Revolve Group, Inc. Price & Performance (RVLV)

Including the risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere, in our filings with the Securities and Exchange Commission including without limitation our quarterly report on Form 10 Q, for the quarter ended 09/30/2024, and our annual report on Form 10 ks for the year ended 12/31/2024, which we expect to file with the SEC on 02/25/2025, all of which can be found on our website at investors.revolve.com Revolve. We undertake no obligation to revise or update any forward looking statements 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 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 or superior to the financial information presented in 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 these measures 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 Kernikolas 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 $294,000,000 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 twenty twenty four.

In fact, net sales increased by a double digit rate year over year across Revolve Revolve, Forward, Domestic and International for the first time in two point five 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 returned 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 $12,000,000 or $0.17 per diluted share was more than triple the $3,000,000 in the prior year quarter. Adjusted EBITDA was 18,000,000 an increase of 114% year over year driving a two ninety 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 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 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, but 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 Net income and adjusted EBITDA increased 7360% 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 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've meaningfully advanced our AI technology and Here are a few highlights. On our e commerce websites, we launched AI powered search algorithms for In product merchandising, on our sites, we drove increased consumer engagement and conversion through AI driven product recommendations and other site op 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 cofounders in the company's largest shareholders owning more than 31,000,000 shares of Revolve 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 We are focused on extending our momentum and 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 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 outwear often associated with Revolve 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 us strong execution in the fourth quarter. As a result of test, we believe we are gaining market share and further strength I feel great about our current momentum and the exciting opportunities ahead in 2025 and beyond. Now over to Michael. Thanks, Mike, and hello, everyone.

I'm proud of our strong results in the fourth quarter that were driven by team's great execution across the business. Key contributors to our double digit growth in net sales were vastly improved site merchandising and exciting gains in emerging product zones. The strong top line growth combined with incredible efficiencies in our marketing logistics costs that tore more than tripling of net income year over year in the fourth quarter. That as an introduction, I will focus my remarks on the strategic areas we are investing in and that we are especially excited about. Merchandising and product assortment brand awareness, physical retail expansion and luxury in the high end consumer. First, merchandising and product assortment. Meaningfully improved site merchandising and on point inventory buys were important contributors to our growth in the fourth quarter. Leveraging technology and data analytics, our teams are doing an outstanding job of improving our assortment across a broader range of use cases and creating compelling merchandise and to drive increased consumer engagement and conversion. I attribute much of the incredible growth in demand for our Winter South and Mike mentioned in our site merchandising improvements, assortments put in front of our customers to optimize channel strategies.

Looking forward, one area that I'm truly excited about is premium essentials. Our customers trust our brands and delight in our shopping experience creating a strong point of leverage for us to capture a greater share of wallet.

We of the first steps in this journey was the launch of the Foundation Shop, on our Evolve site featuring a selection of premium essentials with third party and owned brands. It's still early, but the merchandising looks fantastic and has begun to fulfill our customers' desire to shop on Revolve for their everyday wardrobe needs. Including for fall fashion and colder weather styles that were strong growth drivers in the fourth quarter. Response from our brand partners has been incredible. With two coveted forward brands choosing across this Revolve after hearing about our foundation shops strategy that we expect to build on in the coming quarters. We're also continuing to see exciting gains in newer areas like beauty, has more than quadrupled in size in the past five years. In fact, our beauty, men's and home products all achieved record sales in the fourth quarter. This validates our ability to tap into our customer loyalty to drive adoption in adjacent products. Through further product expansion and side merchandising improvements, we a great deal of opportunity to both acquire new customers and capture more share of our existing customers' wallet. Helping us to capitalize on these efforts are new AI algorithms developed by our internal teams to recommend complementary items in adjacent product zones after the purchase transaction is complete.

Are also very excited about the progress we made within own brand faster. Our goal coming into the year was to create a solid foundation for future growth and expansion. We did just that. Our own brand mix of Revolve segment net sales of 18% for the full year in 2024 is well below its long term potential. We believe the underlying foundational metrics better than ever.

Setting us up well for 2025 and beyond. We are very excited about the pipeline of new events and development this year. Second, brand awareness.

Our marketing efficiency meaningfully outperformed our outlook for the fourth quarter contributing significantly to our outstanding results. Total marketing investment in the fourth quarter represented 14.8% of net sales, a decrease of approximately 170 basis points year over year. Our teams deserve a lot of credit for being very nimble in evolving our marketing events and partnerships with content creators to maximize returns on our investments and increase our brand heat. This innovation of walking strategies continues to elevate and further differentiate our brands with consumers and deliver great results on the KPIs we are focused on. We hosted several and passable events at our Holiday Shop in Los Angeles and in Aspen, many in partnership with Brand Partners. We've found these events to be highly efficient for building our brands and acquiring new customers. In fact, our New Year's deactivation in Aston was our most successful and productive event of 2024 And normally, this event was produced at a modest investment Each video produced in connection with the Athens News of viewed an average of nearly 400,000 times substantially outpacing the content views for our other marketing activations. Another way we are expanding our brand reach is by capitalizing on shifts in culture that created new types of influencers we were early to recognize the powerful intersection of fashion and sports.

