Good afternoon, everyone. For those who haven't met yet, I'm Michael Binetti, the soft lines analyst here at Evercore. Today, I'm joined by the Revolve.com crew: Michael Mente, co-CEO and founder of the business, as well as CFO Jesse Timmermans, and then Erik on the investor relations side. To frame the story here, we've been watching the Revolve story since the IPO in 2019. It's a digitally native, high-fashion retailer. They've been an absolute trailblazer and have taught us a lot about leveraging the power of social media and influencers in its marketing program. The business is now over 20 years old and has grown to over $1 billion in annual revenue, serving 2.5 million active customers in the last year. They spend about $300 per order with the firm, so an enviable market position in the fashion online space indeed.
With that in mind, let's turn it over to the crew. We'll have a mix of questions between finance and then some of the strategic business questions for the team here. Just, I guess, to get us oriented here, first quarter debrief. First quarter, the sales were relatively in line with what the Street was expecting, but you had a really big beat on profitability, really nice gross margins. Maybe just walk us through some of the lines that led to such a profitable quarter. It seems like that was what was changing the fastest in the business in the first quarter.
Yeah, great. And thanks for having us, Michael. Good to be here. Yeah, so maybe starting from the top, you mentioned sales. We did communicate in our Q4 call that the first eight weeks of the quarter was down mid-single digits. We did close the quarter at -3, so that shows the improvement through the quarter. And we actually closed the quarter with March in positive territory. And if you continue that into Q2, April was positive in the low single digits. So we did see some good momentum coming out of the quarter. That said, consumer is still a challenge, so we're not out of the woods yet. If you look at the profitability, the big one is gross margin. So we saw a 250 basis point increase year-over-year in gross margin and a nice beat on our guidance.
That was primarily from the Revolve segment and within the Revolve segment, primarily from full price sales. All the great work that the team did in 2023 to really right-size that Revolve inventory led to a really high full price sell-through. And with a gross margin that was higher than our Q1 of 2019 gross margin, where owned brands, which you know carries a much higher gross margin, was half the mix today than it was back then. So really solid progress on the underlying core gross margin, third-party higher, owned brand higher, full price mix higher, despite that significant decrease in the owned brand mix. So feel really good about that Revolve margin. FWRD, we still have work to do. So FWRD was lower. That's kind of behind in terms of right-sizing that inventory.
So more work to do there, but getting closer in that kind of tipping point to get FWRD gross margin back into the 40s. So that was the big one, was gross margin. And then if you work down the P&L, the second largest was selling and distribution, where we saw a 50 basis point year-over-year decline, the first year-over-year decline in terms of percentage of net sales that we've seen in three years. Again, a lot of great work done by the team last year to really bring that back in line through freight negotiations, optimizing carrier paths, last-mile carriers, and just really optimizing that line item. More work to do there, and we see some more opportunity, especially on the return rate, but good to see that early reduction year-over-year despite a higher return rate.
Gotcha. And maybe if we could just double-click on something you mentioned on the drivers of what turned positive March and April. Was it traffic-driven, AOV, orders per customer, U.S. versus internationally? Just give us a sense of where we're seeing a little bit of relief.
Yeah, it really goes back to this segment. So Revolve outperforming FWRD. That said, FWRD did have a much tougher comp than Revolve, so there is also a comp element there. Last year, we started out the year with a +15 overall, and then the comps got easier as we progressed through the quarter. So some of it is comp, and then some of it is just getting that Revolve segment back to that solid full price.
Got it. And then on the, I guess, on full price selling, since you mentioned it, let's talk about the full price selling level. Where are we today? Compare us, maybe anchor us to pre-COVID and then much more forward-looking. What's the opportunity from here to take it higher?
Yeah, no, we feel really good about the full price sell-through. Pre-COVID, it was 79% in 2019. We closed last year at 79% despite higher markdowns in the first part of 2023. So we think over time we can be better than the pre-COVID era of 79% and getting it into the 80s. And why is that? Over the last few years, we've really doubled down on that data-driven merchandising, broad yet shallow, broad assortment and shallow depth. So ordering a few units initially and then doubling down on the reorders. Reorders comprise about 2/3 of the inventory buys. So with the breadth of assortment and the shallow depth, we have more data points to read to really dial in those reorders. And then more opportunity on FWRD as we get scale and leverage with vendors.
Has there been a change in the underlying responsiveness of the supply chain to be able to do some of that quick turn reorder? Is that much different in your business than it was pre-COVID?
