REVOLVE Second Quarter 2026 Earnings Call

good afternoon my name is jordan and i'll be your conference operator today and at this time i'd like to welcome everyone to the revolve group second quarter 2026 earnings call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you'd like to ask a question during this time simply press star followed by the number one on your telephone keypad if you'd like to withdraw your question press the pound key. Thank you. I would now like to turn the conference over to Eric Randerson, SVP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's second quarter 2026 results. Before we begin, I'd like to mention that we have posted a presentation containing Q2 2026 financial highlights for our Investor Relations website located at investors.revolve.com. I'd also like to remind you that this conference call will include forward-looking statements including statements related to our future growth our inventory balance our key priorities and business initiatives industry trends our marketing events and their expected impact our physical retail stores our own brand and luxury brand expansions our use of ai our market position and competitive positioning our partnerships and our outlook for net sale gross margin operating expenses and effective tax rates these statements are subject to various risk uncertainties and assumptions that could cause our action results to differ materially from these statements, including the risk mentioned in the SAF News press release, as well as other risks and uncertainties disclosed under the captioned Risk Factors and elsewhere in our filings with the Securities Exchange Commission, including without limitation our annual report on Form 10-K for the year into December 31, 2025, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law during our call today we'll also reference certain non-GAAP financial information including adjusted EBITDA and free cash flow we use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results the presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented and prepared in accordance with gap and our non-gap measures may be different from non-gap measures used by other companies reconciliations of non-gap measures to the most directly comparable gap measures as well as the definitions of each measure their limitations and our rationale for using them can be found in this afternoon's press release in our sec filings joining me on the call today are our co-founders and co-ceos mike karenicolas and michael mente as well as jesse timmermans our cfo all in our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

