Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Revolve's Fourth Quarter and Full Year 2020 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'd like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's fourth quarter and full year 2020 results. Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 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, the impact of new fulfillment centers, our growth, including growth in active customers and product offerings, market opportunities in related macroeconomic and industry trends, 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 on 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.

Hello, everyone, and thanks for joining us today. 2022 was the 19th full year since Michael and I founded Revolve, and I'm proud of our financial performance and the accomplishments our team delivered in such a dynamic operating environment. Our net sales for the year increased 24% to $1.1 billion. We delivered record growth in active customers, and we generated significant profitability and cash flow that further strengthened our balance sheet. There are three key messages I want to focus your attention on today. First, our agility, operating discipline, and execution of key growth initiatives helped us deliver fourth quarter and full year results that we believe continue to outperform industry peers and relevant benchmarks, further extending our market share gains. Importantly, our combination of growth and profitability truly stands out within the fashion e-commerce sector and, coupled with our strong balance sheet, allows us to continue to prudently invest in our long-term growth opportunity at a time when others are forced to play defense. Second, while the macro environment remains a challenge for all companies, in the fourth quarter, we made solid progress with our inventory dynamics, and we believe we are on track with our objective of rebalancing our inventory position by the end of the second quarter of 2023. The spread between our inventory growth year-over-year and our net sales growth year-over-year decreased by more than 50% in the fourth quarter on a sequential basis when compared to the third quarter of 2022, and we continue to expect to exit the second quarter of 2023 with an inventory position that is balanced for growth and efficiency. And third, this year is off to an encouraging start, which we believe further validates the power of our core competitive advantages and positions us very well for our large market opportunity over the long term. Despite the very challenging comparison against our exceptional first quarter of 2022, I'm pleased to report that seven weeks into the first quarter of 2023, our net sales have increased by a mid-single-digit percentage. New customer growth remains healthy year-over-year, and we drove a further sequential improvement in our inventory dynamics through the month of January 23, that Jesse will discuss in his remarks. Now I'll briefly discuss highlights from our fourth quarter results. In the face of many challenges, especially outside of the U.S., our net sales increased 8% in the fourth quarter compared to the prior year period. We achieved growth across segments, REVOLVE and FRWD in geographies, domestic and international. I'm particularly pleased to have delivered positive growth in international markets year-over-year, considering the significant currency headwinds discussed last quarter to make our product more expensive for consumers living abroad. The currency headwinds and weaker macroeconomic conditions led to a meaningful decline in net sales in the UK and Europe in the fourth quarter, two of our larger and most developed international regions. Stronger results in the Middle East and Canada, as well as a large and growing contribution from emerging markets such as Mexico and India, more than offset weakness in Europe and Australia and continued challenges in China in the fourth quarter. Several of our emerging markets are benefiting from our investments to elevate service levels, highlighted by India, where we recently established a Revolve store within the Nykaa Fashion marketplace, which enabled us to offer free shipping and hassle-free returns in India. Nykaa attracts more than 20 million unique visitors each month and is one of the fastest-growing fashion platforms in India, a market expected to overtake Japan and Germany to become the world's third-largest economy by 2030 according to industry forecasts. Net income for the fourth quarter was $8 million or $0.11 per diluted share and adjusted EBITDA was $14 million. As expected, profitability was significantly lower than our record Q4 performance in last year's fourth quarter due to reduced gross margins, higher return rates, and other cost pressures discussed on recent investor conference calls. In 2023, we are focused on initiatives to drive further cost efficiencies across the organization to help offset the persistent cost pressures in the current operating environment. With our long-term focus, I'll now shift to a review of our accomplishments for the full year 2022 before briefly touching on our key areas of focus for the coming year. Starting with our top line, I'm excited that we crossed the $1 billion milestone in net sales in 2022 and very proud that we have delivered on our goal to grow 20% annually as disclosed at the time of our IPO, growing through all the volatility and challenges of the past three years. Our net sales in 2022 were $1.1 billion, an increase of 24% year-over-year and reflect a compound annual growth rate of 22% for the three full years since we completed our IPO in June 2019. It's compelling to compare our growth trajectory during the three-year period to legacy retailers offering premium price points, including higher-end department stores where reported revenue from some larger players has been flat to lower than pre-pandemic levels. This comparison illustrates just how much the next generation of consumers is moving in our direction and how well our brands are connecting through our impactful and diversified marketing approach. And we believe there remains a very large opportunity to gain further market share from these legacy retailers that generate tens of billions of dollars in revenue annually. A key driver of our top-line expansion was delivering record growth in active customers for the second consecutive year. Our active customers grew to 2.3 million at year-end 2020, an increase of 500,000 or 27%, serving as further validation of our large market potential. And our customers' propensity to spend with us has continued to expand. Our average order value was $304 in 2022, an increase of 12% year-over-year driven by healthy expansion of average order values in REVOLVE and FRWD. Taking it down to customer metrics, from day one, we have been hyper-focused on the customer experience, consistently raising the bar on service levels; our commitment to exceeding our customers' expectations continues to drive results as we delivered a record Net Promoter Score in 2022. New Year plagued with global supply chain and logistics challenges, I'm proud that our customer-facing teams and fulfillment operations didn't skip a beat. And our customers continue to spend with us at full price to look and feel their best. Approximately 85% of our net sales in 2022 were at full price, just shy of our record performance in 2021 and 6 points higher than our best full-price mix in pre-pandemic periods. We exited the year on a lower trajectory as we rebalanced inventory in the near term, yet our consistently high mix of net sales at full price over many years is a powerful driver of our profitable business model. Our customer retention metrics provide further validation of our ability to connect with the next-generation consumer and our best-in-class service levels. For the second consecutive year, a key customer retention metric performed above pre-COVID trends. Recall that once a year, we disclosed the revenue retention of our prior year customer cohorts, defined as the revenue retention rate from the previous year for all existing customers who have purchased from us in a prior year. In 2022, our revenue retention of the prior year customer cohorts was an exceptional 97%, meaning that even if we didn't add any new customers last year, our net sales would have remained nearly flat year-over-year. Retention is an important driver of our business since tenured customers generate an outsized share of our revenue in any given year. I'll wrap up with a discussion of some of our key priorities for 2023. Our key focus is to continue to leverage our core competitive advantages of data-driven technology, operational excellence, and the strength of our brands to drive growth and operating efficiency throughout the organization. First, we will continue to efficiently invest in our brands to grow our brand awareness, customer base, and strengthen the connection with next-generation consumers. We have some exciting plans in store for 2023 that Michael will cover in his remarks. Second, we will continue to expand our assortment into adjacent product categories, where we see exciting opportunities over the long term. With the trust we have earned from our loyal customers, our longer-term goal is to be our customers' first choice for every category and occasion. Third, with our revenue scale now exceeding $1 billion annually, we see opportunities to invest in operational initiatives to drive the dual benefits of improving service levels for customers while driving efficiencies in our variable cost structure and exciting milestones that last month, we began fulfilling customer orders from our new East Coast fulfillment center, which will allow us to reduce customer delivery time frames and reduce costs over time. We are also evaluating opportunities to launch small regional fulfillment centers in key international regions to provide similar benefits. Fourth, we will further expand our international presence, where we see exciting opportunities to further elevate service levels to drive growth through our localization initiatives, including expansion of hassle-free returns, all-inclusive pricing, launching new payment methods, and further development of our websites and mobile apps. Finally, we will further enhance our technology stack and leverage our advanced technologies such as AI and machine learning that have become important in efficiently driving some key areas of our operations and customer experience. When Mike and I founded Revolve 20 years ago, our data-driven approach in internally developed technology were critical in enabling us to operate in an agile and sustainably profitable business from the outset. The data-driven mindset remains firmly established in our team culture and has been a driving force in our leveraging of advanced technologies such as AI and machine learning applications to power key functions at Revolve, including fraud detection, personalized product recommendations, image recognition, similar item recommendations, and product attribute tagging. We believe our proven ability to effectively leverage technology to deliver results as a key contributor to our capital efficiency and our revenue per employee generation will be more than twice the average level of revenue per employee among fashion e-commerce peers in the U.S. by our calculation. Our annual net sales per employee based on the employee data we disclosed annually have increased by more than 30% in just the past three years. All told, I believe our results and outlook demonstrate we are striking an effective balance of navigating through a highly uncertain environment while thoughtfully investing in our tremendous growth opportunity. I would like to thank our outstanding team for their incredible commitment, strength, and discipline that has put us in the enviable position we are in today. I'm very proud of how well we've executed and I'm excited about the path forward. Now over to Michael.

