Revolve Group, Inc.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve Group fourth quarter and full year 2025 earnings 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. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Eric Randerson as the VP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's fourth quarter and full year 2025 results. Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 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 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 rates. These statements are subject to various risks, uncertainties, and assumptions that could cause our action 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 Exchange Commission, including without limitation our quarterly report on Form 10Q for the quarter into September 30, 2025, and our annual report on Form 10K for the year into December 31, 2025, which we expect to file with the SEC on February 24, 2026, 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. 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 a rationale for using them can be found in the SAS News 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 finished the year with an outstanding fourth quarter, highlighted by double-digit top-line growth year-over-year that was outpaced by a 44% increase in adjusted EBITDA, resulting in a nearly 190 basis point increase in our adjusted EBITDA margin. We achieved these strong financial results while continuing to invest in many initiatives that we are very excited about and which we believe set us up well for profitable growth and market share gains in 2026 and beyond. I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2025 accomplishments and closing out with our key priorities for 2026. Starting with the fourth quarter recap, net sales were $324 million. an increase of 10% year-over-year, driven by meaningfully improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2025. In fact, our net sales increased by a double-digit rate year-over-year across Revolve, Forward, Domestic, and International, and this is despite facing the most difficult comparisons of the year by far in the fourth quarter. Notably, our revenue growth rate on a two-year stacked basis in Q4 improved to 26%, an increase of 11 points compared to the third quarter of 2025. Net sales in the revolved segment increased 10% year-over-year, and net sales in the forward segment increased 14% year-over-year. Gross margin increased by nearly 80 basis points year-over-year, driven primarily by powerful margin gains from data-driven recalibration of our markdown algorithm. as well as an increased mix of owned brands. Our ability to overcome macro pressures to expand our gross margin and operating margin year over year is notable in comparison to the margin declines experienced by many retailers due to tariff pressures further illustrating our agility, operational execution, and data-driven competitive advantages. Shifting to our bottom line results, our operating discipline enabled us to achieve a 58% increase in net income year over year, handily outpacing our sales growth. Diluted earnings per share was 26 cents, an increase of 53% from the prior year quarter. Adjusted EBITDA was $26 million, an increase of 44% year over year, driving a roughly 190 basis point expansion of our adjusted EBITDA margin. Beyond the numbers, I am 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 2025. before touching on our key areas of focus for the coming year. Overall, Michael and I are very encouraged by our meaningful financial gains on the top and bottom line, particularly considering the macro pressures from tariffs. Net sales increased 8% year over year, a nearly three-point improvement from the prior year. Importantly, we exited 2025 on a high note with double-digit growth in the fourth quarter that has continued strong in early 2026. Contributing to the top line gains were improved growth in active customers, with particular strength in the fourth quarter, and increased revenue per active customer year over year. We delivered strength across geographies in 2025. Net sales growth in the U.S. accelerated by four points year over year, and international net sales continued to outperform with 12% growth year over year. Sales of beauty and men's products each increased by a healthy double-digit percentage year over year, more than doubling our consolidated growth rate on a combined basis and further validating our opportunity to expand our share of wallet. Revenue retention of our prior year customer cohorts also further strengthened in 2025, benefiting from an increasing mix of tenured customers who, on average, generate much more revenue and have higher retention rates. Gross margin increased 100 basis points year over year and continues to benefit from our full price selling model. In 2025, we generated 81% of our net sales at full price, substantially higher than industry benchmarks. Expansion of our higher margin and exclusive owned brand collections also contributed to our gross margin gains. Owned brands contributed 20% of Revolve segment net sales in 2025, an increase of nearly two points year over year, with momentum building throughout the year. Fueled by gross margin expansion and operating efficiencies, Our profitability increased at a much faster rate than sales for the second straight year. Net income in 2025 was $61 million. And adjusted EBITDA was $94 million, an increase of 25% and 35% year over year, respectively. Most importantly, we continue to generate significant cash flow. In 2025, we generated $59 million in operating cash flow and $46 million in free cash flow. an increase of 123% and 157% respectively. This fueled a $47 million increase in total cash and equivalents on our balance sheet, surpassing $300 million at year end. Our strong cash flow and balance sheet are a key competitive advantage that gives us the capacity to invest in market share capture at a time when many industry peers have significantly reduced investment. 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 drove several million dollars in annualized revenue gains by launching AI-driven personalization enhancements and meaningfully enhancing our proprietary AI search algorithm for improved product discoverability. In product merchandising on our sites, we drove increased consumer engagement and conversion through AI enhancements to our product recommendations, and launched an AI styling feature, enabling shoppers to virtually style recommended items. In marketing, we are increasingly leveraging generative AI in our processes to drive efficiency and effectiveness with great results. In operations, our internally developed AI algorithms now automatically transcribe customer service phone calls, automate the backend processing of invoices, and reduce the incidence of fraudulent transactions. Most exciting, we recently rolled out and began testing an internally developed generative AI feature on our Revolve site that we believe will enhance the customer shopping experience by surfacing contextually relevant Q&A about each product. The test is a foundational step towards launching agentic AI conversational chat on our sites in the future. I will wrap up with a discussion of our key priorities for 2026. As co-founders and the company's largest shareholders collectively owning 43% of total Revolve common shares outstanding, Michael and I are very focused on maximizing value over the long term. Our strategic priorities for 2026 are guided by this long-term owner mindset. We are clearly focused on extending our momentum in driving attractive top-line and bottom-line performance in the year ahead, while at the same time continuing to prudently invest in exciting multi-year growth opportunities important to the long term, such as owned brand expansion, deploying AI technology, brand building, and expansion into physical retail. As we look ahead, we see multiple levers for growth that we believe will enable us to gain market share for 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. With our solid financial footing and the positive momentum in the business entering 2026, we believe this is an opportune time to invest in further building our brands with the goal of accelerating our market share gains and fueling our next phase of growth. To further supplement our brand building efforts, we will be investing to support several exciting product initiatives on tap for the coming months. 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, including for the men's demographic, which is showing great promise and is growing much faster than the core. We have earned our customers' trust and proven that with the right merchandising, they are eager to expand their purchases with us. This is especially true considering that we are investing to raise the bar even further on our incredible service offering, in contrast to what appears to be deteriorating service levels from key competitors. Third, we will continue to thoughtfully invest in physical retail expansion, including further investments in our team and retail technology platform, as well as evaluation of potential new retail sites that are a great fit with our incredible brand. While still very early in our journey, we see physical retail as an exciting lever for future share growth over the long term. Fourth, we will further expand our international presence, where we are investing in a market opportunity that is several times larger than the U.S. Over the past four years, international has increased from 17% to 21% of our total net sales, and we are just getting started. With emerging markets such as China and the Middle East offering a compelling expansion opportunity for our offerings, we see international as a key growth driver for many years to come. 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 the operating foundation for nearly all aspects of our business. Our many AI technology wins in 2025. further validate our data-driven competitive advantages, and give me even more conviction to invest as we expand the use of AI throughout the organization. To wrap up, I want to take a moment to thank my Revolve colleagues for your incredible efforts that enabled us to achieve strong results in the fourth quarter, while also delivering great progress on our exciting longer-term initiatives. Our entire team is fired up by the many opportunities ahead that we believe will accelerate our market share gains. Our current momentum gives me a lot of confidence and optimism about the opportunities ahead in 2026 and beyond. Now over to Michael.