Including collaboration with WNBA Zara and fashion news, The Angel Reeds, which recently featured on the cover of Vogue. More recently, we are partnering with a new women's professional volleyball league, which our evolved logo is prominently featured on the back of every player's jersey and our brand is featured throughout their arenas. As New Leaf's online fashion retail partner, we are collaborating with the league's top stars including former USA Olympic medalist. On a different more somber note, as a company founded in Los Angeles, Mike and I and the team are In January, we were able to leverage our influence for the benefit of our local community the opening of the Revolve Free Shop. A temporary shop in Downtown Los Angeles to support hundreds of members of our local community directly impact by the wildfires. We provided a broad selection of free clothing, shoes, beauty and hygiene products and blankets to support those most in need. I've also personally donated $1,000,000 to several charities and causes including the Los Angeles Fire Department Foundation, the World Central Kitchen and many individuals directly impacted by the wildfires.

Third, physical retail expansion. I am very excited about the long term growth opportunity in physical retail. We recently crossed the one year mark in our successful assets and are busy preparing for the opening of our Los Angeles store, which will be our first permanent retail destination in the major metropolitan area. Temporary Revolve holiday shop discussed last quarter was an excellent and well executed preview of our [indiscernible] In one of the most visited holiday shopping destinations in LA, we created incredible buzz excitement by hosting dozens of impactful marketing events featuring VIP appearances from Kendall Jenner, Cardi B Megan Fox, Dwayne Wade, Nicole Richie, Elsa Hosk and Shay Mitchell. Of note, even on our Home Turf Of Los Angeles where our brands are most well known, more than a third of the [indiscernible] This reinforces the magnitude of opportunity to increase our brand awareness expand our customer file and increase our market share. [indiscernible] also saw early indications of lifting e commerce in local communities surrounding the growth. Particularly among new customers, confirming the physical retail can be extremely complementary and provide a favorable halo effect on our core e commerce operations.

Also very encouraging that the Revolve holiday shop has generated significantly higher mix of net sales from own brand than we generate online.

While it's a small sample size, this reinforces the exciting opportunity ahead of us to drive much higher owned brand penetration and corresponding gross margin at this retail. We are very early in our physical retail journey and we are continuing to test and iterate with the invaluable learnings gained so far. I am confident that we have a clear path for improvement as we pursue our fiscal strategy. We intend to hire a senior leader with deep industry experience who will help us maximize this growth opportunity over the long term, beginning with our Los Angeles store. Speaking of which, I would now like to share the details of our permanent store Los Angeles stated to open in the fall.

Will occupy the exact same location as the Revolve Holiday Shop at The Grove, We believe our incredible permanent destination will elevate our brands with an essential and high traffic location in the Gro, providing great exposure and exciting growth opportunities for years to come. We expect to break ground on construction next month and I can't wait for everyone to see our brands comply. Finally, luxury and the high end consumer In early twenty twenty four, we talked about the disruption of the luxury e commerce market, on the heels of two distressed sales of large competitors in late twenty twenty three. As a profitable company with consistent cash flow generation, we saw an opportunity to benefit from this industry turmoil by investing in the Luxury segment while other had no choice but to cut back. Capitalizing on the opportunity, last year we made key investments in talent for particularly focused on penetrating the high network segment of consumers that drive the disproportionate share of the luxury industry revenue. Our fourth quarter results are a powerful indication that our forward investments are paying off particularly in key customer metrics. Increased by a double digit percentage year over year. We believe our investments were a key contributor to OAR's 11 improvement in top line growth year over year compared to the prior quarter.

Another key driver of Forward's improved growth in the fourth quarter is our Forward renew offering of pre owned handbags. Renew sales continue to gain scale and nearly doubled year over year in the fourth quarter.

MAPFEDA, we are thrilled with our momentum in delivering strong growth and profitability excited about the potential of our long term initiatives and investments as we pursue significant market Now I'll turn it over to Jesse for the financials.

Thanks, Michael, and hello, everyone. I am extremely pleased with our fourth quarter results.

Highlighted by double digit net sales growth across segments and geographies. A more than doubling of our net income and adjusted EBITDA year over year.