Thanks, Mike. I am proud of our ability to deliver 24% year-over-year growth in net sales in 2022, achieving our long-term revenue growth target in a very dynamic and fluid operating environment all while maintaining a profitable and cash-generative business that further strengthens our balance sheet to give us the flexibility to continue to invest in key initiatives to drive growth and continued market share gains. Our cash position at year-end increased to $235 million with no debt. Our ability to overcome countless business challenges to deliver profitable growth is driven by our leadership and our core competitive advantages that position us for continued success over the long term. Our technology-driven DNA and proprietary technology infrastructure, our operational excellence and agility, and our powerful Revolve brand connection with the next-generation consumer. Since Mike talked about technology and operational excellence, I'll spend a few minutes on the strength of our brands and connection with the next-generation consumer that we continue to build as illustrated by our record growth in active customers in 2022. Consistent with our strategic focus, discussed on recent investor calls, in the fourth quarter, we continued to drive exceptional growth in consumer engagement on video content across our marketing channels. Our new views on wheels increased 600% year-over-year in the fourth quarter, and our new views on TikTok increased by nearly 800% year-over-year. I couldn't be more proud of how well our team has navigated this in the market and executed our brand marketing transition from our historically successful focus on Instagram photo content to where we are today, the growing majority of our social media minds are now coming via engaging video content channels. Also important, we believe our fast-growing engagement of TikTok and Reels further expands our brand reach and awareness into a larger audience and broader range of consumer demographics. I know many analysts and investors follow our aspirational and engaging content on social channels. For those tracking Revolve on TikTok, you may have noticed that we are an early partner for TikTok show, which is TikTok's social e-commerce platform that is growing rapidly in Asia. Based on the overseas success, TikTok recently began testing the TikTok shop live streaming e-commerce initiative with U.S. consumers. This exciting development now enables a large and growing audience of consumers to initiate Revolve purchases directly on TikTok. We are among a limited set of brands selected to participate in this early stage, reinforcing our position at the forefront of innovation for consumer engagement on social channels. Shifting to a discussion of our impactful marketing events, we continue to be very active in elevating our brands with aspirational lifestyle events intended to excite in the latter communities, customers, partners, and influencers. In the fourth quarter, we hosted two events in partnership with industry-leading companies that we will further validate the strength of our all-stranded influence. In November, we partnered with an iconic luxury brand, Porsche, outside of the fashion industry on marketing and brand-building initiatives that are unlike anything we have done before. We collaborated with Porsche on marketing events over multiple days to create impact and awareness regarding the customizable features of the Porsche Taycan among coveted next-generation consumers. Participating with more than 100 Revolve brand ambassadors who are beyond excited to get behind the wheel of Porsche's first all-electric sports car at the Porsche Experience Center in Los Angeles. The successful Porsche activation generated tens of millions of impressions on social media and is high on the Porsche website. In December, we partnered with another leading brand in a completely different zone, AT&T, which served as a cost of our Revolve venture event, an experiential holiday in pop-up in a social hub for our community of customers, investors, and brands. A private invitation-only event was headlined by VIP attendees, including Kourtney Kardashian, Natalia Brian, Olivia Culpo, Winnie Harlow, and Diane Michelle, many of whom are showcasing on data center collection. In the days that followed, we opened up Revolve went to them to the public, enabling us to directly engage with our customers and build deeper brand connections with our entire community through our aspirational lifestyle events. Our work at event partners with incredible brands, including Porsche and AT&T, further validate our Revolve brand momentum and powerful influence in the next generation of consumers. Moving forward, our luxury destination where we see a great deal of opportunities for growth over the long term. FRWD delivered 23% revenue growth in 2022, expanding on forward with incredible 83% year-over-year growth in 2021. With this continued success, FRWD has emerged as an increasingly important player in the luxury space. FRWD has a distinct styling point of view that has truly captured the attention of younger luxury consumers and luxury brands alike. In addition, as evidenced by Kendall Jenner serving as stores creative director, we have trusted relationships with incredible celebrities and tastemakers based here in Los Angeles that have been an important part of Revolve brand building historically, and we are increasingly leveraging that brand marketing muscle more as well. During the fourth quarter, Kendall hosted two successful Florida events, highlighted by an incredibly impactful event in November to launch a new forward collection for iconic designer, Jean Paul Gaultier. Our brand heat helped us organically attract A-Listers to this event, including Megan Fox, Doja Cat, Chloe Bailey, and Iris Apatow, who are covered extensively in the press and on social channels. In the days that followed, numerous celebrities around the world responded wearing the very same Jean Paul Gaultier looks that Kendall, Megan, and others debuted at our launch events, which helped drive strong sales of these styles going forward. In the second year as Creative Director, Kendall continues to find exciting new ways to engage with our FRWD community. Last month, the FRWD website began featuring new Q&A content from Kendall's insightful conversations with some emerging luxury designers, including a very hot brand, Cape, that Kendall selected for FRWD last year after showing strong interest. Looking ahead, we will continue to focus on cross-border FRWD to our larger Revolve customer base, including plans to increase broaden some of our Revolve marketing events this year. It's a great opportunity since growth brands are still complementary, but to Revolve the certain more focused on the discovery of trend-driven ready-to-wear styles, while FRWD assortment is more heavily weighted towards our statement pieces such as shoes and handbags. Wrapping