Revolve Group, Inc.

Good afternoon. My name is Jordan, and I'll be your conference operator today. And at this time, I'd like to welcome everyone to the Revolve Group second quarter 2026 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to Erik Randerson, SVP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's second quarter 2026 results. Before we begin, I'd like to mention that we have posted a presentation containing Q2 2026 financial highlights for our Investor Relations website located at investors.revolve.com. I'd also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, our marketing events and their expected impact, our physical retail stores, our own brand and luxury brand expansions, our use of AI, our market position and competitive positioning, our partnerships, and our outlook for net sale, 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 risk mentioned in the SAF News 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 ended December 31, 2025, 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'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 as 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 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 had a very solid quarter, highlighted by strong and profitable growth across segments and geographies, leading to continued market share gains. In fact, we achieved double-digit net sales growth across Revolve, Ford, Domestic, and International for the third consecutive quarter. Our underlying business metrics illustrate our increased momentum with next-generation consumers. Trailing 12-month active customers further accelerated in the second quarter to 11% growth year-over-year, fueled by a record quarterly performance for new customer acquisition and increased engagement from pre-existing customers. The 115,000 increase in active customers in just three months is our highest quarterly growth in four years, which has enabled us to surpass the 3 million active customer milestone in Q2. Also notable, our product return rate decreased year over year for the second consecutive quarter, outperforming our expectations. The win reflects a favorable mix shift helped by successful expansion of product categories outside of our historical core and continued progress on our initiatives designed to reduce our return rate in customer-friendly ways. Our net sales momentum has continued into the third quarter, with net sales in July increasing approximately 18% year-over-year, reinforcing my confidence in our path to achieve our goal of double-digit revenue growth for the full year 2026. The continued strong growth signals that our investments in brand, technology, and AI, site experience, and category expansion are truly paying off. Beyond the numbers, Michael and I are most excited about the progress on our longer term initiatives. 2026 is a foundational year for Revolve, focused on successfully launching longer term investments that we believe have the potential to transform our business over time. I'm excited about our early progress against these large opportunities, such as building our physical retail muscle and developing our first ever Revolve namesake label within our own brand assortment. Moreover, our Grow Good Beauty products, developed in partnership with Cardi B, were introduced in the second quarter to much fanfare that exceeded our expectations. Seeking to capitalize on such growth opportunities, our investments in 2026 have been meaningful, approximating two points of adjusted EBITDA margin in 2026 to seed these exciting initiatives in our efforts to ensure their long-term success. As a founder-led company bolstered by a rock-solid balance sheet and consistent cash flow generation, Michael and I are focused on maximizing value over the long term. Michael will talk more about each of these initiatives in his remarks. Underscoring our confidence in our future outlook, we repurchased nearly 500,000 shares of Revolve Group common stock in the second quarter, reducing our Class A common shares by more than 1%. The approximately $10 million return to shareholders represents less than a third of our free cash flow generation year to date. With that as an introduction, I will step back and provide a brief recap of our second quarter results before reviewing the progress on our longer term initiatives. Net sales for the second quarter were $347 million, an increase of 12% year-over-year. This marks our third consecutive quarter of double-digit top-line growth. By segment, Revolve net sales increased 13% and Ford net sales increased 11% year-over-year. By territory, domestic net sales increased 11% and international net sales grew 16% year-over-year. Gross margin was 56.6%, which included an approximately 160 basis point benefit from IEPA tariff refunds, up from 54.1% in the second quarter of 2025. Excluding the tariff refund, gross margin increased approximately 90 basis points year-over-year, fueled primarily by successful AI and data-driven recalibrations of our Markdown algorithm. Growth in our operating expenses in Q2 and year-to-date 2026 reflect the strategic investments in longer-term initiatives that we are so excited about, which is