I'll start by recapping our fourth quarter results then close with updates on recent trends in the business, and commentary on our gross margin and cost structure for 2025.

Starting with the fourth quarter results, net sales were $294,000,000 a year over year increase of 14% and a four point improvement from our net sales growth in the third quarter of twenty twenty four. Revolve segment net sales increased 15% forward segment net sales increased 11% year over year in the fourth quarter.

By territory, domestic net sales increased 11% and international net sales increased 29% year over year.

Active customers, which is a trailing twelve month measure, grew to $2,700,000 an increase of 5% year over year. Total orders placed were 2,200,000.0 an increase of 7% year over year. And our highest order growth more than a year. Average order value was $3.00 $1 a decrease of 1% year over year that was due to lower AOB in the forward segment, driven by product mix. Consolidated gross margin was 52.5%, and came in well above our guidance range. The increase of 53 basis points year over year primarily reflects meaningful margin improvement in our Forward segment and an increased mix of net sales from the higher margin Revolve segment. Supported by strong full price mix in both segments. Moving on to operating expenses. A high level summary is that much better than expected efficiency in marketing, selling and distribution, Fulfillment costs were 3.2% of net sales, a decrease of 27 basis points year over year and slightly better than our guidance. Selling and distribution costs were 16.5% of net sales.

A decrease of 129 basis points year over year and outperforming our guidance by roughly 80 basis This impressive result reflects outstanding execution by our teams, to drive efficiency in our logistics costs as well as a meaningful decrease in our return rate year over year. Our marketing investment came in much more favorable than expected.

Representing 14.8% of net sales a decrease of 168 basis points year over year which reflects efficiency gains across both the brand and performance marketing channels.

General and administrative costs came in $6,000,000 higher than our guidance, although most of the overage reflects costs that are excluded from adjusted EBITDA. First, there were $2,700,000 in non routine costs that were not factored into our outlook are excluded from adjusted EBITDA. Second, also contributing to the higher G and A costs is that stock based compensation came in much higher than expected and increased $1,700,000 year over year, non cash costs are also excluded from adjusted EBITDA. In addition, we continue to invest in many longer term initiatives that we believe set us up for profitable growth well into the future. Our tax rate was 20% in the fourth quarter, down from 28% in the prior year. The decrease was primarily due to excess tax benefits realized as a result of the exercise of non qualified stock options. The meaningfully increased net sales and gross profit year over year the improved marketing efficiency and great progress driving efficiencies in our logistics costs resulted in an exceptional growth on the bottom line. Net income more than tripled to $12,000,000 or $0.17 per diluted share from $3,000,000 or $0.05 per diluted share the fourth quarter of twenty twenty three.

Adjusted EBITDA was $18,000,000 an increase of 114 year over year. For the full year 2024, adjusted EBITDA was $70,000,000 an increase of 60% year over year. [indiscernible] Moving on to the balance sheet and cash flow statement.

We delivered improved net cash provided by operating activities in and free cash flow in the fourth quarter compared to the prior year period further strengthening our balance sheet. Comparisons were less favorable for the full year 2024 however as our net cash provided by operating activities of $27,000,000 and free cash flow of $18,000,000 decreased 38% Our much higher net income year over year was more than offset by unfavorable changes in working capital including our investment in inventory during the year. Importantly, we exited the fourth quarter of twenty twenty four which we believe positions us to generate increased cash flows in 2025.

Inventory at 12/31/2024 was $229,000,000 an increase of 13% year over year which was slightly outpaced by our 14% net sales growth for the fourth quarter.

Demonstrating the important progress we have made in rebalancing our inventory. As of 12/31/2024, cash and cash equivalents were $257,000,000 an increase of $11,000,000 or 5% year over year and we had no debt. [indiscernible] Since the end of twenty nineteen, we have increased our cash balance nearly fourfold, an increase of $191,000,000 in five years.

While returning more than $40,000,000 to shareholders through stock repurchases over the last eighteen months.

Approximately $58,000,000 remained available in our $100,000,000 stock repurchase program at year end.

Unchanged from last quarter. Now let me update you on some recent trends in the business since [indiscernible] Provide some direction on our cost structure to help in your modeling of the business for 2025. Starting from the top, our net sales through the first seven weeks of the first quarter of twenty twenty five have increased by a high single digit percentage year over year.

In terms of linearity, month to date sales trends in February have been very solid.