up, I'll expand on some of the key priorities Mike outlined in his remarks. First, we will continue to efficiently invest in our brands to grow our brand awareness, customer base, and even further strengthen our connection with the next generation of consumers. Our investments will include extending our outstanding recent progress in diversifying our marketing channels highlighted by the incredible growth in video content I referenced earlier, as well as driving further expansion of our proprietary brand ambassador program now available on Revolve and FRWD. We will also continue to elevate the brand with our premier aspirational events and by building on our momentum in partnering with major lifestyle brands. Second, we will continue to expand outside of our historical category strength to adjacent categories to solidify us as a destination for all aspects of our life, supported by marketing initiatives to increasingly emphasize newer categories where we see opportunities. For instance, we recently hired an accomplished and experienced leader for our beauty business that has grown nearly twice as fast as the overall business in 2019. Beauty is a great opportunity to grow our share of wallet among our extremely loyal customer base. We have also hired new leadership in our men's business, which is quietly and nicely growing, yet still a small source of revenue that we believe offers a great deal of opportunity over the long term. And third, just as we have done in our first 20 years operating the business, we will continue to make investments that we believe will generate meaningful returns over the long term with an unwavering focus on the customer. In addition to continuing to gain existing market share as we execute on these key initiatives, we believe we are well-positioned to continue to expand our position as the preferred fashion destination for millennial and Gen Z consumers as their share of U.S. household net worth continues to increase. Mike and I are more excited than ever about the opportunity ahead. We believe crossing the $1 billion milestone in annual revenue is just the beginning, and we remain squarely focused on continuing to take market share and building a much larger and more powerful collection of brands than we have today. This year will not come without challenges, including our effort to offset cost pressures with efficiency gains and rebalancing our inventory position to drive gross margin, but we remain incredibly excited about what lies ahead of us this year and for many years beyond. Now I'll turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. We are pleased with our fourth quarter and full year results, which demonstrate agility in navigating significant challenges in the short term while maintaining an unrelenting focus on the customer and making disciplined investments that position us for continued success over the long term. I'll start by recapping our fourth quarter results. Net sales were $259 million, a year-over-year increase of 8% and representing a three-year compound annual growth rate of 21%. Revolve segment net sales increased 9% and FRWD segment net sales increased 5% year-over-year in the fourth quarter. By territory, domestic net sales increased 9% and international net sales increased 1% year-over-year, despite currency and macro headwinds overseas. Active customers increased by a healthy 91,000 during the fourth quarter. This growth expanded our active customer count to 2.3 million, an increase of 27% year-over-year. Our customers placed 2 million orders in the fourth quarter, an increase of 11% year-over-year. Average order value, or AOV, was $306, an increase of 5% year-over-year and a decrease of 4% sequentially from $320 in the third quarter. Shifting to gross profit, consolidated gross margin was 51.4%, a decrease of 339 basis points year-over-year, primarily due to a lower mix of net sales at full price and deeper markdowns compared to the fourth quarter of 2021. The decrease in gross margin is directionally consistent with our commentary on last quarter's conference call, but it did come in lower than our guidance range for the quarter. Moving on to operating expenses, fulfillment costs deleveraged 84 basis points year-over-year, primarily due to a year-over-year increase in our return rate, as well as increased labor costs and investments needed to extend our fulfillment network. Selling and distribution costs deleveraged 165 basis points year-over-year and remained a significant headwind primarily due to higher costs for customer shipments due to a higher return rate year-over-year and continued significant year-over-year growth in variable fuel surcharges. Our investment in marketing was more favorable than the outlook we provided on last quarter's conference call. Our marketing investments represented 15.4% of net sales in the fourth quarter, up from 13.5% in the fourth quarter of 2021, yet below the 16.6% in the third quarter of 2022. General and administrative costs were $29 million, in line with our outlook provided last quarter. Our effective tax rate was 24%, 17 points higher than in the fourth quarter of 2021. The unusually low effective tax rate in the prior year comparable period primarily reflects excess tax benefits as a result of the exercise of non-qualified stock options. Net income was $8 million or $0.11 per diluted share, a decrease of 73% 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 outpaced our net sales growth year-over-year. Adjusted EBITDA was $14 million, a decrease of 59% year-over-year. Moving to the balance sheet and cash flow statement. For the full year 2020, we generated $23 million in net cash provided by operating activities and $18 million in free cash flow, with both measures down significantly year-over-year from the exceptional cash flow generation in 2021. The decreases in both measures primarily reflect lower net income, which included much higher tax rates and cash payments for income taxes that increased by $20 million in 2022, as well as other changes in working capital. Looking forward, we expect significantly higher cash flow generation in 2023 based on expected favorable changes in working capital, including our expectation that our receipts of new inventory will be lower this year. Our balance sheet remains debt-free, and cash and cash equivalents at year-end 2022 were $235 million, an increase of $16 million or 7% year-over-year. Since June 30, 2019, right after we completed our IPO, we have increased our cash balance by $190 million. Inventory at year-end 2022 was $215 million, a 26% increase year-over-year. To illustrate our progress towards rebalancing our inventory position, the unfavorable spread between our inventory growth rate year-over-year and our sales growth rate year-over-year peaked at 49 points in the second quarter of 2022, decreased to 40 points in the third quarter of 2022, and decreased significantly to 18 points in