Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. At this time, I would like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve.

Good afternoon, everyone, and thanks for joining us to discuss Revolve’s third quarter 2022 results. Before we begin, I would like to mention that we have posted a presentation containing Q3 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 economic conditions and their impact on consumer demand and our business, operating results and financial condition; our cost and inventory management; our growth, including growth in active customers, and market opportunities and related macroeconomic and industry trends; our partnership with Muus Collective; our plans to expand FWRD Renew and introduce the FWRD Brand Ambassador program; our future events; 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 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 Annual Report on Form 10-K for the year ended December 31, 2021 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 as a substitute for, or superior to, the financial information prepared and presented 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 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 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.

Thanks, Erik. Hello everyone. We delivered another quarter of profitable, double-digit growth in the third quarter of 2022 that further distinguishes Revolve in the fashion e-commerce landscape, despite the increasingly challenged macro environment. Before I get into the details of the third quarter, I want to provide a higher-level view of how Michael and I think about our strategy, as both operators and long-term owners of the business. We have a founder-led, investor-first mindset that permeates throughout the organization. With this perspective, we are able to confidently make disciplined investments that we believe position us for continued success over the long-term, even during periods of macro challenges. The recent time period is no exception where we continue to make key marketing investments and launch exciting new initiatives that further elevate our brand and build on the long-term opportunity to capture market share. We have a history of this while delivering growth, profitability, positive cash flow and a healthy increase in our active customer base. This mindset and focus on investing in the long-term opportunity, even through turbulent times, has been a key contributor to our track record of growth and profitability over the last two decades and we believe it will continue to drive our performance well into the future. Now, getting into the third quarter results. In the face of many challenges, we grew our topline double digits and delivered meaningful profitability and cash flow. Our net sales increased 10% in the third quarter compared to the prior year period, on top of 62% growth in Q3 2021 compared to Q3 2020. We delivered net income of $12 million and adjusted EBITDA of $18 million in the third quarter. As expected, profitability was lower year-over-year due to reduced gross margins, higher return rates and other cost pressures discussed in detail on last quarter’s conference call. Importantly, net income and adjusted EBITDA increased 25% and 22%, respectively, compared to the third quarter of 2019, further illustrating our track record of profitable growth. Even more important in such a turbulent environment is that we are generating meaningful cash flow, and further strengthening our balance sheet. We generated $9 million of free cash flow in the third quarter – a triple-digit increase year-over-year. Nearly 20 years of experience operating Revolve has shown us that companies capable of generating profitability and cash flow during periods of economic volatility can become even stronger relative to the competition. We aim to be very disciplined in our cost and inventory management to maintain profitability, yet we are not overly reactive. For instance, with the abrupt shift in consumer demand that we experienced in the second quarter of 2022, we took swift action to rebalance our inventory in a very strategic way to balance the moderation of our inventory levels with our focus on the customer experience and our long-term margin potential, while maintaining our very strong brand partnerships. There is still work to do, yet only a few months in, we are on track with our plan and very pleased with our progress as our inventory position grew only 2% during the third quarter when compared to the second quarter of 2022. Successful execution of our marketing and merchandising investments led to growth of 84,000 active customers during the third quarter, expanding our active customer base to 2.2 million, an increase of 34% year-over-year. This is on top of the record growth in active customers we reported in our third quarter of 2021. We view our continued healthy growth in active customers as further validation of our large market potential. Incidentally, even with our investments in the new east coast fulfillment center we opened during the third quarter of 2022, we are still investing less than 1% of our annual net sales in capital expenditures. An important driver of our capital efficiency and agility is our ability to leverage our proprietary, internally developed technology instead of relying on capital outlays to purchase expensive and cumbersome technology systems from third-party vendors that is a common approach among e-commerce peers. Our approach is completely and fundamentally different. When we expand our fulfillment center infrastructure, we primarily leverage our internal engineering resources to evolve and customize our own existing proprietary technology systems to meet our specific needs and to support our best-in-class service levels for customers. Shifting gears to net sales performance by geography, our U.S. net sales increased 10% and international net sales grew 12% year-over-year in the third quarter of 2022. The international results are impressive considering the significant appreciation of the U.S. dollar during the third quarter, particularly against the British pound and the Euro. These currency movements present a headwind to demand considering that our pricing in local currencies is tied to the U.S. dollar. In other words, when the dollar strengthens against the British pound, our product becomes relatively more expensive for customers living in the UK. And we can clearly see the negative impact on our monthly sales results in affected regions. Our net sales results in Europe and in the UK went from high single-digit year-over-year growth during the month of July to negative year-over-year growth comparisons in net sales for the month of September, coinciding with currency exchange rates becoming much more challenging later in the third quarter. That being said, it is also important to consider the broad macro challenges facing our European customers. To provide a framework, the UK and Europe on a combined basis represented a mid-single-digit percentage of our total net sales for the first three quarters of 2022. Importantly, by comparison, our year-over-year growth in net sales remained healthy in key international regions such as Canada and the Middle East, where the foreign currencies have been much more stable. Finally, our track record of profitable growth also reflects our long-term focus on building trust with our customer. Core to building this trust is operational excellence and exceptional service levels. During the third quarter we received gratifying recognition for our outstanding service levels in a key international market. Revolve was recognized by and profiled in Singapore’s largest English language daily newspaper, The Straits Times, for having the best customer service in the online women’s apparel category. The publication highlighted Revolve’s customer-first culture; use of technology in the buying process to stay on trend; fast and free express shipping; and hassle-free local returns in Singapore at no cost. We are very proud of this recognition of our exceptional service levels that are a key competitive advantage and are a direct outcome of our growth strategy. Recall that in January of 2020, we announced service level enhancements in Singapore that were designed to further raise the bar on our international customer experience that led to our recognition. Importantly, this example is part of a broader success we are achieving as an organization. Our customer satisfaction score in the third quarter was the highest level in at least five years, and we intend to continue to set the bar even higher. Like many others, we undoubtedly face challenges in the current environment and we have much more work to do. We will continue with our swift action to rebalance our inventory growth in a very strategic way, we will continue to be very disciplined in our cost management and we will continue to make investments for the long-term. All told, I believe our third quarter results demonstrate that we are capably navigating through these uncertain times from a position of strength while continuing to prudently invest in our long-term growth opportunity. Thanks again to the entire team for their dedication and invaluable contributions to our continuing success. Now, over to Michael.