Helping to offset softer net sales growth in January the Los Angeles wildfires temporarily impacted demand in our largest region of California, and during which time we paused social media activity to focus on our relief efforts and in reverence to those impacted by the wildfires. For modeling purposes, for the balance of the first quarter of twenty twenty five, remember that February 2025 has one less day than the prior year comparison due to leap year in February 2024. This uneven calendar year over year creates an approximately one point headwind to net sales growth in the first quarter of twenty twenty five. Shifting to gross margin. We expect gross margin in the first quarter of twenty twenty five of between 52.252.7% which implies an increase of 15 basis points year over year at the midpoint of the range. For the full year 2025, we expect gross margin of between 52.452.9% which also implies a year over year increase of around 15 basis points at the midpoint of the range.

Embedded in our 2025 expectations for gross margin, our higher net sales at full price year over year and notable margin improvement in the forward segment. Which we expect to be partially offset by the new China tariffs.

That are most relevant to our Revolve segment, Also important to the discussion of potential tariff impacts in supply chains, is that we have extremely limited sourcing exposure to Canada and Mexico.

Fulfillment.

We expect fulfillment as a percentage of net sales of approximately 3.2% for the first quarter of twenty twenty five.

A decrease of approximately 30 basis points the fulfillment efficiency ratio in the first quarter of twenty twenty four. For the full year 2025, we expect fulfillment costs of between 33.2% of net sales, a decrease of approximately 20 basis points year over year at the midpoint of the range.

Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.4% for the first quarter of twenty twenty five.

Which implies a year over year improvement of approximately 50 basis points.

For the full year 2025, we expect selling and distribution costs of between 1717.2% of net sales. A decrease of 20 basis points Marketing. For the full year 2025, we expect our marketing investment to represent between 14.915.1% of net sales. An increase of approximately 20 basis points year over year at the midpoint of the range. We expect continued efficiencies in marketing to be partially offset by continued investments to support brand building and customer acquisition. General and administrative. We expect G and A expense of approximately $39,500,000 in the first quarter twenty twenty five and between 155,000,000 and $158,000,000 for the full year 2025. This implies a 10% year over year increase in G and A costs for the full year 2025 at the midpoint of the guidance range. As we continue to invest in longer term growth initiatives, such as the launch of several exciting owned brands, and further expansion of AI technology throughout the organization. Also includes a full year of investment in the Alexandre Vauthier fashion house we acquired in the second quarter of twenty twenty four. And lastly, we continue to expect our effective tax rate to be around 24% to 26% for the full year 2025.

To recap, I am very encouraged by our fourth quarter and full year results. Highlighted by an inflection in our top line growth and more than 70% growth in net income for the full year 2024. Most importantly, we achieved these strong results while investing meaningfully in growth and efficiency initiatives that we believe position us well to continue to gain market share over the long term in pursuit of the very large opportunity ahead of us. Now, we'll open it up for your questions. Your first question comes from Randy Konik of Jefferies.

Your line is open. Yes, thanks a lot. I guess, Jesse, question for you, really helpful. Color on the gross margin outlook, great performance in the quarter. Just curious, you talked about the ability to kind of even increase the the amount of full price proportion of sales in the business and I guess in Revolve. Give us some perspective on what drove that thought process going forward? And then on forward actually, maybe give us some perspective of just how much lower the gross margins are at this point in time and where you can see those margins going ahead?

Yes, sure. Thanks. And yes, definitely a great quarter and good see that forward margin starting with a four again. We still see opportunity there. Especially on a full year basis. Again, reminder in the first half of the year, it was more challenged than the back half of the year.

So we're entering 2025 in a really good place in terms of inventory on forward and expect that full price to continue. On the overall full price landscape, I think it's a couple of things. One, styles continue to expand. The team gets better and better at bringing those new styles. The merchandising is really resonating. So we do see further opportunity there for full price even on top of the really healthy full price we exited 2024 on.

Again, reminder, the first half of twenty twenty four was more pressured than the back half. So we see a good full year 2025 ahead.

One last question. Just on the outlook on the outlook for logistics, especially internationally, where does that sit right now? I'm sure I'm sure the international margins, I don't know if it's the case, but I'm sure they're a little bit lower. Than domestic margins. Maybe give us some perspective where those margins sit internationally relative to the domestic piece of the business Revolve and kind of how that journey will unfold in the years ahead? Thanks.

Yes. From a gross margin perspective, relatively in line and there's always some product mix differences there, but call it in line. And then when you work down to contribution margin, call it neutral. It is more expensive to ship internationally, but that's offset by a lower return rate internationally than we see domestically. So there's some puts and takes throughout but it's comparable to that of domestic.

Super helpful. Thanks guys. [indiscernible] next question comes from Oliver Chen with TD Cowen.

Hi, Mike, Mike and Jesse. Great results.

As we look forward, the the comparison get a little tougher in terms of the revenue growth. As we go throughout the year. Are your thoughts in terms of average order value relative to number of orders and how that may manifest as well as are you expecting a better first half versus second half given the nature comparisons Secondly, as we think about physical retail, what are just some key things you're thinking about longer term with physical and stores? Thanks, Jesse.

