2Q? Yeah. Oh, go ahead.

Sorry, Mike. Yeah.

Sorry.

Yeah. Patrick Corbett- I can start with talking about the return rate side of things, so we do have a number of things still in the pipeline that we hope can deliver improvements on the return rate side. Patrick Corbett- But, as is the case with any R&D type initiatives or things that are unproven for modeling and forecasting purposes internally we're not baking any impact of those efforts in and so. you know, we would expect from a modeling perspective internally and externally that the return rate should, improvements year over year should moderate as the year goes on, because obviously we started delivering a lot of that in the back half of the year.

Okay. Yep. And maybe to double click on that one too, I think, you know, if you rewind to last quarter where we said, you know, we had factored in a flat return rate year over year, not to take away from our optimism, given the significant reduction we had in Q1, We're now modeling in a slight decrease for the full year, given that performance in Q1. And then on the hesitation outside of the U.S., nothing significant to call out there on a geo basis. We mentioned some pullback from Canadian customers. That's not necessarily price point, but just complete pullback. And then selling and distribution in Q2, that is generally higher. That's when we see you know, a higher return rate, et cetera. So it typically in Q2 is seasonally higher than other quarters.

All right. Our next question comes from Nathan Feather with Morgan Stanley. Please go ahead.

Hey, everyone. Just taking the question. Just a little bit more on the April trend. I can't understand, you know, how you're thinking about what's driving that decel and any way to kind of frame the micro versus macro in that. And then on the gross margin guidance reduction, is that fully or almost fully attributable to TRS? Are there any other factors to follow up there? Thank you.

Yeah, on the April trend, you know, I think we attribute this mostly to macro. You know, the team has been performing exceptionally well. We're driving a lot of significant gains, conversion gains, et cetera. So, you know, I think everything we can control is going well. It's just this macro uncertainty and overhang. And then your second part of the question, gross margin fully attributable to tariffs. Yeah, I think if you took tariffs out of the equation, we would probably guide slightly lower for gross margin on the full year, just slightly, just given what we saw in Q1 and that shift to the more accessible price point, markdown, et cetera. Now, you can't completely take tariffs out of the equation because tariffs did have an impact on consumer sentiment. You know, it's hard to peel those apart, but we did see a shift, you know, from full price and then deeper markdowns within that markdown bucket.

Great. Helpful. Thank you.

Your next question comes from Trevor Young with Barclays. Please go ahead.

Great. Thanks. First, just back to the April trends. Could you clarify just how much of a differential there was between U.S. and international growth? I think you said international is a little bit better. And on the comment around the Canada weakness in particular in 1Q, has that subsided in 2Q or has that persisted?

Yeah, on a month-to-month basis, we don't get into, you know, excruciating detail there just because it is only a month other than to say that international data outpaced the U.S., so not much more to say there.

Yeah, and then with regards to Canada, we are continuing to see progress impact in the Canadian markets due to the sentiment shift in Canada. And we saw a pretty sharp turn in that market when, you know, a lot of the tariff policy and other policies that Canadians objected to started rolling out.

Okay, great. And then second question, just on the 78% of inventory imported by partners. I think the comment was that that's a lower ratio than the 72% of where you're the importer of record coming from China. But could you get more specific as to like how much lower that China mix is? And is that kind of the north star of where you envision your mix of what you import going to over time? Just trying to understand, you know, how much lower it is and where your mix could go over time.

Yeah, not any more detailed there really, other than to say it's meaningfully lower than that 72%. And keep in mind, and maybe this will help you triangulate around it, that that 72%, which is of that 22 that is direct, the vast, call it vast, or significant majority on own brands is sourced from China, and then a much lower percentage on the third-party side of those direct imports. So you can get, you know, hopefully a little bit closer using those.

Okay, great. Thanks. Yeah, and then in terms of the long-term North Star, You know, it really depends on how the environment unfolds. Certainly we expect later this year to have some meaningful reduction in China exposure with regards to own brand and a much bigger impact in 2026. And then, you know, it depends on the tariff situation and, you know, other Matthew T Brooks, M.D.: : kind of macro issues going forward, but there's certainly a world where China could be very little of our production, but at this point it's too early to say it depends on a lot of policy factors and other things that have yet to unfold.