the fourth quarter noted today. Most encouraging, our inventory balance as of the end of January 2023 has decreased by approximately $20 million from year-end 2022. I'm encouraged by our progress on our inventory dynamics, and we remain confident that we are on track to rebalance our inventory by the end of the second quarter of 2023. Now let me update you on some recent trends in the business since the fourth quarter ended and provide some direction on our cost structure for helping you modeling the business for 2023. Starting from the top. Despite a very challenging comparison in the first quarter of 2022, I'm pleased that through the first seven weeks of the first quarter of 2023, our net sales increased by a mid-single-digit percentage year-over-year. Now as you think about modeling net sales for the full first quarter, please keep in mind that in the back half of the first quarter of 2022, we had an exceptionally active calendar of impactful marketing activations including the Revolve Social Club pop-up that featured special events almost every night throughout March of 2022. We believe our very strong finish to the first quarter in 2022 also benefited from building consumer excitement last year, heading into spring festival season after a two-year hiatus. As a result and considering the uncertain macro environment, we encourage investors to model moderation in our year-over-year net sales comparisons for the balance of the first quarter from the mid-single-digit year-over-year growth during the first seven weeks of the quarter. We expect year-over-year comparisons in 2023 to become less challenging after the first quarter, especially in the second half of the year. However, as shared earlier, we are planning for lower inventory receipts year-over-year in 2023, and we continue to face a very uncertain macro environment. Shifting to average order value, a key metric that influences net sales and operating efficiency. After two years of significant growth in AOV during 2021 and 2022, we expect AOV to moderate in 2023. Our AOV expansion over the past two years has benefited from a variety of factors, including a growing mix of net sales in the dress category, which is now normalized back to pre-pandemic levels, and a very high mix of full-price net sales that, while still very healthy, will further moderate in 2023. Shifting to gross margin, we expect gross margin in the first quarter of 2023 of between 49% and 50%, a sequential quarter decrease in gross margin that is consistent with typical seasonality. Over the past several years, our gross margin has declined sequentially from the fourth quarter to the first quarter by an average of more than 2 points. Although the first quarter of 2022 was an outlier, making it a more difficult year-over-year comparison. We expect that our first quarter gross margin this year will be the low point in 2023. For the full year 2023, we expect gross margin of between 52% and 53%. The anticipated decline from our 53.8% gross margin in 2022 primarily reflects our expectation that our full price mix of net sales in 2022 will be several points lower than the exceptional 85% full price mix of net sales in 2022. We continue to expect gross margin pressure in the first half of 2023 as we work through our inventory position, especially in the first quarter, then becoming more favorable in the second half of the year. Fulfillment, we expect that for the full year, fulfillment as a percentage of net sales will be approximately 2.9%, consistent with 2022. Looking at the anticipated cadence throughout the year, we expect fulfillment expense as a percentage of net sales to deleverage year-over-year in the first half of 2023 and achieve leverage year-over-year in the second half of 2023. One factor influencing fulfillment efficiency is that we recently meaningfully expanded our fulfillment center capacity to support future growth, optimize our customer experience, and benefit our fulfillment cost structure over the long term. Expansion of our fulfillment center capacity creates a temporary efficiency headwind until our growth and expansion enables us to again realize capacity utilization benefits over time. Selling and distribution, in 2023, we expect selling and distribution costs to represent around 17.5% of net sales for the first quarter and 17.3% of net sales for the full year, consistent with the full year in 2022. We expect return rates to remain elevated in 2023, contributing to continued pressure on shipping costs, partially offset by some expected logistics efficiencies resulting from our new East Coast fulfillment center as it scales over time. Marketing, we will continue to efficiently invest in building our brands, expanding our base of loyal customers, and further strengthening our brand connection with our community. In the first quarter, we expect our marketing investment to represent approximately 14.5% of net sales, a decrease from 16% in the very active first quarter of 2022. We expect marketing as a percentage of net sales to be the highest in the second quarter at approximately 18%, relatively consistent with the second quarter of 2022. For the full year 2023, we expect marketing to represent approximately 16% to 16.5% of net sales, a slight improvement at the midpoint of the range from the 16.5% of net sales in 2022. General and administrative, we expect G&A expense of approximately $28.5 million in the first quarter of 2023 and between $113 million to $116 million for the full year 2023. This implies a 1% year-over-year decline in G&A costs for the full year at the midpoint of the range. Lastly, let me touch on our tax rate. We continue to expect our effective tax rate to be around 24% to 26%. To recap, while there is still significant uncertainty in the macro environment, we continue to take a disciplined and longer-term approach to everything we do. Our leadership team is exploring many ways to leverage our technology, brands, and operational excellence to be even more efficient in 2023 and beyond. If these efforts prove successful, we could potentially drive greater efficiency in our cost structure, as implied by our outlook. To highlight just one example, we are exploring a multimillion dollar annualized opportunity to reduce shipping costs by consolidating return shipments from some of our larger international regions, and in some cases, to hold international returns in-country and fulfill orders from them locally without ever returning the items to the U.S. We are continuing to track the balance between managing operating expenses while at the same time, investing in our brands and other key growth initiatives that are critical to maximizing our long-term growth potential, guided by Mike and Michael, our two largest shareholders who own nearly 45% of our common shares, we believe this is the right strategy to drive value for shareholders over the long term. Now we'll open it up for your questions.