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

And hello, everyone. We delivered another quarter of double-digit profitable growth while continuing to invest in long-term strategies that we believe will strengthen our brands and accelerate our growth potential. We believe our market share gains validate our core competitive advantages, which position us for continued success over the long term, our data-driven DNA and proprietary technology infrastructure, our operational excellence and agility, and our powerful brands in connection with the next-generation consumer. With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and that we are especially excited about. Owned brands and our new Revolve namesake label, Ford's momentum in the luxury market, physical retail expansion, and our joint venture with Cardi B. First, owned brands. Our owned brand penetration of Revolve segment net sales increased year over year for the sixth consecutive quarter in Q2, with even more excitement and newness ahead in the second half of the year. In late June, we dropped our second assortment of Revolve Los Angeles, the summer collection of our first ever namesake label. Our brand campaign featured Revolve Los Angeles brand ambassador, Irina Shaikh, who perfectly showcased our brand vision of effortless glamour and confidence. I am thrilled to share that the sell-through metrics for Revolve Los Angeles, drop number two, are even stronger than our first assortment in the early going. Our Revolve namesake label is a multi-year journey. The focus in this initial stage of the journey is to build the brand with a disciplined and thoughtful approach through an integrated product, merchandising, and marketing strategy. The initial drops are beautiful statement pieces offered at higher-than-average price points that will help establish the premium, aspirational positioning of the Revolve Los Angeles brand in the eyes of consumers while also providing a halo for the broader Revolve brand and ecosystem, both online and in-store. We are deeply investing in marketing strategies to build favorable brand awareness that will be the foundation for driving more meaningful sales volume in 2027 and beyond. To that end, following this initial brand building phase, we plan to introduce Revolve branded offerings in greater depth across additional categories and price points to drive increased demand and higher sales volumes. We are truly encouraged with our progress to date with Revolve Los Angeles. The product looks incredible and everything is moving ahead as we have envisioned. Second, Forward. Our Forward segment delivered 11% net sales growth year over year, roughly four times the estimated growth rate of the global personal luxury goods market in 2026, according to Bain Altagama Research. Forward was also a key contributor to our strong second quarter for customer acquisition that Mike discussed. An encouraging rebound in handbags net sales growth in recent months was a key driver of Forward's impressive growth, including our Forward Renew pre-owned luxury handbags that are available online and prominently showcased at our retail locations. Also significant, luxury brands are increasingly creating in-demand products that are exclusively available on Forward. In June, we launched our second annual Forward Summer Club capsule that features exclusive to Forward styles from coveted luxury brands including Missoni, The Attico, Cult Gaia, and Same as well as the first ever Flows and Elu collaboration. Net sales for the Summer Club capsule increased nearly 50% year-over-year resulting in very positive feedback from our brand partners. In an industry scarred by retailer bankruptcies in recent quarters, luxury brands increasingly recognize Forward as a clear winner in the space for the long term. As such, we were proud to recently launch Christian Louboutin on Forward, an iconic luxury brand with only limited wholesale distribution, including women and men's collections. Third, physical retail. We remain very excited about the growth opportunity in physical retail ahead of us. With learnings from Aspen and Los Angeles and supported by ongoing investments in our team, operations, and retail technology platform, we are on track to open our third retail store in the fourth quarter. We are excited to expand to Greater Miami, a top five market for our business, where we will open in Aventura Mall, Florida's largest retail destination, attracting 30 million visitors annually. Aventura is a natural fit for our retail strategy. It will expand our brand awareness and addressable market, will enable us to engage more deeply with many new and existing customers, and gives us a stronger platform to increase the penetration of our owned brands. Our strong customer concentration in South Florida has been shopping Revolve online for years, and soon we will be able to meet them where they are. Revolve's future storefront is centrally located near other premium consumer brands, ideally positioned for Aventura's high traffic volume from locals and international tourists. Our Aventura store will emphasize experiential retail, including events and activations, for our millennial and Gen Z consumers who are drawn to immersive, shareable environments that mirror the communities they engage with online. Our brand partners are also excited to participate in store events to create meaningful brand experiences, such as our successful SKIMS activation recently held in our Los Angeles store at The Grove. We'll have much more to say on this exciting topic during our November earnings call. Finally, I'll provide an update on our Cardi B joint venture, highlighted by the phenomenally successful launch of Grow Good Beauty products in the second quarter. In short, early demand for Grow Good offerings has outstripped available inventory across the board. Our first three drops in April, May, and early July sold out within hours, with key products selling out within minutes, and our most recent drop in late July had the highest customer repeat rate and highest conversion rate out of any drop thus far. With such incredible demand, brand heat, and growing awareness among Cardi B's massive following, we have ordered a much larger restock of GrowGood inventory that we expect to begin receiving this fall as we look to build on the strong early market response. There are many positive signals that reinforce our confidence in the exciting opportunity ahead. In just a few months, the GrowGood brand has attracted 670,000 Instagram followers, several hundred thousand consumers have requested back-in-stock notifications, and an even larger number have signed up to receive product marketing via email and SMS. Early customer reviews for the products are glowingly positive, with an exceptional customer review score averaging 4.9 out of 5 stars across the GrowGood product line. This has already led to significant numbers of repeat purchases. In fact, nearly a third of GrowGood's orders in early July were repeat customers who had previously purchased the products in April or May, and this ratio was even higher for the most recent drop in late July. Most exciting is that GrowGood's gross margin is highly accretive to our business model, directionally similar to our own brand's assortment. Also notable is that GrowGood customers are nearly all incremental, with very little overlap with Revolve and Forward. Exclusively available on GrowGood's DTC site, every GrowGood product retails under $20, ideally priced for the mass market. We're still in the very early innings here, and the momentum has us excited about what lies ahead. To close, we're energized by the momentum across our business and the breadth of initiatives underway that we believe will fuel growth for years to come. We remain committed to investing in our brands, innovating for our customers, and pursuing the substantial market opportunities ahead of us with the same discipline and ambition that have gotten us here. Now, I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. We are excited about the current momentum in the business and the progress being made on our growth initiatives that we believe set us up well for further growth and margin expansion. We are very focused on the long-term, putting our balance sheet to work by investing in longer-term initiatives to capture further market share, while at the same time striking a balance by delivering profitable growth in the near term. I'll start by recapping our second quarter results and then close with updates on recent trends in the business and guidance for the balance of the year. Starting with the second quarter results, net sales were $347 million, a year-over-year increase of 12%, our third consecutive quarter of double-digit growth. Revolve segment net sales increased 13%, and forward segment net sales increased 11% year-over-year in the second quarter. By territory, domestic net sales increased 11%, and international net sales increased 16% year-over-year. Growth in trailing 12-month active customers accelerated to 