particularly evident on the marketing line. In the second quarter, we also experienced elevated logistics cost headwinds, particularly in international markets affected by today's dynamic geopolitical environment where variable fuel and other surcharges on international customer shipments increased meaningfully year-over-year. Shifting to our bottom line results, net income was $19 million and diluted earnings per share was $0.26, which includes a $0.06 gain from IEPA tariff refunds. This is an increase from diluted EPS of $0.14 in the second quarter of 2025, which was negatively impacted by a loss on the disposal of a former subsidiary, as well as a higher than normal tax rate. Adjusted EBITDA increased to $27 million, including a $5.6 million benefit from IEPA tariff refunds, and was achieved while heavily investing in the compelling longer-term growth initiatives discussed earlier, all of which we believe could be game changers. This is up from adjusted EBITDA of $23 million in the second quarter of 2025. Incidentally, we filed for approximately $8 million in IEPA tariff refunds, most of which we received and recognized in our second quarter financial results. As a reminder, we successfully mitigated the vast majority of the tariff impact thanks to the great work, agility, and execution by our team. Now, I'll conclude by recapping our progress against our longer-term strategic priorities and growth drivers. We're advancing on a strong slate of initiatives, and the team's execution has us well-positioned for meaningful, long-term value creation. First, we continue to invest to expand our brand awareness, grow our customer base, and strengthen our connection with the next-generation consumer. We had a very active and impactful second quarter for brand building, featuring incredible activations at Revolve Festival and Stagecoach, attended by countless A-listers, our first-ever men's brand marketing and World Cup activations, and aspirational lifestyle events in Monaco and Spain that collectively generated hundreds of millions of press and social media impressions. We are very pleased with the results of our brand building efforts and investments and growth initiatives that drove a record number of new customers and strong growth in active customers in the second quarter. Second, we continue to meaningfully expand our international penetration, highlighted by 16% net sales growth outside of the U.S. Net sales increased across all regions, with Mexico again delivering exceptional growth on the heels of the marketing and service enhancements discussed last quarter. Most impressively, after a weak start to Q2, the Middle East region rebounded to strong double-digit growth for the quarter, helped by our agility and opportunistically capitalizing on driving demand at a time when competitors pulled back. All told, International generated nearly 23% of total net sales in the second quarter, the highest mix we have ever reported. And yet, we still have so much white space for future growth in a market that is more than three times larger than the U.S. opportunity. Third, our second quarter results further validate our successful efforts to expand our share of wallet among our loyal customers. The fashion apparel category outpaced our net sales growth in Q2, driven by particular strength from wardrobe essentials, including tops, pants, outerwear, intimates, shorts, and jeans. Emerging product areas of beauty and men's also continue to perform very well, growing faster than the overall business on a combined basis. Finally, we continue to leverage AI to drive innovation, growth, and efficiency across the platform. I will provide two examples of our incredible progress, one that is customer-facing and another that has delivered huge gains for internal analytics, strategy, and faster decision-making. First, I'm excited by the promising evaluations of an enhancement to our on-site search algorithms that will soon allow consumers to upload photo images to discover similar items from our assortment. For example, a customer could upload a photo of a celebrity wearing a cute dress, and our AI-driven innovation will show the exact item, if available, along with similar items on Revolve. We expect the innovation to elevate product discovery and drive increased customer engagement and fashion inspiration, and serve as a foundational technology for future enhancements. Testing of this feature on the Revolve site will begin in the coming weeks. Shifting gears, we have also leveraged AI technology to develop proprietary data repositories that serve as powerful in-house analytics tools. For example, our team members can now query our full data warehouse in plain English with AI agents returning insights in minutes with full reporting and analysis. Particularly exciting is a related feature we have developed from scratch to help us elevate the shopping experience and drive higher conversion in our retail stores. Leveraging AI, we built custom algorithms to analyze store visual feeds to provide insight into store performance. As a result, we can now see in real time the traffic and conversion rates by store and floor among many other metrics. Thank you, Mike.