Thank you. Our first question is from Oliver Chen with Cowen. Your line is open.

Mike and Jesse, regarding this current inventory situation, what's ahead in terms of the nature of the composition that you have that you're working through? And on your comments on the trends quarter-to-date, the mid-single digit, what's happening with AOV there and any implications for as we forecast the rest of the year? Thank you.

Yeah. This is Jesse. Thanks, Oliver. In terms of inventory composition, we feel good based on the progress we've made as we discussed from the peak in Q2 down to where we were in Q4 and even more importantly that $20 million reduction in January. As we said in the previous calls, we feel like the inventory is good. It's healthy. We're working through it. We're geared up and ready for the kind of our peak festival season. It is skewing higher on the FRWD side as we talked about in the past that it takes longer to work through that FRWD inventory than the Revolve inventory, starting to make some progress there now in the first quarter. But overall, good composition. And then kind of results to date on revenue and AOV. As we talked about in the prepared remarks, we don't expect that significant year-over-year AOV increase that we've been experiencing in the past two years to expect kind of a low to mid-single-digit increase in AOV. That said, Q1 is lower seasonally with lower margin and a higher markdown mix in Q1. So it will be lower in Q1 compared to other quarters of the year, but still for the full year 2023, expect a moderate increase in AOV.

Okay. And a follow-up on private label and private label capabilities. Any thoughts there in terms of where you are and what inning and what capabilities you see ahead, and as we think about the marketing spend and marketing as a percentage of sales, what happened this quarter? And what were you seeing that led you to make decisions around changes there? Thank you.

With respect to our own brands, I believe we are still in the very early stages. A significant portion of our efforts has been directed towards historically core categories, which indicates that there are numerous opportunities available across the board. This also highlights Revolve's substantial potential to diversify categories in various areas of the market. I am particularly enthusiastic about our recent launches, which have been tremendously successful, including our partnership with Marianna Hewitt. There is indeed a lot of potential there. However, this is influenced by periods of caution. We have already reduced our own brand efforts during COVID, and we would adopt a cautious approach during similar times. But in the long run, as I mentioned, the potential remains strong as ever.

Yeah. And then with regard to marketing, Oliver, were you talking about more Q4 marketing or Q1 marketing?

Both in terms of just strategies and also the CAC trends that you're seeing with some of the volatility in the marketplace and conversion rates and IDFA.

Yeah, definitely. So I'll start with talking about digital and performance marketing. So I think we have seen the worst of the IDFA impact from what we can tell. There isn't really further degradation as a result of IDFA; that's kind of leveled off. And then in terms of overall spend levels, we stayed fairly aggressive with marketing through the fourth quarter. But as the quarter ended and then into Q1, we pulled back on the aggressiveness a bit, and we've been investing more into optimizing the marketing mix. So we're hopeful that will bode well for marketing expenses in the coming quarters and the coming year. And those are kind of the general trends we've seen on performance in digital. With regards to brand marketing, maybe, Michael, you want to jump in and talk about that.

Yeah. Sure. Post-pandemic, we returned to very much the similar activities as we've done in times past. We've celebrated that moment. And looking forward, we think it's a very exciting time to really think further ahead. So there will be a lot of different innovation, different ideas, different concepts, which will affect cadence, which will also evolve our storytelling and such. So moving forward, it will be a mix of the things that you're very familiar with, as well as a whole range of things that we'll be approaching. So it will be a fun year.

Sounds exciting. Best regards.

Thank you.

The next question is from Mark Altschwager with Baird. Your line is open.