11% year-over-year, surpassing 3 million active customers for the first time. That momentum has carried into the third quarter, reinforcing the strength of our brands. Contributing to the healthy top line was 11% growth in total orders placed year-over-year to $2.7 million. Average order value was $299 compared to $300 in the second quarter of 2025. The very slight decrease was driven by initial orders of Grow Good Beauty products, which have much lower price points and average order values. Absent the addition of the Grow Good business, AOV would have been in excess of $300, reflecting a slight increase year over year. Incidentally, the grow good product sales are included in the revolve segment and also within the other category for the net sales by product category disclosures in our 10Q filing. Consolidated gross margin was 56.6%, which was positively impacted by 162 basis points from IEPA tariff refunds received during the quarter, up from 54.1% in the second quarter of 2025. Excluding the tariff refunds, gross margin increased approximately 90 basis points year over year with margin expansion across both segments. The Q2 Financial Highlights presentation posted on our Investor Relations website today has a breakdown of the tariff refunds recorded to cost of goods sold, split between the two operating segments. Now moving on to operating expenses. Fulfillment costs were 3.3% of net sales, a slight increase from 3.2% in the second quarter of 2025. Selling and distribution costs were 17.9% of net sales and slightly above our guidance range. The 47 basis point increase year over year primarily reflects increased costs for customer shipments, including variable fuel surcharges elevated by the geopolitical environment, partially offset by a reduced product return rate. Our marketing investment was 16.5% of net sales, an increase of 130 basis points year over year and higher than our guidance. As with the first quarter, we meaningfully increased our marketing investments to support our growth initiatives, such as our new Revolve Los Angeles label, and we are continuing to test and invest in new marketing channels this year for the first time, such as Connected TV, which have contributed to some of the variability quarter to quarter. General and administrative expenses were $43.4 million, an increase of 13% year-over-year, and slightly above plan as certain strategic growth investments advanced more quickly than we anticipated. Zooming out, the three largest contributors to increase G&A spending year-over-year in the second quarter relate to the longer-term investments in our Revolve namesake label, physical retail, and our joint venture with Cardi B, all of which we are incredibly excited about. Below the operating line, in the second quarter, we recorded other income of $2.3 million, an increase from recording other expense of $2.9 million a year ago. Recall that results for the second quarter of 2025 included a $2.4 million loss from the disposal of a former subsidiary, as well as higher than typical foreign exchange losses within other expense. Our tax rate was 25% in the second quarter, consistent with our guidance, and a decrease of nearly 9 percentage points from the prior year. Net income was $19 million, and diluted earnings per share was $0.26, which includes a $0.06 positive impact from IEPA tariff refunds. This compares to diluted EPS of $0.14 in the second quarter of 2025, which was negatively impacted by the charge from the disposal of a former subsidiary and higher-than-typical foreign currency exchange losses noted earlier, as well as a higher-than-normal effective tax rate. Adjusted EBITDA was $27 million, including a $5.6 million positive impact from IEPA tariff refunds, achieved while heavily investing in the compelling longer-term growth initiatives. This was a 17% increase from adjusted EBITDA of $23 million in the second of quarter 2025. Moving on to the balance sheet and cash flow statement. Net cash used by operating activities was $8 million and free cash flow was negative $11 million in the second quarter, primarily due to unfavorable working capital movements that more than offset the increased net income. For the six-month year-to-date period in 2026, we generated positive operating cash flow and free cash flow of $41 million and $34 million, respectively. Our strong financial position enabled us to continue to invest in the business while at the same time returning capital to stockholders through the repurchase of Class A common shares as part of our commitment to enhancing shareholder value. During the second quarter, we repurchased nearly 500,000 Class A common shares at an average price of $19.98, retiring more than 1% of our Class A common stock in just three months. Inventory at June 30, 2026 was $276 million, an increase of 25% year-over-year. Of note, the year-over-year growth in inventory is skewed by tariff-related delays experienced in the second quarter of 2025 that resulted in a year-over-year decline in inventory in last year's second quarter. On a two-year stacked basis comparing our results to the second quarter of 2024, our net sales growth outpaced our inventory growth by approximately five percentage points. As of June 30, 2026, our balance of total cash and cash equivalents was $312 million, an increase of $1 million year-over-year, and we continue to have no debt. Now let me update you on some recent trends in the business since the second quarter ended and provide some direction on our outlook to help in your modeling of the business for the balance of the year. But before I do, there are a few items that deserve mention to provide additional color as it relates to our guidance outlook for the balance of the year. First, we still have an additional $1.4 million in outstanding potential IEPA tariff refund claims that we have not received or included in our financials or guidance. Second, increased net sales of GrowGood Beauty products in the second half of 2026 could lead to further downward shifts in our combined average order value year over year. On the other hand, GrowGood's unit economics are highly accretive to our gross margin and bottom line profitability, so it is a trade we're happy to make. And third, given the reduction in our return rate in the first half of the year, we're feeling more confident in the opportunity to drive it down further over time, though we're not yet baking that into our guidance. With that, let's start from the top. We're off to an encouraging start with net sales through the month of July 2026, increasing by approximately 18% year-over-year, a six-point acceleration compared to our growth rate in the second quarter of 2026. Shifting to gross margin, we expect gross margin in the third quarter of 2026 of between 53.5% and 54.0%, which implies a decrease of approximately 88 basis points year over year at the midpoint of the range. Embedded in our guidance assumptions are the more difficult gross margin comparisons from the third quarter of 2025, which increased roughly three and a half points last year and meaningfully benefited from the data-driven recalibration of our markdown algorithms. Consistent with year-to-date trends, we also expect our full price mix of net sales to remain slightly lower year-over-year, but still very strong relative to the broader market. For the full year 2026, we continue to expect gross margin of between 53.5% and 54%, which implies a year-over-year increase of around 25 basis points at the midpoint of the range. Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.4% for the third quarter of 2026, and between 3.2% and 3.4% of net sales for the full year 2026, unchanged from our previous guidance. Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.5% for the third quarter of 2026 consistent year-over-year. For the full year, we continue to expect selling and distribution costs of between 17.1% and 17.3% of net sales. Marketing. We expect our marketing investment to be approximately 15% of net sales in the third quarter and north of 16% of net sales in the fourth quarter, with some key brand building investments planned in Q4. For the full year 2026, we now expect our marketing investment to be between 15.8% and 16% of net sales, an increase that largely reflects the second quarter performance and continued investments in our longer-term growth initiatives. General and administrative, we expect G&A expense of approximately $43.5 million in the third quarter of 2026, and now expect G&A expense of between $170 million and $172 million for the full year 2026, as we continue to prudently invest in key growth opportunities such as the Revolve namesake label, physical retail, and the Cardi B joint venture. And lastly, we continue to expect our effective tax rate to be around 24% to 26% for the full year, 2026. To recap, I am very excited about the momentum in the business and believe the growth initiatives we're investing behind have the potential to supercharge our profitable growth and market share gains in the years ahead. Now we'll open it up for your questions.