Sarah Ladd, Your next question comes from that coranda with rock capital your line is now open.

Matt Karanda, Because thanks. Matt Karanda, You just spinning back to a consumer health and the message here. I guess, could you touch on more directly sort of how the uncertainty and the lower confidence shows up in your customer behavior most prominently? It sounds mostly like lower AOVs. It sounds like, at least in the past, we have a precursor of kind of higher return rates a couple years ago. What else are you seeing in terms of the change in behavior? Are there more percentage of transactions financed via buy now, pay later? What are the other sort of metrics we should be looking for?

Yeah, those are all the main metrics that we've seen thus far. We closely track the consumer sentiment and consumer confidence because we know that historically that can often have an impact on our consumers' purchasing behavior. And very central to the Revolve brand is consumers feeling good and feeling great and living their best life. And so certainly when disruption or macro weakness first hits, it can often affect our consumers' purchase behavior. And then we saw a fairly meaningful shift in price points, as Jesse mentioned, around the same time. So, you know, along with, you know, a modest decel in the growth rates that we were tracking. So, you know, to Jesse's point, it seems pretty clear to us that the macro factors are at play. And, you know, macro stuff always works itself out over the long run. We actually feel great about the underlying trends in momentum that we've had through the past couple quarters and through Q1. And also, we feel great about our mitigation efforts and what our supply chain will look like over the long term so yeah in the short term there's a bit of impact but you know we think all the the factors for success are in place and you know we'll have to see how things play out over the couple next couple quarters given the macro environment particularly if it weakens but we think we're well positioned any willingness to just talk about sort of the uh return rate that you saw quarter to date has it changed materially from since the first quarter

just maybe puts and takes around what's driving the net sales at single-digit growth rate that you highlighted.

Yeah, so with regards to the return rate, we're not seeing a meaningful shift in the return rate at this point. Of course, as you know, returns can be a lagging indicator, but in the data we have thus far, there aren't any signs of the consumer sentiment impacting return rate just yet. And as you mentioned, it could be something that happens in the future. And again, you know, we saw – a modest decel from Q1. And you're always going to have some variance up and down month by month also. But certainly combined, again, with the price point shift and those sentiment indicators, it was pretty telling to us that there was some macro sentiment shift. I will say as we exited April, we start to saw some of those indicators reverse a bit. But again, it's a very volatile environment. And so at this point, we certainly wouldn't count on you know, the direction of consumer sentiment being reversed or permanently reversed.

All right. Your next question comes from Rick Patel with Raymond James. Your line is now open.

Thanks. Good afternoon. Can you talk about the outlook for own brands? I think typically during uncertain times, the company is pulled back here and lean more into national brands, but you're pushing ahead with accelerating own brands this year. So this series will give you the confidence in doing so this time around. and whether we should expect own brands to continue outperforming the rest of this year.

The team has been doing, there's been, you know, many, many years of investment improvement, and it's really, really showing from, you know, top line metrics that we shared today, as well as all of our internal metrics, you know, that we think are very, very forward leading. So the team is strong, we're performing well, and we'll continue to invest it because we see it as, you know, an exciting part of the business, both from a brand building and a market building perspective.

And then secondly, I think the guidance for G&A expense for the year was only cut by about $1 million. If demand does soften further, what kind of flex do you have in the business to become sharper with spending as we think about the ability to protect margins?

We certainly have the ability to make further G&A reductions, but that would not be the plan at all. You know, we're all about positioning the business for long-term success versus delivering short-term results. you know, from a profit maximization standpoint. So, you know, again, we think we have great underlying trends. We want to continue to build for the long term, and we think we're really well positioned to navigate the period, both with the initiatives that we have, a lot of what we're doing on the cash mitigation side, as well as our really strong cash balance of $300 million. So, you know, we certainly don't want to do anything short-sighted and cut expenses on things that could be long-term opportunities.

All right, our next question comes from Janine Stichter with BTIC. Please go ahead.