Thank you for taking my question. I would like to hear your insights about your customers' health and their ongoing interest in fashion categories despite inflation. It seems the quarter ended stronger than you anticipated, and the mid-single digit performance so far is positive. Additionally, Jesse mentioned some factors that could lead to a slowdown in the latter half of the quarter. However, if I remember correctly, there was a deceleration in the second half of last year's first quarter, which could make for an easier comparison this time. Is it possible that things could stabilize or even improve from here?

Yeah, maybe I'll take the second piece first. On a year-over-year basis, last year, it did appear that things got easier, which had made for easier comps this year. But you really have to look at that three-year comp last year and compare back to 2019 because 2021 was kind of that inflection point in March where things were coming out of COVID. So really paying attention to those three-year comps. We do anticipate tougher comps for the balance of this quarter. And we've already seen it in the back half of that seven weeks where January started off stronger and then started to get weaker relative year-over-year in the last three weeks of that seven-week period. So definitely encouraging everyone to factor in some moderation there in the growth rate for Q1 and then maybe I'll pass it over to Michael for the consumer.

Yeah. So in terms of the consumer, I think we've seen things moderate a little bit in terms of the sort of weakness accelerating. But overall, we think our consumer is not in the place he was certainly 1.5 years ago in 2021, things still feel a little rough out there for her. Revolve markets to aspirational consumers that are looking to look their best life and often are kind of spending a very large portion of their disposable income against fashion and travel and similar products. And so right now, things are a bit tight for her; confidence in the future isn't as strong as it was 1.5 years ago, and we've been seeing that in the numbers over the past couple of quarters.

The one thing I would add is that this is really compared to a year ago, 1.5 years ago, where money was flying from the sky and people were spending and people hadn't been out and a lot of pent-up demand. But zooming out, I think our consumer is very engaged with our brand and is really still continuing to come to us for all the things that she loved. We also see a lot of opportunity to continue to expand that. So zooming on taking a broader lens, I think we're in a great spot.

The next question is from Edward Yruma with Piper Sandler. Your line is open.

Let's cut down a little bit on FRWD for a second. Thank you for all the comments on AOV. Just trying to understand the implication of kind of taking a little longer to clear on some of that excess inventory. How do you feel about the FRWD business in the short to medium term to your point earlier, that it has been a lift to AOV? Will it not be a lift in, I guess, for the balance of the year? And then finally, are there any other things we should think about from a seasonality perspective as you kind of adjust the marketing this year? Thanks you.

Yeah. So for FRWD and Revolve, we expect both businesses to grow in a fairly similar zone this year. So we wouldn't model in an AOV lift due to the mix shift there. As Jesse mentioned, we're still seeing some increase on the AOV side; just I think compared to the previous year, those price increases and inflationary increases for the consumer have moderated quite a bit. So that does what we expect investors to model on their side.

Yes. And maybe on the seasonality, we hope to get closer to that pre-pandemic more normal seasonality. And you can see that in the marketing numbers that we guided towards in the prepared remarks, where Q1 is lighter and then Q2 is our typical peak season with Revolve Festival and a lot of activity there. So that will be in that 18% zone. And then in terms of sales as well, we hope to get back to some kind of normal seasonality where you see Q2 of the peak followed by Q3, and then you've got Q1 and kind of Q4 on the low end of the bookends there, comps aside because, of course, we're facing the really tough comps this first quarter and then, call it, halfway through second quarter before things start to ease up in the back half of the year.

The next question is from Anna Andreeva with Needham & Co. Your line is open.

Great. Thanks so much and good afternoon, guys. Two questions from us. Regarding the own brands penetration, I think you said 22% last year, significantly below even 2020 levels. Can you talk about what's the realistic level of penetration to think about for 2023? How have owned brands performed? And what do you see as a gross margin differential there versus third-party? And then curious, what are you seeing with the return rate quarter-to-date and perhaps if you could elaborate on the returns initiative that you mentioned. Thank you so much.

Yes. Maybe I'll go in reverse order there. Return rate did tick slightly lower in Q4 as compared to Q3. That's largely seasonality over to the return rate in the fourth quarter. We're not anticipating a decrease in the return rate in 2023; we're kind of baking in this elevated return rate going forward with some seasonality elements there. We see a higher return rate in Q2, for example, and that fluctuates a full price markdown mix and such. And then the differential on the owned brand versus third-party margin. We don't talk specifically about that other than to say that the owned brand margin is meaningfully higher than the third parties.

And with regards to penetration, one thing just to kind of remind you that periods of conservatism, during the depth of COVID, as well as a period like now, own brands is an area where we cut back where the units per style is greater than what we're able to do with third party. With a third party, we can buy four to six units per style. So in periods like these, we do definitely modulate down and will ramp up as the customer and the economy gets a little bit more confidence in that zone.

The next question is from Rick Patel with Raymond James. Your line is open.

Thank you. Good afternoon, everyone. Can you provide a little more color on the impact of freight? I believe in the past, you've indicated that you wouldn't see a more meaningful benefit until later in '23. But just given the outperformance and sell-through velocity being a little bit better than you expected three months ago, do you see the potential for the freight benefit to be a little bit more front-end loaded?

I would say there is always potential, but we are not factoring that in yet. We are still facing challenges, even though fuel is a part of that. Fuel has stabilized and is on par with Q3, down from the peak in Q2 but still up 78% year-over-year in Q4, presenting a headwind. Additionally, the return rate has increased significantly on a year-over-year basis, which has impacted selling distribution within that freight line item. We are ramping up the East Coast distribution center, which will provide some relief, but that will take time to materialize. Therefore, we are still looking at the latter half of the year before we start seeing efficiencies.

The next question is from Michael Binetti with Credit Suisse. Your line is open.