As a reminder, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Rick Patel from Raymond James. Your line is live.

Thank you. Good afternoon, everyone. I was hoping you can unpack the acceleration that you saw in July to 18% growth. How much of that do you think reflects a strong consumer versus the timing of activations and new initiatives you have?

And then how are you thinking about the durability of that growth in 3Q and 4Q? yeah we feel great about the trends we're seeing in july months to date uh you know from our perspective uh we don't necessarily see it as sign as a broader consumer trend across all companies but we're certainly seeing nice trends internally and we think it's a result of a lot of the execution we've done especially heading out of q2 we made some larger market investments in q2 we think those are starting to pay dividends and we're seeing that in the form of the accelerated growth in q3 and as we look to the back half of q3 we're certainly hopeful that we'll continue to see better growth trends in Q3 than Q2, which was also strong.

And then can you also talk about where your new customer acquisition is coming from? I guess, how do we think about gross customer ads as you think about geography or any particular categories or channels that have been particularly effective?

Yeah, so we've seen really broad-based strength across the business, both on the revenue side and the new customer side. So it's really across the board. And certainly, there's some key growth drivers. We've talked about international being particularly strong. Of course, domestic had a great quarter as well. Category expansion is something that we've been investing for years, and we saw continued progress in the most recent quarter there. And then, of course, some of the newer marketing investments that we're making. And of course, when we experiment with some new marketing channels, some of that money in the short term isn't going to work out, but it's still money well spent. And so we feel good about the marketing capabilities that we've layered on with some of these new investments and the ability to drive growth and active customers.

Thanks very much.

Your next question comes from the line of Nathan Feather from Morgan Stanley. Your line is now live.

Thanks for taking the question, and congrats on the quarter. Can you have a think through the ramp trajectory for GrowGood into the back half in 27? And, you know, when did it reach that point where it kind of tips over to really being material to results if it's not already? And then any learnings you're taking from that as you think about the own brand strategy going forward?

Yeah. Thanks for the question. Yeah, we're really excited about the GrowGood launches, those first three launches performing extremely well. As we mentioned in this call and in the prior call, you know, the growth has largely been limited by the inventory availability, and we expect to get more inventory in this fall to drive more meaningful top-line growth, and then that will continue into 2027. So I think, you know, if all goes well, by the time we exit this year, we'll have more to say and more granular disclosure on how well Grover is performing.

All right. Thank you. And then can you give a little more detail on what you're seeing on the return rate side? What have you done to continue to push that downwards and especially think about the opportunities going forward that remain in order to continue that downward pace?

Yeah, so in the second quarter in particular, it's a mix of a couple of things. Part of it is a category mix shift, which, you know, certainly part of an ongoing long-term strategy of ours and so that had a healthy impact on return rates in the second quarter then the other thing of course is these uh initiatives that we continue to roll out or expand against return rate and so we saw some nice games there as well for the back half of the year we're feeling good about the direction of return rates but for now we're forecasting flat in terms of specific details on initiatives i don't want to get into kind of specific initiatives but we're continuing to roll out both existing initiatives that have had some positive impact and continuing to R&D new efforts. And of course, as technology advances, I think there's some really exciting things we can do on the return rate side and the visualization side for customers.

Your next question comes from the line of Michael Benetti from Evercore ISI. Your line is live.

Hey guys, thanks for taking our question. Congrats on next quarter. So if we strip out the tariff refund, Jesse, I think the flow-through was a little lower than it's been in a few quarters, but I can hear you guys feel good on the business and where you're at. is it is it safe to say that you took the opportunity to invest when you got the refund or that you invested more than you were planning because you got the refund in hand um i'm trying to think about flow through how to think about for the rest of the year if you don't mind and then i know you mentioned full price selling was a little lower than last year in third quarter you just comment on what you're seeing in the promotional environment and how you set your expectations for markdowns and full price selling through the year and then any anything you can comment on the nice July trends you're seeing. Any comment on the consumer in the U.S. versus international would be appreciated.