Thanks, Mike. I am very pleased with our ability to deliver double-digit, profitable growth this quarter and I am very excited about the continued momentum of our brands, the strong relationship with our network of partners and customers, and the incredible performance by our team. We were very active in the third quarter as we continue to invest in our future growth opportunities, including key brand building events that generate returns over extended periods of time. We are very pleased with the early results of our activations and brand launches and, importantly, the positive feedback from our customers. In September, we returned to New York during Fashion Week to host an impactful weeklong activation, further elevating our brands with engaging experiences intended to delight and excite our community of influencers, customers, and partners. The flagship event was our experiential, interactive, and visually stunning REVOLVE Gallery that completely reimagines the traditional fashion week experience in a signature REVOLVE way and uniquely features a real-time shopping component. Back for a second year and bigger than ever, REVOLVE Gallery is an immersive, multi-brand installation featuring a curated assortment of emerging fashion designers, exclusive styles, and premier partners showcasing their brands in dedicated spaces. We hosted 9,000 attendees at REVOLVE Gallery over four days, an increase of about 50% from our inaugural event in 2021. In addition, we hosted a much larger group of high-value customers at our REVOLVE Gallery and other fashion week events, and more than 50% of these high-value customers traveled from out of state to be a part of our ‘money-can’t buy’ experience. It was incredible to interact with our customers, experience their loyalty to the brand and hear their glowing feedback on our level of service and their overall shopping experience. We also attracted participation from hundreds more influencers than last year, who collectively amplified our elevated experience on social channels with dynamic and engaging content, particularly video. To further capitalize on the powerful industry-wide shift to video content, for fashion week we diversified our influencer partners to increasingly focus on TikTok native influencers, who helped us to drive incredible growth in our TikTok metrics. Fueled by a very active month of September when we held several events during fashion week, our new TikTok views in the third quarter were more than 10 times higher than in the third quarter of 2021, meaningfully exceeding our expectations. Shifting to a discussion of owned brands, during the third quarter, we further expanded our market potential by introducing two new owned brand collections that rank among our most successful brand launches in our history. Owned brands provide a powerful platform for us to internally develop products where we see opportunities in the market based on our data-driven approach to merchandising. One area where we see opportunity for growth is in elevated owned brand products with premium price points. In September, we collaborated with supermodel Elsa Hosk to launch an elevated brand called Helsa, featuring an average unit retail price of around $250, featured exclusively on both REVOLVE and FWRD. The collection was one of our best performing owned brand launches, and was seen on a number of celebrities during New York Fashion Week. Created with sustainability in mind, Helsa is an elevated and creative expression of Elsa’s own Swedish roots that Vogue described as being 'minimalist heaven.' We also see opportunity in expanding our market potential into new customer demographics. As covered extensively in major press outlets, we have teamed up with content creator and curve model, Remi Bader, to create a size inclusive owned brand collaboration exclusively available on REVOLVE. Demand for the collection’s first drop in August resulted in many styles selling out right away and the second drop during Fashion Week also performed exceptionally well. The most exciting outcome is that our collaboration with Remi both resonates with our current customer and expands our owned brand market potential into extended sizes, enabling us to attract a new and incremental customer demographic. In fact, approximately one-third of all orders of the REMI X REVOLVE collection in the third quarter were new customers to REVOLVE. Now, I’ll talk about a truly innovative new channel for our brand building investments that I am very excited to talk about. Today, we are announcing a strategic partnership that we believe has the potential to significantly and cost-effectively expand our audience reach and increase engagement with our community of customers, brands, and influencers in exciting new ways. We are collaborating on the creation of a fashion-centered mobile gaming and eCommerce experience, a game that is effectively an elevated fashion playground that will feature digital playable renderings of fashion and beauty items from REVOLVE and FWRD. The Web3-enabled platform will empower players to become their own tastemakers by providing tools for creative expression, enabling them to connect with their favorite REVOLVE brands and engage with trends through a gamified shopping and styling experience, collectible assets, and deep social interaction. We are particularly excited about this opportunity to expand our reach and engagement, considering that mobile gaming is the fastest-growing form of media on the planet and that 49% of mobile gamers worldwide are women, according to Google Play research. Our partner’s entertainment studio Muus Collective, which is backed by Griffin Gaming Partners, one of the world’s largest investment venture funds exclusively focused on gaming. Muus is led by Amber Bezahler, who has deep experience in leading platform, ecommerce and innovation initiatives for gaming brands. Muus Co-founder and Chairwoman is Sarah Fuchs, formerly of Covet Fashion, a leading fashion mobile gaming platform that grew to more than 3 million active users and has been downloaded more than 78 million times, according to data.ai. Covet Fashion generated more than $225 million in lifetime revenue before Electronic Arts acquired the franchise last year. I’ll conclude with an update on FWRD, our luxury destination where we continue to see a great deal of opportunity for continued growth. FWRD net sales for the third quarter increased 17% year-over-year, an encouraging result in the current environment and considering the prior-year comparison as well. To illustrate how well we are executing against the large opportunity in front of us in luxury, over the last three years, our compound annual growth rate for FWRD net sales is a robust 35% and the FWRD business is about 2.5 times the size it was three years ago. One nascent area of FWRD’s growth that