Hi, thanks for taking my questions. Just a couple from me on inventory. Nice to see the favorable inventory sales spread there. I was wondering if you could comment on the inventory composition at both brands. I think last quarter you talked about being a little bit more weighted in the markdowns that revolved. I was wondering if there's still any pockets of excess anywhere. And then maybe just a bit more color on how much you're cutting back inventory for the back half and then how much flexibility you have in the model if we do need to reaccelerate inventory buy.

Thank you.

Yeah, on the first one, I think we called it out in the prepared remarks too, but very encouraging was that inventory to sales growth differential was positive on both Forward and Revolve. So we saw great progress on the Revolve segment versus the progress that we saw on Forward over the last couple of quarters. So we feel good about the inventory composition today on both segments. And, you know, the full price markdown ratio is, you know, in a zone that feels comfortable as well. And then on inventory purchases, we're very flexible, and we want to keep that in mind. You know, as we think about moderating our inventory buys, but also staying flexible enough so that if and when demand does pick up, if these tariffs are, you know, moderated, call it, that we can get back into the inventory and meet the demands.

Our next question comes from Peter McGoldrick with Stifel. Please go ahead.

Hey, thanks for taking the question. I wanted to understand your philosophy on investing in the near-term opportunities drive share balanced against income statement performance. You mentioned investing while peers are pulling back. Can you help us think about these dynamics?

Yeah, 100%. Yeah, I think there's a couple, you know, really important examples. One of them we talked about on brand, right? You know, we think we do have the ability to control that inventory. Well, yes, there's going to be increased challenges with the tariff situation, but it's really checking and working well. And it's a huge area of opportunity for us from both a margin standpoint, as well as a growth and customer experience standpoint. So we're going to continue to invest in that. AI technology and technology in general, we've gotten huge gains from that in the preceding quarters. That's going to continue to be an area of active investment for us. And then, of course, just continuing to invest every aspect of the experience for the customer, continuing to invest in optimizing logistics efficiencies and return efficiencies and things of that nature. You're continuing to see that those items flow through to the balance sheet in the income statement in the current quarter. So, again, we think we have a lot of things that are working, a lot of investments that are going well. And

know we're always going to judge an investment on the basis of does the roi on this investment look good rather than how does this investment affect the p l statement for this current quarter okay and then i was curious on the active customer base this keeps expanding sequentially can you talk about newly acquired customers obviously you have international outperformance embedded in that but i'm curious how you're meeting new customers and if there are any behavioral differences in these newer cohorts?

Yes, we continue to invest on the marketing side. We're finding great opportunities, obviously, both from a retention standpoint, but continuing to acquire large amounts of new customers. And there's a huge untapped market and opportunity for us on the new customer side, obviously continuing to invest in all of our existing channels. But one thing we haven't talked about much on this earnings call, obviously with the tariff focus, but is the exciting opportunity of the physical retail expansion. And one of the really neat stats on the physical retail side is that we find significant amounts of the purchases close to half at our growth store came from new customers. And that's in essentially our hometown, our home market of Los Angeles. So there's huge upside for us long-term to continue to acquire those new customers. you know, on top of that category expansion, continuing to invest and expand internationally. So, you know, we feel great about the trajectory.

I apologize. We have time for one more question. We'll go to the line of Lucas Cohen with BMO. Your line is now open.

Hey, this is Lucas Cohen for Simian Siegel. Thanks for taking our question. I see second straight quarter, no repurchases, but obviously new dynamic here with CapEx investment in new stores as you build that out. That being said, it would still be great to get some context on what the future plans are for repurchases going forward.

Yeah, thanks, Lucas. Yeah, to your point, we haven't been active in the last two quarters. Now that said, we were active in Q2 of this year. We still have a plan in place. We still see that as a great return of capital to shareholders. And we have a strong cash balance such that we can invest in both the stock repurchases and our initiatives on the core business. Thanks.

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

Hey guys, thanks for joining us. We're really proud of all the work that we've invested and put into the organization and we're seeing a lot of progress across the board. We really think that these macro challenges really provide a lot of opportunities and we're excited and focused for the challenges and opportunities ahead.

All right, this concludes today's conference call. You may now disconnect.