Yeah, thanks, Michael. So maybe for the first one, we didn't necessarily invest because of the tariff refund. We felt really good about the investments we were making. Like Mike mentioned, we saw some really good results out of the marketing. So I think we would have done those absent the tariff refund just given the results that we were seeing. Now it is nice to have that tariff refund back. But all in all, I think we're feeling really good about the growth initiatives. Those early green shoots that we're seeing in active customers, the strong top line growth. So again, even absent the tariff refund, we would have invested. And then full price markdown, you know, markdown is a little bit heavier than we would like. Full price mix is still very healthy, starts within eight. So really good in the broader scheme of things. But we do expect continued pressure, similar to what we saw this quarter for the back half of the year until things start to normalize out. And then in July, not much more to add other than what mike said we are just seeing that nice broad-based growth across both segments and geographies i think really impressive and a surprise to us was the middle east rebounding into strong double digits this quarter and we did not forecast that so i think it is very much a story of the growth initiative starting to play out and uh just good broad-based growth thanks a lot guys really appreciate it your next question comes from the line of anna from piper sandler Your line is now live.

Great. Thank you so much for taking our question, and congrats. A really nice quarter, guys. We wanted to follow up on the guidance. Can you just talk about what's driving the higher G&A for the year? This line item has grown double digits really for some time now, and obviously lots of initiatives that are working. But can you talk about where you are in the investment cycle? And secondly, just on gross margin, I'm not sure if you mentioned, what are you seeing with input costs and what's embedded for the rest of the year? And then we have a follow up as well.

Yeah, thanks, Ana. So for G&A, it's largely the growth initiatives that are driving that higher year on year. If you kind of break that up, we mentioned there was about a two point impact to adjusted EBITDA for the full year. About 50 basis points of that is in G&A and about 150 is in marketing, so some really meaningful investments in marketing, but also GNA. As far as the investment cycle goes, it's largely a this year story where we'd expect to start to see some leverage into next year. So if you kind of, if you strip out those growth initiatives from GNA for the year to date, GNA was 12.4% as stated, it would be about 11.8%. So that would have shown some nice leverage year on year. So that's kind of more indicative of what we'd expect in the out years where GNA is growing in the mid single digits. And then, of course, top line, if we continue to deliver that double digit top line growth, we should see some meaningful leverage. And then on input costs, we have factored those higher input costs into the guidance, similar to what we did last quarter and what we mentioned. And we are starting to see those trickle in. And that's primarily on those petroleum-based synthetic fabrics, but then also in the other products, just higher mill and factory costs, transportation costs, et cetera. So that's factored into our guidance, and it is a pressure point, but it's not abrupt. It's more of a gradual impact.

Okay, that's super helpful. And just as a follow-up, looking at the gross margins between forward and revolve, so the delta is like 12 to 13 points currently, used to be higher. How do you think about the potential to further narrow that? Do you think structurally forward can be a high 40s gross margin business over time? And I guess what needs to happen to get there?

Yeah, I think contrary to that, we'd hope to expand that differential. Forward isn't a really good place in that kind of low to mid 40s is a good place for forward to be. Of course, last year in Q3, we had a really phenomenal 45% growth margin quarter for forward. But in that, you know, that low to mid 40s is a good place for forward to be. Now, we'd intend to expand that differential given the own brand expansion on the revolve side uh we're still you know caught around 20 on revolve versus the 36 that we were back in 2019 so as we continue to expand own brand penetration we'd expect to see that revolve gross margin expand all right uh well thank you so much best of luck your next question comes from the line of jamie stitcher from us bancorp btig your line is now not.

Hi, thanks, and congrats on the momentum. I wanted to ask about Revolve Los Angeles. I think you mentioned that you're planning to expand it to more categories and price points. Can you elaborate on exactly where you're going and the timing of that? And then on marketing, just curious for your thoughts on what the right percentage of marketing is. Is that something we should expect to see leverage on next year once we get past this big investment year for Revolve Los Angeles.

Thank you.

Yeah, for Revolve Los Angeles, it's, you know, positioned initially out the gates as, you know, our premium pinnacle product, you know, akin to a Ralph Lauren purple label. And over time, we'll extend to a range of categories. Our customer shops us, you know, you know, across your entire closet. So we really see an opportunity for Revolve label product to be in every aspect of our wardrobe, whether that's particularly Revolve Los Angeles or another Revolve label. We're super excited because the early stages are going extremely well. and really give us permission and license to expand the Revolved Label products into every aspect of her lifestyle. So very excited about that.

Yeah, and then with regard to marketing, we've had some great opportunities to invest this year, some newer channels, some channels that are really checking well, as well as big initiatives to put dollars behind. So market investments are up a bit this year. We're always going to play the line item, the marketing item, a bit quarter to quarter depending on the opportunities that we see and then also we have going on strategically. But as we look forward to next year, I would expect that marking line item to come down a bit since we've invested heavily this year.

Thank you.

Your next question comes from the line of Peter McGoldrick from Stiefel. Your line is now live.

Hey, thanks, guys, for taking my question. I wanted to ask about inventory levels.