Yes. Yes, I'll take that first one and then pass it along. In terms of orders versus AOV and customers, we expect strong growth in that customer and orders, with a slight increase in AOV, again, going back to the full price mix a higher full price mix assumed we should see a slight uptick in AOV, but nothing meaningful. So most of the growth coming from orders and customers.

And then in terms of physical retail and how thinking about it, it's a huge long term opportunity. We're really excited about our experiences there thus far. The Aspen store entering its second year now. Then the growth pop up, which was a great success and really excited to put our heads down and get that store open for the fall. This year. We think it's a great location. There is phenomenal interest in traffic and turnout at our pop up and really exciting see what we can do in the fall. And again, long term, it's a massive opportunity Half of the apparel market or more is still offline. And so we're putting the pieces in place to go after that.

Okay. And on return rates, which have trended better, what should we know about what you're seeing now with return rates and any implications that has the nature of the health of your consumer When we do model revenue growth in the year ahead, do you think it'll be pretty bumpy or just consistently positive ideally? Thank you. Yeah, really hard to say what the cadence of revenue growth will be over the course of the year. I think one thing to hit on maybe is seasonality. Because seasonality has been so volatile over the last few years. And then this past year with a lot of our initiatives kicking in, in the back half of the year, we did see that revenue in absolute dollars increase potentially each quarter. So I think if we look ahead to 2025, absent any bigger macro factors, we'd expect seasonality to return close to where we were back in the pre COVID era era with Q2 being the highest and 1Q and 4Q being little bit lower, but more muted than it has been in a pre COVID period just given the the great success we've had in other product categories outside of that core kind of event, kind of festival going out apparel that we've had in the past.

And then return rate, We're for modeling purposes, we're modeling in a flat return rate for 2025. Now that's not to take away from the optimism we have in in generating further gains there. But from a modeling perspective, we're still modeling a flat return rate with more opportunity to beat that in the first half of the year than the second half given the progress we made in 2024.

The next question comes from Jim Duffy of Stifel.

Thank you. Really nice quarter guys. Odez, on Q1, no doubt a challenge for the team operating amidst the wildfires Are you able to size the January impact of the disruption from both the customers in the area and the pause you had in Performance Marketing? To the January figures, Yeah. Yeah. It definitely had an impact. It's hard to, give an exact number there because there were a lot of factors at play, but we definitely saw depressed sales specifically during that time period. And from a couple of different perspectives, one in that core market of California and then more specifically around LA and you could really see that at the growth [indiscernible] And then also just a lot of the social attention was focused on on wildfires. There was also a lot of kind of weather challenges, especially especially on the East Coast and then also a lot of, call it, noise from administration change, tariff etcetera. So January was challenging from a number of perspectives. But to our point in the prepared remarks, February really picked up and is it performed solid through that first couple of weeks of February. So feeling optimistic about the progress despite the challenge we had in January.

Okay. Thank you. And then on the merchandising can you put a little more color around broader use cases? You gave this skiwear example, which drove really impressive growth in the fourth quarter. Are there others like this that you would point to which are tangible drivers in 2025? And then maybe like within that, if you could speak to the owned brands you're most excited about?

So I think Micron is having trouble with this. Line. Normally Michael would answer these questions Can you hear me? [indiscernible] From the operator. But yes, the CSAP has been incredible and that's something we will continue to expand. But water cold weather has been very, very strong for us over the past twenty some years. We've been known for a lot more warmer weather with the apps in store and with merchandising focus, we've been able to connect really strong on outerwear sweaters. And this past cold weather season, We're also seeing a lot more tailoring and sophisticated kind of styles, which can translate to a more affluent customer as well as kind of workwear, which has been super exciting for us. Long term wise also we think that foundational basics and essential things that we have has gone quite well. The foundation job is launching. We see that as a a long term journey. So we really see a lot of traction in all aspects of reward long term wise even more. There's other things that we haven't even yet to tap yet. But those are three huge areas that we know our customers shop for and is now really shopping with us for.

So team has done an incredible job there. The next question comes from Nathan Feather of Morgan Stanley.

Your line is open.

Everyone, thanks for the question. Really encouraging to see forward return to double digit growth here.

I guess, do you feel you're back to sustainable positive growth in that segment absent a additional macro volatility there? And then can you give us an update on the inventory situation? How far would you say you are from normalized levels specifically at Forward? Yes. So with regards to Ford, feel great about the products in the fourth quarter. Ford's always been a little bit more volatile business. So you don't want to kind of refrain from commenting on precise projections going forward, but we're continuing to see some positive momentum there. Feel like we made great investments last year really tapping into the higher net worth customer segment, as Michael mentioned. Also, we feel like we're starting to see some signs that luxury market is turning up a bit. So we're certainly optimistic. We're going to see positive growth there in the quarter to come.