Hey, guys. Thanks for taking our questions. Jesse, I just wanted to check on the January inventory number and the sales trends you pointed to, and I think you said January was stronger than February. I think that implies you're on track for sales to inventory that ratio flipping back to positive in the first quarter. I think that will be the first time since early '21. So I just wanted to check that.

I think returning to a positive status may be optimistic. We're still aiming for that during Q2, likely by the end of Q2 before things normalize. However, we are encouraged by the progress, especially as we move into 2023 with a $20 million reduction.

Right. I guess then the bigger picture question is, I think you told us, okay. You said inventory will be aligned in 2Q. I guess to look at it another way, when do you think the depth of inventories will be clean enough for you guys where it doesn't impact the future orders?

Yeah, I'd say that's still, call it, in that mid-year time frame. We are already starting to book into that midyear zone. So I think it still hangs right in the middle of the year. And again, keeping in mind that FRWD has such a long lead time, that, again, on the flip side will take longer to play out.

Is that sort of the inflection point there is closer in on the Revolve side of the business?

Right. Yes, exactly.

Okay. Great. Very helpful. Thank you.

I will give that just quickly. If you look at the composition of the inventory, the sales mix of FRWD and Revolve versus the inventory mix of FRWD and Revolve, the inventory mix is much higher than the sales mix. So that's another way to triangulate around it.

Can I just ask you an inventory anyway breakout dollars versus units at the end of the quarter?

Yes. Maybe not specifically, but if you think about that 18 point differential between the net sales growth and the inventory growth, the unit growth on inventory was much lower, but of course, the sales unit growth was also lower, but call it, it's not half of that differential, but close to half of that differential, lower on a unit basis than the sales basis.

The next question is from Lorraine Hutchinson with Bank of America. Your line is open.

Thanks. Good afternoon. As you move through the excess inventory, what type of customer is buying on discount? Is it an existing customer looking for value or maybe a new customer who might trade up into full price?

Yeah. It's a mix of the two. As we look at our mix of new customers and where we acquire them for our off-price versus full price versus our sales mix, generally markdown products are a bit more effective for new customer acquisition, but it's not in an extreme end. So ultimately, it's a mix of those existing customers and new customers that we bring in that hopefully over time we can trade up.

And you had commented last quarter about the lower-priced consumer a little softer than the higher end. Is that relationship holding up through 4Q and into the first quarter?

Yes. I think it holds consistent with what we said on the prior call, where if you look within that full price, the higher-priced items are holding up better than the lower-priced items. That said, with the heavy movement of inventory into that markdown, markdowns, of course, did outperform what you can see in the margin. But if you look just within the full price category, then the higher end did hold up better.

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

Thanks, everyone. Good afternoon. Jesse, any way to quantify the moving pieces in gross margin embedded within your 1Q and full year guide? Any updated thoughts on long-term gross margin rates? And then just curious how you're thinking about inventory turns for next year? Thank you.

Yes. Maybe on kind of breaking it down a little bit more. We'd expect to evolve to be in that 55% zone FRWD to be more in the kind of low 40s zone. The year-over-year impact is largely due to the full price mix. We were checking at 85%, which is just off of the record high of 87% in 2021. So we expect that to come down several points. If you go back to even pre-COVID levels, we're at 79%, which we felt good about. We think we can do better than 79%, but it's not going to be at 85%. So that's the biggest factor there on the margin. And then exiting the year in a much healthier place as we work through the inventory in the first half. Turns expect much better trends in 2023, given one inventory recalibration. And then again, just kind of back half trends and tinting normalize.

The next question is from Janine Stichter with BTIG. Your line is open.

Great. Thanks so much. I want to ask about the G&A. I think you said down 1% year-on-year on the midpoint. If you could just talk a bit about where those savings are coming from. I think it's the first year we'd have down G&A with the exception of the COVID year. So just some thoughts on your expense philosophy there? And then as a follow-up, I was curious how you're thinking about inventory in the channel. It sounds like you're making nice progress on your own inventory, but just curious if you're seeing from an overall industry-wide promotionality standpoint. Thank you.

On the G&A front, that's starting to stabilize, following a strong investment period coming out of COVID, where we kept pace with robust demand and rebuilt the team. This aligns with our expectations moving forward. Over the past three years, from 2019 to now, we've gained three points of leverage on that G&A line item. It functions as semi-fixed, primarily consisting of two-thirds in salaries and wages. As we move towards a more normalized growth rate, we anticipate further leverage in the coming years. Regarding promotional activity, it has been high; it peaked in Q4 and continued into Q1 as everyone manages their inventory. This aligns with our expectations, showing a higher year-on-year comparison, particularly exceeding pre-pandemic levels from 2019.

The next question is from Jim Duffy with Stifel. Your line is open.

Hi. This is Peter McGoldrick on for Jim. Thanks for taking our questions. You added 0.5 million new customers in 2022. Can you talk about any cohort differences compared to your seasoned customers any distinction in channels of acquisition, full price engagement or frequency of purchase to call out?

Yeah. Obviously, things can change quarter-to-quarter. Mix shifts in different marketing channels and whatnot. But by and large, the cohorts look similar to cohorts we have acquired in the past. Apart from what I mentioned earlier, obviously, with more markdown merchandise, you've got a bit of a larger portion of it coming on the markdown side. But again, not in any sort of extreme sense. I think other differences, beauty has really been a very nice customer acquisition source for us, and we saw that in particular in the fourth quarter. That's an area of the business that we've been expanding and has been growing at a healthy rate, and we hope to do so for many years to come.

The next question is from Dylan Carden with William Blair. Your line is open.