So you pointed out the inventory build measures favorably on a two-year stack. can you help us think about the the flow of goods uh relative to your forward plans yeah yeah um thanks peter so last year and just to kind of reiterate what we said um we did see receipt delays last year in the height of the tariff uncertainty so inventory was down last year we're seeing really healthy receipts this year so if you look on a tier stack basis net sales is outpacing that inventory growth by about five points now with that inventory is a little bit heavier than we would like still within the range of normal for us we'll continue to see that comp dynamic in q3 before it normalizes in q4 but starting to see really healthy receipts as we

look into the back half of the year yeah thanks for that and then on on grow good it's encouraging to hear the the really strong start um it seems you're seeing strong repurchase behavior out of the gate can you tell us about the potential for crossover behavior with the revolve segment and And then you mentioned GrowGood was reflected in the AOV metric. Is that also influencing your active customer numbers?

Yes. On the GrowGood side, yeah, we're encouraged by a lot of metrics on GrowGood, certainly the off-the-charts demand. But the repeat and retention rates have been really strong, with the most recent drop approaching 40%, which for a brand this early is an incredibly good sign. Because it's only one thing to command the attention of consumers, But you want them to love the product and you want them to come back. The retention rate show they're liking the product. And then also, you know, you look at the product reviews and all that. I think we have a hit on our hands. You know, and then with regards to, you know, the AOB question. Yeah, Grow Good had certainly had an impact on AOB in the quarter. Absent Grow Good, AOB would have been up. But, you know, it's a bit of a different business model than Revolve. but still actually much higher AOBs than we initially anticipated when we projected and forecasted that business because we're seeing consumers make purchases with lots of items.

Yeah, and Peter, to your question, because it is consolidated, grow good is reflected in all the metrics, including active customers.

Okay. Are you breaking that out?

Not at this point.

Again, when it gets more meaningful, which ideally is later this year we get the higher inventory receipts then we'll start breaking that out more granularly all right thank you and continue success your next question comes from the line of mark alt schwager from baird your line is now live good afternoon thanks for taking the question first one on stores with miami coming you'll have three and i think probably a better read on what that means for for the halo what do you need to see uh from these stores to shift from opening one store per year to committing to perhaps a faster pace of rollout and is there a market

count that you're thinking about in in your head yet that you're willing to share yeah going backwards not necessarily at this point in terms of accounts i think one thing that is really up for grabs i think how we think about it internally is square feet i think that we're really in the early stages, figuring out the appropriate format of, you know, how large these stores can be. We can see cases of much larger stores, or you can also see cases of a high number of smaller stores, depending on, you know, how we're seeing the marketplace. In terms of, you know, more accelerated rollout, really this is, you know, the patient, you know, build out of the infrastructure process and technology for us. This is really making sure that we have this, you know, the robust systems that we have in our econ business that we can roll out in a very, very aggressive away what we're trying to do is a little bit different than other you know you know chain type stores where every store is identical we're really seeing that with our broad mix we really have this huge opportunity to really connect with our customer in each neighborhood and each territory in very very unique way as well as you know a combination of high volume and high touch service so i think we're in uncharted territory in a very very cool opportunistic way the early stages have mixed you know very very awesome with a lot of learnings but also there's a lot of investment you know across the board with you know technology team process and you know everything needed to be you know achieved two billion plus in revenue so patient and slow up front so we can be super

speedy and powerful over the long term thank you and follow up for jesse on gross margin you're holding the guide for the year even as those tariff refunds are now hitting the numbers what are the incremental offsets you're considering is that the working in of higher markdowns given the inventory levels being slightly higher than than you wanted you mentioned or is there anything related to tariff section 301 changes that are impacting the outlook thank you yeah yeah we held the margin guns for the full year the same with the tariff refunds it's at the high end of that guidance and then without the tariff refunds it's at the low end of the guidance i would say margin is still within our expectations that we laid out last quarter so nothing

significantly changed there uh still within the range now the the new section 301 we have factored in the new you know call it average 12 and a half percent um not any incremental that could come in a later phase um so that is a potential but that to my understanding is still under investigation and timing is uncertainty so right now it's just the uh the 12 and a half thank you that's a look your next question comes from the line of matthew karanda from roth capital your line is now live Hey, guys.

Thanks. I guess the question's been asked in different ways before, but maybe I'll attack from a different angle. The July acceleration, any categories that you guys want to call out as showing sort of the most strength? And then just remind us, maybe Jesse, if you could, the cadence of comps from third quarter last year so we know sort of how much more difficult they get for the remainder of the quarter.

Yeah. So on the comp, I'll take that first um so as you recall last uh last year in the q2 earnings release we said july was up seven and we closed the quarter at plus four so it does indicate that comps get a little bit lighter uh for this back half of the quarter um and then q4 pops back up to 10 so they get a little bit tougher in q4 but again really pleased with not just that one-year growth but if you look at the two-year growth that increased sequentially in each month of q2 and further increased in in july so feeling good about the underlying momentum and i don't i don't think there's anything really specific to call out on any category um other than to say just continued momentum across both segments revolve and forward and uh domestic and international and i guess you know maybe the which is relevant to q2 as well we continue to see men's beauty home outpace the overall growth so again speaking to that category diversification that continues to play out nicely okay great to here.