we view as an exciting new opportunity is resale. Last quarter, I talked about our new FWRD Buyback program, our proprietary resale program dedicated to circular luxury shopping, where we are offering to repurchase handbags from FWRD customers in exchange for credit on our sites. This exciting repurchase initiative has opened up a brand-new opportunity in resale, for the first time, enabling us to attract and retain customers interested in purchasing pre-owned handbags within a new and dedicated section of our FWRD site called FWRD Renew. I’m thrilled to share that customer interest in pre-owned handbags in the early going has exceeded our expectations. To build on our early success, we are investing to further expand the FWRD Renew program beyond supply from our own customers participating in the FWRD Buyback program. In the coming weeks, we will begin testing the resale of handbags sourced from third parties with access to pre-owned handbags, including from the world’s most coveted luxury brands. Our investments in FWRD include further elevating the brand through our partnership with Kendall Jenner as FWRD’s Creative Director. In September, Kendall co-hosted an exclusive FWRD event in New York to celebrate the new FWRD fall campaign that Kendall herself directed, the first time she has stepped behind the camera in her role as FWRD’s Creative Director. Co-hosted with GQ Global Editorial Director Will Welch, the event was attended by VIPs and tastemakers including Emily Ratajkowski, Iann Dior, Devin Booker and Jordan Clarkson. Coupled with the soon-to-be-introduced FWRD Brand Ambassador program I touched on last quarter that will officially launch in the next few weeks, there are a lot of exciting growth initiatives at FWRD that have me confident in our future. To wrap up, there is no denying that we are operating in a challenging environment, yet we are very much up to the challenge and see a great opportunity to further separate from our competitors. We have an outstanding leadership team, including many leaders who have been with Mike and I for 10 years or more, we have a strong balance sheet, and we have a business that has been profitable in 18 out of the 19 full years since we have founded the company. This gives us the confidence to focus on the long-term and continue investing in exciting growth initiatives that we believe will maximize shareholder value over the long-term. With our technology-driven DNA, operational excellence, strong brands and connection with the next-generation consumer, we believe we are well positioned to capture market share. Now, I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello everyone. We are pleased with our accomplishments in the third quarter, as well as our exciting progress building on our long-term growth initiatives, all delivered by the team within an extremely difficult economic climate. I’ll start by recapping the third quarter results, highlighted by double-digit topline growth, continued profitability and healthy free cash flow generation that further strengthened our balance sheet. Net sales were $269 million, a year-over-year increase of 10%, and an increase of 20% on a three-year CAGR basis. As a reminder, our net sales in the third quarter of 2021 had increased 62% compared to the third quarter of 2020, and had even grown sequentially from net sales in the second quarter of 2021, which is not our typical seasonality creating a very difficult year-over-year comparison. REVOLVE segment net sales increased 9% and FWRD net sales grew 17% year-over-year. By territory, domestic net sales increased 10% year-over-year and international net sales increased 12%, despite the currency headwinds that became progressively more challenging throughout the third quarter. Active customers increased by a healthy 84,000 compared to the second quarter of 2022. This growth expanded our active customer count to 2.2 million, an increase of 34% year-over-year. Through the first three quarters of the year, we have already added more active customers in 2022 than in any prior full-year in our history. Looking forward, we continue to expect moderation in the quarterly growth of active customers in the fourth quarter of 2022 and especially in the first quarter of 2023 for this trailing 12-month metric. The reason the first quarter of 2023 will be a particularly challenging comparison is that we achieved exceptionally strong record growth in new customers in the first quarter of 2022. Our customers placed 2 million orders in the third quarter, an increase of 7% year-over-year. Average order value, or AOV, was a very healthy $320, an increase of 16% year-over-year. Shifting to gross profit, consolidated gross margin was 53%, a decrease of 211 basis points, primarily due to a lower mix of net sales at full price year-over-year. The decrease in gross margin is directionally consistent with our commentary on last quarter’s conference call, but did come in slightly lower than implied by our guidance range for the quarter. Moving on to operating expenses. Fulfillment costs deleveraged 64 basis points year-over-year, primarily due to a year-over-year increase in our return rate and the resulting mix of units processed, as well as increased labor costs and costs related to the expansion of our fulfillment network. Selling and distribution costs deleveraged 158 basis points year-over-year and remained a significant headwind, yet importantly came in at a lower percentage of net sales on a sequential basis than in the second quarter of 2022. Costs for shipping packages to customers represent the majority of this line item, and these costs remain elevated year-over-year due to a higher return rate in 2022 and significant year-over-year growth in variable fuel surcharges included in every package shipped through our carrier partners. Marketing leveraged by 265 basis points year-over-year, better performance than implied by our outlook commentary last quarter, primarily due to lower, but still significant, brand marketing investment year-over-year highlighted by the very successful events held in September during Fashion Week that Michael talked about. General and administrative costs were $28.5 million, and also came in lower than the outlook we provided on last quarter’s conference call. All in, despite some incremental fulfillment cost pressure, our cost structure came out better than expected, reflective of our disciplined approach to cost management. Our effective tax rates were again very different for the year-over-year comparison. Our tax rate for the third quarter of 2022 was 26%, 12 points higher than the 14% tax rate in the third quarter of 2021 that included meaningfully higher tax benefits. Net income was $12 million, or $0.16 per diluted share, a decrease year-over-year that was impacted by the meaningful differences in our