Thanks a lot. Trying to think through the spread between the degradation of the adjusted EBITDA margin and the free cash flow margin over these last three years, is there some inefficiency in the model now that it's at a certain scale and kind of reading the body language on sort of necessary investment in additional fulfillment capacity that you might see in these next couple of years. I mean your overall CapEx as it relates to sort of relative top line is still pretty low. But how are you thinking about getting the free cash flow profile maybe from a more efficient standpoint?

Yeah. Well, I think we're in a somewhat unique period right now, right, where inventory levels have risen a lot year-over-year, and that's by and large the biggest driver of the difference between free cash flow and margin. And so any incurred where inventory is climbing, you're going to see that conversion ratio not look as good. Historically, we feel great about our track record of converting EBITDA into free cash flow. We have very low CapEx historically; we don't expect that to increase in any significant way going forward. And obviously, we'll be opportunistic, never say never, but we don't expect things to change on that side. We have very few adjustments to our adjusted EBITDA versus a lot of companies out there. So I don't think there should be any body language around there, but if we sent the wrong body language, we'd like to clarify.

No, I think it indicates that you're investing in fulfillment capacity. While it's not likely to significantly increase, there may be some inefficiency present. Your free cash flow margin has stalled at 2% by the end of last year, down from 12% three years ago, and EBITDA has decreased from 10% to 8%. I understand the inventory issue, but does this suggest a need for greater efficiency in distribution or fulfillment, aside from the general operating challenges in the model? It's a complex question, and I'm open to discussing it further later. Additionally, do you have any updates on the cross-selling initiatives between FRWD and Revolve? Regarding the increased retention levels you're observing, is there a new sustainable level of marketing spend that the model can accommodate as these initiatives progress? Thank you.

Yes. So with regards to Revolve and FRWD, we feel very good about the cross-selling initiatives we have there. That's a huge long-term opportunity for us and an area we're going to continue to invest in a big way. We've talked about in previous calls how it's essentially mid-single digits percent of overlap. And we think in the future, it can be much, much larger than that. We feel like a very large portion of Revolve customers are shopping the products on both. And so that's a huge opportunity for us. And then just to kind of, I guess, turn back to the model question. I think Jesse, hopefully gave some good color in his comments there, but I just want to reiterate, we're very confident in that 14% long-term margin. In the current period, we're not pleased with the gross margins that we delivered. We expect that the inventory position normalizes and those gross margins are going to go back up significantly. Also, Own brand continues to be a big long-term opportunity to gain gross margin and share there. Operating leverage, Jesse mentioned getting 300 basis points on the G&A side over a multiyear period, as well as additional efficiencies. And that does include, right, scale on the distribution side. So that is something that we think is an opportunity and something that we're focused on. I just wouldn't necessarily say that the model needs it so much is obviously to maximize the economic opportunity for investors where we're certainly going to make sure we're maximizing those opportunities on the scale side that we have with the distribution.

Yes. And sorry, not to drag this one out longer. But also keep in mind the tax rate and those cash tax payments this year versus the last couple of years where we've experienced a much lower tax rate. How is a drag on the free cash flow? So that's where you're also seeing a bigger differential this year between the free cash flow and the adjusted EBITDA.

The next question is from Matt Koranda with ROTH Capital. Your line is open.

Hi, guys. Thanks. Just wanted to get your thoughts on active customer growth and how we should be thinking about it for 2023 after such a good couple of years for net adds. It doesn't seem like you're particularly leaning hard into marketing this year, just given the guidance you gave. So just curious the levers you have to pull and sort of how we should be thinking about growth in active customers.

Yeah. I think it holds consistent with our previous remarks on other calls where, because it is a trailing 12-month number, you have some comp dynamics there. And as we get closer towards the middle of 2023, we'd expect that active customer growth to converge closer to the net sales growth. Given the really robust adds in Q4, I think we're confident we can keep that active customer growth to a positive number throughout 2023. So we feel good, keeping in mind that Q1 of 2022 is kind of an all-time record, not just for sales but for new customers as well.

We have time for one more question, which is from Tom Nikic with Wedbush Securities. Your line is open.

Hey, guys. Thanks for squeezing me in here. Just want to ask quickly about the owned brands. I know the penetration ticked up a bit in 2022, but still well below where you were in 2019. Just wanted to get your thoughts on how we should think about own brand penetration, what that goes to gross margin over time, et cetera.

Definitely. Yes. With the period of conservatism and inventory being where it is, where we're working through a peak, and but still being in a period of conservatism, we definitely will scale back own brands because it is one of the highest stage points for reducing inventory while maintaining a broad consumer offering. As we work through inventory and looking to be on, we won't really see it too much in 2023, but beyond, we'll see the ramp-up of own brand as well, kind of back to our historic core and such. Long-term wise, we think there's an incredible amount of opportunity. Our capabilities have been enhanced quite a bit over the past few years during the COVID years. So there's a lot of more capability in categories that own brand didn't touch, so feeling as augmented as ever in that zone. All of our recent drops have been awesome. The Remi collection was a lot, as well in terms of broader size ranges, and the most recent job with Marianna Hewitt, which was focused on less going out a little bit more sophisticated kind of workwear, has been awesome as well. So it really has been kind of like the early form of the next stages of home brand expansion.

That's all the time we have for your questions today. I'll now turn it back to management for any closing remarks.

Thanks, guys for joining us on this quarter and this final year, hitting $1 billion in annual revenue. It's not something I always dreamed of, and we were finally able to achieve that, which is awesome. This coming year, post-pandemic, post-kind of crazy economic times, will still be a very exciting and interesting year. We'll be celebrating our 20th anniversary this year, and we have a lot in tune and we're very excited for next quarter and beyond as we think about the next 20 years.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.