But we'd like to see a couple more months of progress before putting anything too firm out there. With regards to the inventory situation, we're definitely seeing progress on inventory, still a bit more heavily inventory than we'd like. So continue to our way through there, some signs of recovery, really great results in Q4 and we're looking to stream through a couple of of nice quarters in a row before we get too bullish on that segment.

The next question comes from Michael Binetti with Evercore ISI. Your line is open.

Hey, guys. Great quarter, great holiday. Jesse, would you just kind of put a final stamp on the question earlier, would you say the February run rate or whatever the run rate is since you went restarted social media is back to levels similar to to 4Q, just so we can understand that that's kind of the normal rate here? Given the volatility? And then I'm curious on the gross margin out outlook for the year, what What should we think about as the inputs that dictate the high end up 40 basis points versus the low end down? 10 basis points that I understand from the puts and takes. And then one last one on the really impressed to hear the variable costs better by 130 basis points. I know that took a lot of work for you guys, very impressive especially as more of the orders come from international, which I think has always been harder to serve. When do you get to that run rate? And what are the incremental drivers from here? Are there other projects that can drive that higher from here?

Yeah. Okay. I'll try to hit all those. So maybe starting with February and the growth rate there, it did bounce back really nicely and it was really solid. And I'd say I'd put it in the zone of that Q4 which helped offset some of that January softness that we saw. So So hard to say what happens from here, but our hope is that that continues On the puts and takes on gross margin, there's a couple I think the things we called out, how successful we are in driving that full price mix, which we're confident in. The other probably bigger factor that's more somewhat out of our control is just what exactly happens with tariffs when that comes in play, timing of inventory receipts, and then our mitigating factors. We have a number of mitigating factors in the works, which is why we're not getting too precise on specifying that tariff impact. But that is definitely a variable We feel good about the inventory as we head into the year as Mike called out. So that definitely gives us a good start to 2025. On the variable, really good work by the team in 2024 with outside of the return rate impact, which I'll get to.

We had 20 plus specific initiatives of different size and scale that were in play that helped that selling a distribution efficiency gain in 2024. You look at the combination of selling and distribution and fulfillment, there was about 160 basis point improvement, about two thirds of that was due to return rate and a lower return rate year over year. So that definitely has a significant impact and we're optimistic we can continue to drive those gains. So that will be one factor And the team continues to work on other efficiency gains. They've already identified a number of things as we head into 2025, not to get specific on those, but we're optimistic we can continue to manage those variable line items. And thank you for calling out the international too. That is a factor. So even with that international pressure and international growing at 29%, being able to get those logistics efficiencies down was really impressive.

The next question comes from Mark Altra with Baird, your line is open. Good afternoon. Thanks for taking my question.

You called out the reduction in your customer acquisition costs I was hoping you could contextualize how much of that improvement is your internal initiatives and marketing approach versus perhaps a more favorable back drop on the performance marketing front?

And then separately, Jesse, just G and A, I think you're guiding to about 10% growth in G and A dollars, in 2025. It's I think a higher leverage point than you communicated in the past. And maybe I'm missing some one timers that in that calculation, but maybe just unpack that a little bit and help us understand the G and A investments. Thank you.

Yes. So on the marketing side, in terms of marketing season we saw during the year, it was largely driven by internal team initiatives. Their number of really nice things the team was able to do in terms of expanding our reach and efficiency with performance marketing. Some of them actually related to some of those AI initiatives that we talked about Of course, there were initiatives beyond that. And then on the brand marketing side, really phenomenal work by the team, structuring our brand marketing events in a way was much more efficient, but also more impactful than previous year So tremendous job by the team on the marketing side.

Yes. And then on G and A, in 2024, there were meaningful amounts of call it, non routine costs that were included in G and A to the tune of about $4,000,000 So hard to predict those going forward, but assume those go away in 2025. Stock comp is also higher in 2024, so expecting that to normalize as we get into 2025. So that 10% is really core G and A growth plus investments that we continue to make expecting additional investment in physical, got a number of own brand launches planned that we're really excited about and that takes upfront investment in team and infrastructure there. And then Vahatier will have a full year of cost impact versus the half year of 2024. So those are couple of the kind of outliers outside of the 4G and A growth. The next question comes from Ana Andriva with Piper Sandler.

Great. Thank you so much. And let me add my congrats as well. Great end to the year. Just a follow-up on the quarter to date. Great to hear that February improved so nicely. Just what are you seeing across the two brands and also international versus U. S? And any particular categories to call out that are driving the business? And then we had a follow-up as well.