effective tax rate, the lower gross margin, and growth in operating expenses that slightly outpaced our net sales growth year-over-year. Adjusted EBITDA was $17.7 million, a decrease of 18% year-over-year. Looking back to the pre-pandemic period as a benchmark, our net income and adjusted EBITDA for the third quarter were 25% higher and 22% higher than the net income and adjusted EBITDA reported for the third quarter of 2019. Moving to the balance sheet and cash flow statement. Operating cash flow and free cash flow increased significantly, more than 400% year-over-year and was helped by our team taking swift action to moderate inventory growth in the current environment. For the nine-month year-to-date period, net cash provided by operating activities was $34 million and free cash flow was $31 million, with both measures down significantly year-over-year from the exceptional cash flow generation in the prior-year period. The decreases in both measures year-over-year primarily reflect lower net income, which included much higher tax rates and cash payments for income taxes that increased by $14 million in 2022, as well as the increased investments in inventory during the first half of the year. With the demand trends shifting lower in the current macroeconomic environment beginning in the second quarter, we moved quickly and decisively to bring inventory back in balance. While it has only been one quarter, we are pleased with our performance thus far and we are continuing to make further adjustments. The strong cash flow generation has further strengthened our balance sheet and liquidity. Our balance sheet remains debt-free and cash and cash equivalents as of September 30, 2022 were $244 million, an increase of $22 million, or 10%, from September 30, 2021 and an increase of $6 million, or 3%, from just last quarter. Looking back further, our cash position at quarter end was nearly five times higher than the cash on our balance sheet three years ago as of September 30, 2019. And this cash generation was operational without any kind of major financing event, providing a clear and powerful indicator of our operating strength and ability to generate cash through business cycles. Now, let me update you on some recent trends in the business since the third quarter ended and provide some direction on our cost structure to help in your modeling of the business. Starting from the top. As you know, it’s a very uncertain time for consumer spending globally, with persistent inflation weighing on consumer confidence, macro pressures on consumers in key markets like Europe, the UK and China, and increasing foreign currency headwinds that became even more pronounced as the third quarter progressed. Looking at our net sales trends early in the fourth quarter though the month of October, net sales increased approximately 3% year-over-year, against a more difficult year-over-year comparison than we have faced in the first nine months of the year. Trends in October were better domestically than in international markets, as net sales in regions where we face significant currency headwinds, such as the UK and Europe, have trended lower in recent months. Given the uncertain macro environment and considering that our year-over-year comparisons are even more difficult for the balance of the fourth quarter, we encourage investors to model further moderation in our year-over-year net sales comparisons for the balance of the fourth quarter from the approximately 3% year-over-year growth in October. As a basis of comparison, recall that our net sales in the fourth quarter of 2021 a year ago increased 70% year-over-year. While we are on the topic of year-over-year topline comparisons, looking ahead to 2023, for modeling purposes, based on what we know today, the first quarter of 2023 will be, by far, our most challenging comparison for net sales in 2023 since we had such an incredible first quarter of 2022. We expect net sales comparisons in 2023 to become progressively easier thereafter following the first quarter of 2023. Shifting to gross margin. Consistent with the commentary on last quarter’s conference call, we expect our gross margin for the fourth quarter of 2022 to be sequentially lower than the third quarter of 2022, primarily due to our expectation for a lower mix of full-price sales on a sequential basis versus the third quarter of 2022. As a result, for the fourth quarter, we expect gross margin of between 52.5% and 53%. This implies a decrease of approximately two points year-over-year at the midpoint, about the same year-over-year decline as the third quarter. Looking beyond the fourth quarter, we expect continued pressure on gross margin in the first half of 2023 as we continue to work through our inventory position. Fulfillment: We expect fulfillment expense of around 3% of net sales for the fourth quarter of 2022, consistent with our performance for the third quarter. Selling and Distribution: We expect selling and distribution costs as a percentage of net sales in the fourth quarter to be relatively consistent with the 17.3% in the third quarter, and slightly lower than our outlook provided last quarter. Marketing: We will continue to invest in building our brands and even further strengthening our brand connection with our loyal customers. We expect our marketing investment to be between 16% and 16.5% of net sales in the fourth quarter, higher year-over-year, but lower sequentially versus the third quarter of 2022 and also lower than our prior outlook. Of note, in the third quarter, we saw some early signs of advertising prices decreasing, likely due to marketers reducing investment in the current economic environment. General and Administrative: We expect G&A expense of approximately $29 million for the fourth quarter. The expected increase in G&A costs year-over-year reflects investments in our team we have made this year to support our continued growth and expansion. We believe we operate very efficiently, illustrated by the nearly two points of G&A leverage we have achieved in just the past three years. And, directionally speaking, we expect the rate of year-over-year growth in G&A expenses to moderate in 2023. Lastly, let me touch on our tax rate. Absent tax benefits in future quarters, we continue to expect our effective tax rate to be around 24% to 26%. We continue to anticipate a very challenging macro environment in the months ahead and we will remain disciplined in our cost management while prudently investing in key initiatives and keeping an unwavering focus on the very attractive market opportunity ahead of us over the long term. We are confident that with our strong brand, healthy balance sheet and operational excellence, we can navigate through these short-term challenges and continue to gain market share. With that, we’ll open it up for your questions.