And then maybe just one more. It sounds like the own brand expansion is going really well, just given some of the commentary that you gave. But I guess it doesn't seem like it's coming through in the gross margin outlook. I guess, can you just speak to the factors at play there and why the gross margin outlook wouldn't be a little bit higher given the mix of own brands is improving for the remainder of the year?

Yeah, yeah. We feel great about the own brand progress. It is increasing year-over-year that penetration on the Revolve segment. That said, it's increasing at a very, call it modest rate. And I think we mentioned this in prior quarters too, where we wouldn't expect to see that rapid expansion that we saw back in 2018-19, but more like a one to two point expansion per year. With more opportunities, as we expand the categories under Revolve Los Angeles and some other things, but at this point, it's a more modest increase on own brands and then offsetting that of course is what we've talked about the slightly lower full price mix and some of those input costs um so kind of net net uh all reflected in the guidance but there's some offsets to that own brand penetration your next question comes from the line of j soul from ubs your line is now live great thanks so much um mike my question is for you just talking about ai um sounds like a lot of different initiatives are happening um how much of all

these different initiatives giving you better visibility into, you know, demand planning, inventory management, in terms of, can you look out now two quarters or three quarters longer than before just because you have better information and a better idea of where things are going and better intelligence? Maybe just gives a sense of how you just see your confidence in predicting and forecasting the business and taking, you know, making long-term investments given what you've done in AI. That's the first question. Thank you.

Yeah, so AI is certainly having a huge impact on our ability to properly optimize our inventory, you know, forecast what categories are going to do the best, analyze recent trends in the business. You know, at the same time, our focus was primarily on how do we leverage those things, right, to increase sales, increase demand. And, you know, we've been seeing some really nice results in the past four quarters, and certainly a meaningful portion of that, I think, is driven by a lot of these enhancements, both from a back end in terms of optimizing, you know, category mix and product mix and those sorts of things to meet demand of customers. And then on the front end is when customers visit, you know, to make sure we're putting the right products in front of people. And what's exciting to me is that it's so early on, right? And, you know, I think we have, you know, much cooler things, both already, you know, kind of in beta and test internally, and then certainly in the works as part of a longer term plans that can really help us optimize things. You know, that said, you know, as you look kind of from a kind of planning the forecast standpoint, you know, I think for us primarily the benefit of AI and technology to date has really been optimizing the mix on the marketing side, the inventory side, what to show to customers. And there's still going to be some level of uncertainty as far as, you know, consumer confidence and, you know, kind of how the winds shift in further out quarters. But, you know, we feel good about our ability to project those things.

And, you know, our target for this year was to achieve double digit plus growth.

And I'd say, you know, we're well on our path to achieving that forecast.

Got it. Maybe one other question. Can you talk about the token cost? As you've invested more in AI, have you been able to control token costs? How have you done that? Is it impacting SG&A? Any thoughts on that would be helpful. Thank you.

That's a big area of focus. At the same time, we're trying to strike the balance of not squashing innovation internally. You're right. Certainly part of, not a meaningful part, but not negligible either. Some of the increased SG&A is token costs. We have a number of internal optimization strategies that we both executed on and are continuing to execute on but at the same time we're trying to balance that with giving our employees some reasonable free reign to innovate uh you know even if it means we're not fully optimized because you know we think the value of that innovation uh is is going to pay off big in the long term and maybe mike if i can ask one more it's just you know with some of the um developments in these open source models that seem to be much lower cost.

I mean, is that an opportunity for the company? I mean, how do you think about open source versus maybe closed source models?

100%. We're already leveraging open source models in a very significant way. And so we already have optimizations in place that can route certain types of tasks and queries automatically to where we think it's going to still produce the result we need, but with the cheaper open source model. So yeah, and I think long-term open sources in some of these lower cost models is is going to be a huge part of the mix it's already a huge part of our mix but at the same time you know kind of on the sort of foregrounds of innovation i know a lot of times our employees like to use the latest and greatest and so you know we give them some leash to do that even if it isn't fully optimized just because again i want to strike that balance between giving them some free reign while controlling costs but 100 like equally important to the ai innovation is parallel cost efforts and optimization efforts constantly analyzing, okay, what work was done on the frontier models that we can move to a cheaper model or an open source model. And, you know, the difference between the frontier models and the open source is that gap is diminishing day by day. So, you know, we feel very good about our efforts there and long-term our abilities to optimize cost versus benefit.

Got it. Super interesting. Thank you so much.

Your next question comes from the line of Oliver Chen from PD Cowan. Your line is live.

Hi, thank you. The active customer growth and top line has been impressive. How do you see where you are relative to past longer term algorithms? You clearly have a lot of investments as well that you're making on the OPEX side that seem really prudent for where you're going, but how might we contrast this and how you're thinking about the algorithm top and bottom line relative to years past and the snapshot we're seeing now. And then on that topic of AI, Mike, reinforcement learning and how that intersects with personalization, is that on your mind as a material driver? And then specifically, as you continue to think about physical, how can you do the rapid A-B testing and the inventory management and the personalization engines that you run physically? What's on your mind for scaling that? Because I think it can be harder to do stuff that you do digitally so quickly within seconds in a physical environment. Thank you.