Yes. No additional color on the seven weeks in part because it's only seven weeks. So we don't want to give too much there. Other than to say we did see growth across both segments and both domestic and international. So So, optimistic that the growth is coming from all aspects of the business.

Okay. That's perfect. And just on marketing, you've been getting really nice efficiencies all of last year. Just curious, can you talk about how you approach the Revolve Festival? Coming up in April? You've got some pretty nice marketing efficiency. The last here.

Already with Naved. Just how do you think about that this year?

This year from an investment perspective, we're looking at the same range, but of course, we're always challenging the team to do better and better. So So if I was not optimistic that we can continue to improve on our investments in these areas, But from a dollar perspective compared to last year, it will be quite similar.

The next question comes from Jay Sole of UBS. Your line is open.

Great. Thank you so much. Question is for you. You talked a lot about AI in the prepared remarks, but all the different ways that the companies utilize it to impact the business. But AI seems to be changing so fast. Can you just talk about maybe in the last ninety days how you've seen new opportunities emerge just based on AI technology getting better? And what might you what new things you're working on to maybe help drive the business forward using AI? 100%. That's what's so exciting about it. We've gotten some much in terms of incredible results in the past year and it's changing so fast and the team is working on new things every day. So we've had several really exciting projects in the works. I think it's a bit too early to share them yet. One of the things I'm particularly excited about I think it really kind of taps into newer ways of product discovery. And I think that one will take a little bit of refinement anytime you're introducing new way of shopping customers and new interfaces, it can take some time for consumers to adapt. But really excited about that one. We're continuing to leverage ML and AI against all facets of our business to improve efficiency, improve our existing algorithms.

We made huge gains in terms of site merchant search product recommendations last year. The team continuing to tap into some of those same areas with the improved technology. So yes, it's it's exciting. I'm excited to see where the year comes and what comes with AI in the current year. I think the nature of R and D type developments is they can come in in spurts, right? So you don't necessarily know what's going to hit until you fully validate everything. But there's a number of projects in the works that we're excited about.

The next question comes from Dylan Carden with William Blair.

Your line is open.

Any just kind of follow-up to that question.

The comments about the expanded reach on sort of the performance channels via AI, anything you can provide there as far as detail? Is that a proprietary versus third party initiative? What are you seeing there?

Yeah. So that used our own proprietary technology. And we don't want to get too much into the details of what exactly [indiscernible] but we were able to deploy some technology in effective way to expand our reach and it was among many things that helped our margin to $50,000,000 reach during the quarter.

Fair. All right. And then just two quick ones here. Are you seeing any meaningful impact on the return rate deleverager decline as it relates to product or category mix, men's, beauty, home?

Or is it too early for them?

So with regards to return rate reductions, you're just going to warn it for CNA sort of more broadly across the board or some categories are more impacted than others. Is that the question?

You're getting bigger in categories that are theoretically lower returns. Return, right? Is that too small at this point to be showing up more meaningfully in that return rate on given quarter.

Yes. So category mix shift including I didn't put in that sort of geographic shift Clearly, the one meaningful impact in the return rate reduction that we saw in 2024. It wasn't the largest area of impact, but it had a meaningful impact. Within that, I'd say domestic international was a bigger impact than individual category shift. But individual product category shift did have some level of impact. The next question comes from Ashley Owens with KeyBanc Capital Markets.

Your line is open. Great. Thanks so much. So I wanted to dig further into the gross margin guidance a little bit. I know you gave tidbits on tariffs versus higher full price sales and then we're recovering forward. Maybe you just help us quantify the tariff impact you're assuming for Revolve Revolve would love to hear color around your assumptions for own brands penetration given the launch of several new brands this year. And then two, just on the assortment and physical retail, you called out that within the pop up, you've carried a higher mix of that own brand penetration. So just anything you've done from a merchandising standpoint to really highlight these brands? Is it upfront so the customers immediately gravitate towards it? Is it the majority of inventory? Or what do you think is driving the higher mix there? Thank you.

Yes, I'll take that first one and then pass it along. So on the gross margin, no further specificity on the tariff impact Other than to say that the margin improvement that we do see is largely coming from the forward segment. And bringing that back into a more healthy zone. On Revolve, we're planning essentially flat maybe a little bit of an increase there. So most of the margin improvement is coming from the Forward segment. We do anticipate, call it, light to moderate increase in own brand mix in 2025.

That is helping offset some of the tariff impacts Most of the own brand launches that we're working on really take hold in the back half of the year, so more of an impact in 2026 than 2025.

But we still anticipate mix expansion on OIBRANT this year.