Thank you. We'll take our first question from Randy Konik at Jefferies.

Yes. Thanks a lot guys. Thanks for taking. Jesse, I want to first go to you and ask about gross margin guidance. So you made some good progress on the inventory growth relative to sales growth in the third quarter relative to the second quarter. It sounds like you're continuing to make that progress. When could you expect the inventory growth to come in line with sales growth? Would it be by the end of the second quarter of next year such that the markdown pressure should abate in the back half? Just want to get some perspective on how you're thinking about the cadence of growth relative to sales growth, first? Thanks.

Yes, sure. Thanks, Randy. I think you're in line there. As Mike said, we made great progress. We're on plan in terms of rebalancing that inventory and bringing it closer in line with the sales growth. But it does take some time, especially on the forward side. So we'd expect the bulk of the positive impact there and bringing that closer in line in the first half of 2023, especially by the time we hit the end of the second quarter of 2023.

Got it. And just a follow-up there, you feel like you'd be more comfortable with those gross margins being able to improve in that back half as they go up better comparison – your comparison to the inventory growth being matched up? And then I guess last…

Yes. Into the first half of 2023 before it eases up and we start to see some gains in the back half of the year.

Got it. Okay. And then just last question, more for Mike and Michael. Just kind of perspective, if you could, on just how the consumer – your consumers maybe changing the notable changes that you're seeing in that consumer across the two different businesses? She becoming more price sensitive or not? Is there a frequency changing at all? Any kind of more either quantitative or qualitative aspects of how she's changing would be super helpful to the audience. Thanks guys.

Yes. The one thing that we're really noticing we've got our core customer, premium customer is still strong. We've seen AOV rise over this quarter. But we have seen that kind of the lower-priced customers a little bit softer there. So I think we're seeing like mixed tale of two worlds, which we'll see in the sweet economy is not surprising at all. I think as the economy gets better, I think we'll see increases across the board. So I think that's probably the one notable simple thing that we're seeing at the moment.

Got it. Thanks guys. Super helpful.

We'll move next to Oliver Chen at Cowen.

Hi. Thank you. Regarding the comments, very helpful, the comparisons do get tougher. How would you generally think about normalization towards your longer-term growth algorithms and how that may manifest as you attractively picked up a lot of new customers? And then second question on Web3. Some of the themes of Web3 include decentralization and the evolution of different kinds of platforms as well as crypto. Just what should we understand that customer may be different from your existing customers, it’s a younger customer, but the video games are so significant? We just love the vision and the implications for financial modeling, if you have any. And last question on promos. It sounds like you're working through inventory to the way in which you're happy about, but would love your diagnosis of the promotional environment and how you're competing and what you're prepared for? Thank you.

Hey, definitely. Hi, Oliver, Mike here. So I'll take the first part as far as how we think about the growth rate in normalizing and kind of how it converts to that long-term trend. So on a three-year basis, we're essentially in line with our long-term targets. And obviously, there's a lot of noise in between with COVID lows and then a huge rebound last year, potentially overshooting a bit towards online and kind of aspirational items. And so we're a bit short of that long-term target. In the current period that will likely continue for a few quarters, while the current macro weakness and comps work themselves out. But feel great about the momentum of the business and continuing to achieve that long-term growth target of 20% plus. On the Web3 stuff, Michael, you want to talk about that more.

Yes, 1000%. I think at this point of the game, it's going to be far too early to model the financial indications over the long-term, but I think it's very important for us to really stay innovative and stay at the forefront of what's going on to me, it's very similar to when Mike and I were starting the company 20-plus years ago. There was a lot of doubts about the future of e-commerce. There's a lot of doom and gloom, and I think that was where we saw the opportunity, and I think it's important that we're continuing to invest and keep an eye out for the next 10, 20 years. With regards to decentralization, I'd love to have a longer conversation with you offline. I don't want to tip off too many competitors about what we have in the road map there. But I think there's some exciting kind of opportunities here that the new platform provides with us – to provide a broader platform for decentralized kind of product development. I think it's super excited about what we're doing here.

Yes. Regarding the promotional environment, we have definitely observed an increase in promotional activity as the year has gone on, and we anticipate a significant promotional period in Q4 this year. Our approach with Revolve remains consistent; we believe that Revolve is not overly affected by the actions of our competitors, though we do consider broader economic factors and overall sales trends. We saw this in the third quarter, where Revolve's gross margin remained relatively strong, while FWRD experienced a more significant decline in its gross margin. We are certainly preparing for a challenging promotional environment in the fourth quarter and attempted to get ahead of it with some increased markdowns in the third quarter, but we expect FWRD to face considerable promotional pressure in Q4.

We'll take our next question from Mark Altschwager at Baird.

Great. Thanks for taking my question. With respect to the guidance, it does seem like you have a bit more confidence in your ability to manage the costs versus what the macro demand backdrop might look like, appears evident in the cost discipline in Q3 as well as the guidance for Q4. So I'm wondering if you could just share any high-level thoughts on how investors should be thinking about the range of margin outcomes for 2023 as you navigate this more uncertain macro. I think the guide implies roughly an 8% EBITDA margin this year, but you also pointed to some ongoing headwinds in the first quarter. So I know you probably don't want to get too specific, but just any high-level thoughts or the framework would be helpful. Thank you.