Yeah, 100%. So just to continue the AI thread, I'll start on the AI question with regards to the impact of AI on personalization and just bringing the right product to customers at the right time. You know, I think the impact there has potentially be absolutely huge. I think we're very early on. You know, I think we have great personalization capabilities compared to others. I think we're just scratching the surface on what we can do with that, particularly from the standpoint of AI contributions. But at the same time, you know, you know, I don't necessarily want to say every week, but it seems like every week, you know, at least every month, you know, the team comes to me with something new and innovative and interesting. And we have some really nice things in the works, you know, AI driven further enhancements to our search. And I know search doesn't sound sexy, but, you know, it's really the building block of how do you get customers the product that they want, you know, at kind of the right time, what they're looking for that are even better than the enhancements that we've already made. And then I think actually we can roll out a nice way to the buying side. We can use that same building block to optimize the inventory of further, you know, ability of AI to really dissect and diagnose products and understand, you know, how to categorize things and the difference between one product and another and what consumers are really gravitating towards. So, opportunity for that is absolutely huge. With regards to physical stores, you're right. It's a different beast for us. And, you know, for us, there's a learning curve on some of those elements, you know, including, you know, us, you know, I don't want to say discovering because it's common sense. but like you know on the site you can change an algorithm or swap out inventory instantly kind of no cost in terms of what you're showing to a customer but obviously with physical you have to be much more deliberate at the same time what i'm really excited about is our continued uh you know uh kind of growing abilities on the physical side with regards to just you know kind of all of the you know kind of historical learnings and infrastructure and team and you know basics that maybe some other stores uh you know already have in place but then really leveraging in the kind a innovation that you know i think only revolver you know i mean certainly very few can bring to the table including some of the ai innovations to analyze the video feeds and give us real-time metrics on what's going on in the store and and diagnoses and recommendations and all that so i think it's quite exciting the direction that we're going and as michael said you know we want to make sure we get it right before moving too fast but it's it's quite exciting for us and then finally you know with regards to the active customer and top line growth yeah we're really pleased. And, you know, I think it's a combination of things. I think from a, you know, sort of trajectory change, you know, you know, we're still in the early innings on some of these big growth initiatives, physical and grow good. And, you know, certainly they're contributing some growth, but I wouldn't say at this point, that's, you know, kind of the large part of the growth acceleration you're seeing is from those initiatives, but, you know, they're already starting to contribute a bit. And then I think, you know, the rest of it is a lot of the core things, right, that we've been doing in terms of how we've been executing and us getting better and better and how we execute the core business. And I think you're really seeing that in some of the acceleration of the numbers.

Is low double digit the new normal for active customer growth? And when you think about cohorts and demographics, is that changing as you continue to scale or is it holding? And then should OPEX grow faster than, should profits grow slower or faster than sales? in acknowledging that you're making investments that are creative, but over a certain time horizon.

Yeah, I don't want to necessarily say that load doubles is the new norm for active customers. Maybe what I would say is that net sales growth and active customer growth gets closer together and align closer than they have in the past, especially given all the wild comps we've had over the last five years. So kind of looking ahead, net sales growth in the double digit, active customer growth in the double digit. variable costs are largely variable. Some leverage on marketing as we exit this investment year. And then G&A is where you see the real leverage as we comp the growth initiatives. And if we're growing top line double digit and G&A mid single digits. And then the other big piece, the big driver there is gross margin. If you back out the tariff refunds year to date, we're at 53.8. And our target is to be at 55. So you get a solid point or more out of gross margin.

And then the leverage on gna gets you up to that um that profit growth that we'd expect to see in 2027 and beyond thanks very much best regards your final question comes from the line of simeon siegel from guggenheim your line is live hi this is john elias on for simeon siegel thanks for taking our questions um you noted lower full price sales mix this quarter uh just curious are there any product categories you would call out there and then it's great to see the buyback activity in 2q how should we think about capital allocation for the rest of the year yeah on the full price mix it is a little bit lower uh year

over year we had a really phenomenal full price mix last year so it has come down off of that but still starts with an a still very healthy and that's been increasing at a at a good rate over time so we feel good about that mix on capital allocation we feel really good about our position and that we're able to not only buy back shares but invest in these growth initiatives at the same time and pursue opportunistic m a so it's a really great place to be um no comment on the balance of the year in terms of you know m a or buyback but um there is continued growth investments in the back half of the year that's reflected in our guidance thank you very much Have a good one.

That concludes our question and answer session. I will now turn the call back over to management for closing remarks.

Thank you for joining us once again. We're very proud of another quarter, and particularly the healthy top line, and exiting with an even healthier top line. While we have many investments that we've discussed, many of them are not contributing in meaningful ways yet. So we're very excited for the results in future quarters and years ahead. Thanks, guys.

This concludes today's conference call. You may now disconnect.