And regarding the physical store, part of why I'm so excited about physical retail is that we're far from optimal on many areas. One of those including our own brand merchandising with in store. I believe we actually have less own brand product on a percentage basis on the in the store compared to the penetration on-site.

But those styles are just performing incredibly well without mass optimization and visibility and a lot of the own brand section was actually upstairs in the FARMMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOTMOT counts this product, she's loving it.

So as we focus long term, I think that there's a huge upside potential for where we are to where we can be great to see those initial results being awesome.

The next question comes from Thank you. Good afternoon. On the last first conference call, you talked about 15% to 16% marketing for 2025 and now you're guiding it to 15 Can you talk about the drivers that caused that change? Was it just the efficiencies in 4Q or are there other initiatives in place to help Yes. It was really just the continued efficiencies that we're seeing in both channels, both in brand and performance that gave us the the confidence to guide to that 15% in 2025.

The next question comes from Janine Stitcher with BTIG. Hi, thanks and congrats on the momentum. Two questions for me. First is on product categories. You mentioned a lot of success with some of the more everyday essentials and some of the newer categories. Can you elaborate on what you've seen within the core business, particularly in dresses? And then just on the cash balance to be commited quite a nice balance of cash here. Any thoughts on go forward use of potential acquisition? Thank you.

Yes. On the first part, dresses performed well. We saw growth in some of those other categories, but dresses was up think, 10% in 4Q, so a little south of the overall growth rate, but still very healthy double digit. And the cash balance, we're continuing to look at a number of opportunities and be opportunistic there. So not much more to say other than that. We have the buyback plan in place and then again just continuing to look at strategic opportunities.

Okay. Thank you.

The next Your line is open.

Hey, guys. I just had two, I guess.

It sounds like a decent portion of the higher G and A guide is related to the store build out. So maybe just if you could help us understand how we should interpret that the context of the one permanent store that you're adding in LA, is there more to come in '26? How do we assess success there? Then just on the message for overall margin expansion that we should take away from this, I guess, if I look at the full year guide, it looks like maybe contribution margin a little bit better. But operating margin potentially kind of flattish depending on what we plug in for for sales growth. So expansion over the next year or two? Yes. Yes. Maybe on the first one, store build out and the costs associated with stores in this year is a factor. I wouldn't say it's the most significant factor in that G and A increase. There's other investments there including the own brand expansion and some other things we're working on. It's a factor. It's not the leading factor in the G and A increase.

And the overall margin expansion, I think you're in line there. And it's largely dependent on the top line growth. But we do see margin expansion as a scenario, but again, depending on where top line shakes out.

The next question comes from Simeon Siegel with BMO Capital Markets. Your line is open.

Thanks. Hey, guys. Afternoon. Hope you're all doing well. Congrats on nice end to the year.

Mike or Michael, do you think your customers know that your own brands are yours I'm curious if you think there's different customers that come exclusively from third party or for own brands or if it's really just not that segmented? And then Jesse, can you just remind us the gross margin differential [indiscernible] And then I have follow-up after. Thanks. Twines, I don't think our customer really knows their own brand.

Or ours. I think they really shop the brand really for the merits of their design, quality and such like that. We really drive our merchandising base with the best product in front of our customer. A lot of times that's our own brand, but we just create that product put that aggressively as well. So I think it really shows that team's really working hard to make amazing product in generally Yes. And then on the gross margin differential, I guess the reminder is that we don't disclose that other than to say that it is meaningfully richer than the party margin?

But maybe one additional kind of note there is that the owned brand margin is healthier today than it was back in 2019. So that differential has increased. The underlying fundamental metrics that we're looking at on owned brands are really healthy. That was our goal as we kind of went into 2023 and 2024. So really good to see that checking and that gives us again the confidence to really really push here and launch those own brands we talked about this year.

All right. That's great. And then on the back of that, and on the OpEx and provisions you've been seeing and guiding to, just any thoughts on anything you think about in the long term EBIT margin opportunity? Looks like the margins are really moving in the right direction.

Yes, definitely moving in the right direction. Made a lot of progress in 2024, again entering the year with a focus on efficiency and those variable costs, getting a return right down, while making investments in AI and other areas. So to see that come through while making investments and delivering those results was great. So over the long term, we do see opportunity in EBITDA margin expansion. Our goal is to get into that high single digits and ultimately into the double digits That's all the time we have for questions today. I will turn the call back to management for closing remarks.

Thanks, guys. Really proud of fourth quarter and really proud of really the steady progress over all of 2024. Great progress operation, great through all aspects of the organization.

All while making aggressive investments to the future that have potential transformational outcomes. So really proud of the team through and through all of the board and really excited for all that we're working on this coming year.

This concludes today's conference call.