Yes, sure. This is Jesse. I think it probably works best without getting too specific to just kind of work through the line items and give some color there. So on Randy's question, we talked a little bit about the gross margin pressure continuing through the first half of the year and next year and then easing up and getting some gains in the back half of 2023. Owned brands have increased moderately from that 20% that we exited or had in 2021. So that a continued build there will provide some benefit, especially as we progress through 2023. If we look at fulfillment, we are pressured at the moment with higher return rates. We did move into new facilities. So there's some short-term cost pressures there. We would expect to get some moderate level of efficiencies as we grow into our space and maximize that with scale. And that will also benefit to some extent on the selling and distribution line item as well. So if we segue into selling and distribution, again, a lot of cost pressures there from the return rate to fuel surcharges and just macro dynamics. Again, that's a very variable line item. But we do expect to get some efficiency there over time. Hopefully, fuel is shorter term in nature. Marketing continue to keep the pedal down investment in marketing, similar to what we've done in the last couple of quarters. And then finally, G&A. I think we mentioned in the prepared remarks that, that rate of growth will moderate in 2023. We made some pretty meaningful investments this year coming out of COVID, but that will moderate and come back in line. So we should get leverage similar to what we've seen in the last couple of years with that two full points since 2019. So hopefully, that helps give some color into 2023 to the extent we can. And then to your point, the macro topline is very uncertain.

We'll go next to Michael Binetti at Credit Suisse.

Hey guys. Thanks for all the details. Jesse, can you unpack the 3% in October, please, a little bit of a deceleration in the multiyear rate. Just what's going on in the ground that you're seeing that you want to isolate for us here to help us think about the trends in the quarter? And then on – I'm just trying to think about customer growth versus order growth a little bit. I know customer is a trailing 12 number, but 34% growth, we can make some inferences there in the quarter. Can you help us understand that growth rate versus orders up 7% in the quarter? And I'm wondering if you're seeing a new customer that you think is going to require some higher level of discounting going forward or anything like that? Just given that I didn't expect the customer growth rate to be as strong given some of the dynamics last quarter?

Yes. A few things there. I guess maybe starting from the back and working in reverse. So that active customer again being a trailing 12-month number. We are picking up the benefit of a couple of really strong quarters, especially Q1 of 2022. So we do expect that rate of growth to moderate into Q4 and then especially into Q1. So that 34% will come down. And again, these things will start to converge as things normalize, hopefully, you get to some kind normal here soon and get out of these crazy comps. And then on the order side, the order versus dollar is an active customer, we are seeing that increase in AOV and that's a combination of inflation price increases in that kind of mid to high single-digit range, but also her shifting to higher price point products. And then also like Michael mentioned, those higher price point products will get better than the lower price point. And you can see that in the forward results. And then also within Revolve, you can also see dresses checking really well, and then within some of the other categories, handbags and shoes doing really well. And within the fashion apparel category, some of those higher price points doing better relative to the lower price point category. So a lot of dynamics at play on that front. And then the trends in Q3 and as we entered Q4. So as we mentioned, July was plus 10, the comps got harder. We closed the quarter at plus 10. So it was pretty linear through the quarter despite some more tough comps in August and September, and also international getting progressively more challenging with the currency movements within the quarter. And that led into Q4, and we continue to see the currency and international pressure there. So domestic outperforming international in the fourth quarter. But October was softer than what we experienced in Q3 when you look at one-year and multiyear comparatives.

Thanks a lot, Jesse.

We'll take our next question from Anna Andreeva at Needham & Company.

Great. Thanks so much. Good afternoon. Thanks for taking our questions. A follow-up on the previous point. So on October being a little bit softer, Jesse, maybe talk about what you're seeing by brand. Is that more traffic or conversion? Just any surprises from October? And then secondly, on inventory, great to see progress being made there. Can you maybe talk about your comfort with the carryover levels by brand? It sounds like FWRD maybe is a little bit heavier than Revolve right now? And how do you guys think about inventory buys for 2023? Thanks so much.

Yes. On the October traffic conversion trends, nothing significantly different than what we experienced in Q4. There's always week-to-week, month-to-month dynamics there, but nothing that I'd call out that is significant outside of that continued pressure on the international front. On the inventory side, Mike commented, I think we both commented. We feel good about the progress we've made thus far. It's only been a few months into the cycle of rebalancing. The one to call out there is for it, it just takes longer on forward given the buying cycle there. So we have less ability in the short-term to impact things on that side. So that's FWRD is heavier relative to Revolve as we get into Q4, but that should start to rebalance in the first half of 2023.

We'll take our next question from Lorraine Hutchinson of Bank of America.

Thanks. Good afternoon. You got some nice leverage from reduced brand marketing. Can you talk about the decision to reduce this brand marketing and what this means for events on a go-forward basis?

Yes, we feel super, super proud of the work that we've done. We reduced brand marketing not because it was a financial decision, but we realized it's running our second annual Revolve gallery. We were able to accomplish even more with less. The first time we do something, of course, a lot of experimentation operation. So the second time around, we really understood what works best. We understood where to trim, we understood where it doubled down. And ultimately, we were able to achieve better results on a decreased spend. So very proud of the team. This was not a – let's share financially, it was – let's do our best. Let's make sure we do what's important and may continue to invest, but of course, be disciplined and get better. And I think that's what exactly what happened this quarter.

Thank you.

We'll go next to Rick Patel at Raymond James.

Thank you. Good afternoon, everyone. Can you talk about the outlook for AOV going forward? Just curious what the right way to think about the mix impact to Revolve versus FWRD and the work that you need to do on managing inventories? And then secondly, I was hoping to ask a follow-up question on margins. So any additional context you can give on the margin pressure in 3Q and the fourth quarter guide related to higher supply chain costs and the fuel surcharges would be helpful. I think you mentioned that gross margin will be under pressure in the first half. Curious if that means that easing supply chain pressure will be more of a back half 2023 tailwind?

Yes. On AOV, really good gains there the last several quarters and that's the combination of FWRD performing really well, higher price points performing really well. And in the full price mix, we've been operating at really record levels of full price for the last several quarters. It came down this quarter, of course, but still operating at higher levels than the pre-COVID era. So on that front, we expect the higher price points to continue to perform well addresses great for us. As we into the Q2 kind of peak, what is typical peak season, we generally see AOVs increase. But we will see some moderation there, so I don't think we'll see the expansion that we've seen in the last couple of quarters, given that shift from the record full price in the markdowns, especially as we enter this quarter and into the first half of 2023. And then the kind of in bound freight costs and how that's impacting margins, we are seeing some softening on that front sequentially from the second quarter, still running Q3, depending on which period you pick higher than the prior year period in pre-COVID levels. So it's coming down, how fast it comes down, we're not sure yet. So it probably wouldn't factor too much into that until in that mid-2023 time zone. And also important to also check that against the AOV. We do run at premium ASP and AOV level. So the freight is a challenge on the inbound side as well, but not to the extent it is on the lower price point players out there. So it's a smaller percentage of the cost of goods sold.

We'll go next to Jim Duffy at Stifel.

Thank you. Good afternoon. Two lines of questioning for me guys. First, a question on the pressure that you're seeing on orders for active customer. Jesse, you touched on this some earlier, but I'm curious if you could isolate the falloff in orders per active customer to a particular cohort or type of customer? Or if there's any analysis that sheds light on that?

Yes, nothing really to call out there. We did see a small decline sequentially on that orders per active customer, still running higher than we're experiencing, pre-COVID. So still a really healthy number, but we did see a decline there. And again, there's a little bit of picking up these active customers from that record Q1 time frame. But nothing to call out on the cohorts. They continue to perform really consistent over time. You did see the COVID pressure in all cohorts getting compressed, and you saw the 2021 rebound in all cohorts expanding. You see that in the retention numbers. But nothing to call out on a specific cohort. I'm really optimistic with the customers that we've acquired over the last couple of years and retention rates holding at where they've been historically. And again, we have call it, 19 years of cohort data. So a really good data set to read.

Okay. Thank you for that. I also want to ask about performance marketing effectiveness. Can you speak about how consumer shift to video is influencing marketing yield and therefore, allocation of your performance marketing spend?

Yes. So the consumer urge shift to video has definitely been a factor and that's an area that we've been ramping up investment. It's still from a pure performance marketing standpoint, a fairly small portion of what we do. I think where it's made a much bigger impact is on the brand marketing side, where we've seen huge growth in video oriented platforms like TikTok, where I believe our views were up 10 times compared to the prior period year-over-year. And then even on Instagram itself, right, with the shift to real. So really big shift on the brand marketing side and then starting to see some shift on video, but still more focused on kind of how the static ads.

We'll go next to Matt Koranda at ROTH Capital.

Hey guys, Thanks. How would you characterize the sort of the number and depth of promotions on both sites relative to pre-pandemic levels? And then I have a follow-up.

Yes. So I think it depends kind of what period you're looking at. But to Jesse's earlier point, full price sales mix is still – is all very healthy and higher than pre-pandemic levels. Revolve, as we talked about, we think we have a better ability to manage through that inventory without taking significant levels of markdowns and then FWRD is a little bit more subject to competitive pressures and whatnot. So certainly, our markdowns are elevated, I think versus what we would consider a kind of normal economic environment on a go-forward basis. Our markdowns are elevated versus where we'd like to be. But we think that will take a couple of quarters to work through, and then we expect to see that the margins bounce back to close to where they were in kind of the pandemic high periods, but certainly not quite there because that was a unique period.

Okay. Thanks for that. And then just on return rates. Curious how you guys would characterize those and how they trended into October? It seems like potentially, we're seeing a downtick just a touch in the third quarter relative to the second. But just I was wondering if you can kind of characterize the latest in terms of returns and expectations for return rates on a go-forward basis?

Yes. I think we'd characterize it as expect them to remain elevated, at least in the near-term. There are a couple of things at play there. Just as a reminder is that if you compare to pre-COVID levels, we're running a couple of points higher. That's number one due to the international localization and higher return rates international, which we think is a great thing, and has really expanded markets like Canada that was growing triple digits after we launched the localization there. Full price is another factor smaller than the international factor, but the full price sales do carry higher return rates. So maybe in the near-term, there's some release given the shift to markdown, but not banking on too much there. And then we are, for the last couple of quarters, it started really in June, I think we commented last quarter, where you did see just kind of macro kind of return pressure outside of just shifts in mix in international. So we're factoring that in, at least for the short-term. And then over the long-term, we'll continue to look for ways to reduce that in the benefit of both Revolve and the customer importantly.

We'll go next to Trevor Young at Barclays.

Great. Thanks. Mike, you mentioned the deterioration in international throughout the quarter in part because of USD pricing. It seems like FX volatility is going to be here for a while or certainly something you're going to have to continue to contend with. Are you making any changes in how you think about pricing for international to maybe alleviate some of that volatility? Or is that just premature given the size of the business?

Yes. We are – maybe it’s too stronger statement to say we are making changes, but we are currently analyzing, making changes. I mean we make some changes there. So we're doing some analysis on the benefits and costs of subsiding the currency pressure a little bit. Also, considering maybe hedging a little bit more in the future. But at the end of the day, currencies could go up that they could go down and we're prepared for either scenario. In the short-term, and we've seen this historically internationally when the currencies are working against us that applies that short-term pressure. But the long-term trajectory is very healthy. I think as soon as consumers adjust to the new reality of the exchange rates will be in a very good place.

And we'll move next to Edward Yruma at Piper Sandler.

Hey guys. Thanks for picking me in here. A couple of quick ones for me. I guess, first, can you give us a quick update on where you are in just penetration relative to historic norms. I know that that's obviously been headwind for returns to kind of link it back to that. And as a follow-up to your last question on return rates specifically, I know you called it this macro-related return pressure. Obviously, second quarter saw a lot of inflationary pressures. Have you seen any reduction in the consumer that's just returning the entire order or that you view as more macro related? Thank you.

Yes. On the first one, our penetration is up to 31%. So it ticked higher than a couple of points higher than last year, plus or minus in line with pre-COVID level, there is some seasonality there as well. You typically see the higher address mix in Q2. I'd say, in line to back where we were. And then the returns, nothing really to call out there and a significant change of kind of full order or partial order. We are seeing units per order increase slightly. So that's a benefit on some of the other costs that can be impacting return rate as well.

Next, we'll move to Tom Nikic at Wedbush Securities.

Hey guys. It's Tom Nikic with Wedbush. So Jesse, I believe before when you were talking about some of the puts and takes for 2023 margins, I think you said something along the lines of keeping the pedal down on marketing. Does that suggest maybe another year of deleverage on marketing? And just at a high level, how should we kind of think about the point there that line item inflect comes sort of tailwind to EBITDA margins rather than…

Yes. I think yes, that kind of gets what we're expecting on the topline for 2023, which is kind of, well, very uncertain. So at what point we start to get leverage is unknown at this point. I think the theme is that performance marketing is variable. We'll continue to balance that on a day-to-day, week-to-week basis. The brand marketing is more structured, more fixed and also part of that is opportunistic. So we'll continue to make those investments. And that's where you will get some volatility quarter-to-quarter and the point at which we start to get leverage on that line item is we will, at some point, but can't comment much beyond that on timing.

We'll go next to Simeon Siegel at BMO Capital Markets.

Thanks. Good afternoon, guys. Sorry if I missed this. I think you gave general color on moving pieces for Q4 topline. Any just more granularity you're willing to dig into for what you expect for 4Q and 1Q revenues and the implied active customer growth embedded within that?

Yes. So we did say that October grew at 3% on slightly more difficult comps than Q3. The comps get even harder into Q4, if you call back to Q3 of last year's call where we said October grew at roughly the same rate as Q3, which was 62% and then we closed 4Q at 70%. So we're going to get to a tougher comp dynamic in November and December. So that's on Q4. And then Q1 again and just going back to highlighting that this is a – this will be a very challenging one-year comp quarter, so expecting ongoing challenges there on a one-year basis. And then on active customers, a similar dynamic at play with the added complication of that trailing 12-month number as we start to drop, especially as we get into Q1 of 2023 and we dropped that Q1 of 2022 quarter. That will be very challenging. So if you work from the plus 34 that we're at for Q3, that will go down in Q4, that will continue to go down in Q1 and probably into Q2 before we start to normalize.

Okay. And then how much – what was ending inventory growth in units rather than dollars?

Yes. We're not disclosing the specific number, but it was much lower than the dollar growth and also the kind of sales growth to inventory growth differential on a unit basis is tighter than the dollar basis.

Okay. Great. All right. Thanks a lot guys. Best of luck for the rest of the year.

Thank you.

And we have time for one more question, and we'll take that question from Janet Kloppenburg at JJK Research Associates.

Thank you so much for taking my question and sneaking me in here. I wondered about your inventory levels if we should expect another significant tick down at the end of the year. And I also wondered if at that point, you felt that there would be aligned and at appropriate levels. And just lastly, if you could comment on your newness levels year-over-year. You have a very fashion-forward customer. And I'm wondering if perhaps lower levels of new products led to some of the deceleration in sales in fourth quarter to date? Thank you.

Sure. So on the inventory balance, our view as far as the end of the fourth quarter is a lower inventory balance year-over-year, certainly within the range of outcomes, but it depends on some of the demand dynamics in Q4 and other factors. And so we'll have to see how it shakes out. But we're pleased with the trajectory and the progress we're making. And again, we're going to balance managing that – the inventory levels with maximizing long-term margin potential. And then with regards to kind of the newness and freshness, right, that's one of those key things, right, that we balance in terms of customer experience and making sure we have enough new fresh inventory. So we feel good about the new inventory that we're bringing in and the reorders of the great products that we're bringing in. And we've been very careful not to kind of shortchange that area of the business just to moderate inventory positions. So there's certainly been some movement at the margins, particularly given that we're seeing overall lower demand levels in general. But I wouldn't say that's a significant factor in the demand levels.

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

Hi guys. Michael here. Definitely a challenging macroeconomic environment, but we're really excited about the challenges and opportunities ahead. I think this is the type of environment where we started the business, the type of environment that set us up for an incredible run post-2008, 2009, and we're seeing a lot of opportunity in this current day. So excited for all the challenges and opportunities to come.

And this concludes today's conference call. You may now disconnect.