Not necessarily now versus pre-COVID, but definitely an improvement from the supply chain backups we saw, of course, in the COVID era and then the rebound coming out of it.
Gotcha. Let me jump around a little bit. I think the product return rates has been something that's been a bit of a focus. I think you've been looking at a very well-known and generous returns process for your customers, maybe doing some things to bring that very high rate down. Can you tell us maybe what you're testing? How's the consumer response been to some of the tighter allowances?
Yeah, it's way, way early in the journey there. I think one thing that we are extremely, extremely mindful is that we've had an elevated return rate compared to competition or compared to kind of the market as a whole, given our premium price point, given our generous kind of operational policies, and most notably because of our merchandise effects, particularly the high full price rate, which we just talked about, as well as the concentration in dresses. So we've been saying this for a bit, and we've seen that many, many years ago, talking to the adjacent peers, that it's very easy to reduce return rate to have short-term gains, but also there is very, very high risk for long-term damage.
We've seen companies cut return rates, see amazing short-term results, able to show this, but also ultimately measure it several years out and realize, "Oh, wow, retention rates really, really got to hurt." Short-term excitement, long-term pain. So that's something we're extremely, extremely mindful. So that's kind of the guiding principle about ultimately how we approach the return rate process. There are so many short-term levers. We have to do it in a calculated way that doesn't hurt the customer experience and keeps her really in love with us, really coming back. So one thing that we did dramatically was reduce the return rate window from 60 days to 30 days. And this was something that we did. We increased in the middle of the COVID period where, of course, things like going to the post office and things like that were a little bit scary back then.
So that is something that we've been patient on and that we just recently dialed back. So we'll see the results in the upcoming quarters or so. No initial read just yet, but it is done in a way where we can see exactly what that does. But there are literal dozens of other initiatives going on right now all across the board. We're doing them in very, very tested ways where we can really see with that. Despite dozens of things going on, we can see how this particular project affects the consumer, how this one over here affects the consumer. So it's very test and iterate, and we have to be very, very careful there. We've seen a lot of things on the positive side that on-site experience, things like fit knowledge, fit videos, kind of increased kind of information in terms of fabrications, things like that.
Not only are they seeing the upside of return rate, they also have the benefits of increased conversion rate. So there's a lot of energy and a lot of ramp-up there and a lot of small tests that seem great and first read, and then we'll ramp it up and we'll ramp it up more. So we're very excited about things that are cooking. There's a lot of things that are showing a lot of promise, but also things that are in the early stages of testing and such like that. So hopefully we'll see the worst days are behind us, and hopefully we'll see a lot of progress, but also we are very, very mindful of doing it in a very smart, disciplined way, knowing that long-term wise, we have to do this and get this perfect.
I'd say, Michael, you guys were the first ones to mention AI in a meeting long before I'd ever heard about ChatGPT. You guys were talking about it, thinking about it. Is there any technology? I know a lot of your technology is built in-house, but when you marry that with some of the technology coming down, is there a way to marry some of the new learnings from AI into that process to help accelerate your improvements on returns or any of the other back-end processes that you think are something coming down that's a big advantage for you in the way you do your business?
Yeah, the returns one is kind of a fun holy grail one that, so there's a lot of activity there, but everything that we're seeing thus far is maybe a little bit early. I think that as far as, of course, that together would be absolutely incredible, and we're very testing and experimental in that zone. But we see that there are a lot of things a little bit kind of like near on the horizon that we think are a little bit more tangible. Kind of a lot of the first things that we've done in AI were, I guess, it was even AI wasn't even the word, but that was more like machine learning. It was like using this type of technology to reduce fraud rates. I think that was one of the earliest things that we've done.
That might have been maybe 20, don't hold me to this. This is about usually my partner's zone, but maybe 2018, maybe 2017, where it was like machine learning kind of optimization. And that is really just like pure fraud prevention, pure profit driving. And it was also not the type of thing to brag home about, but that was like internal, us nerds were like very excited. And of course, us finance people are very excited as well because that's clear money there. But as we go, there's a ton of other areas where AI can drive value in the business. We're seeing a lot of progress on the front-end facing consumer experience. Things like sorts, getting the right, ultimately having this awesome, awesome, call it 80,000-style merchandising kind of like catalog is incredible, but also ultimately finding that right product is absolutely important.
Part of the journey is exploring and seeing all that, but sometimes also that help is there. So we're seeing the first generation of sorts ultimately helping find each customer their own specific aspects and curated kind of feeds and things of what they're searching for. There is the other area where search is seeing a lot of improvements. This one we're super proud of where our internal team is developing our own AI search algorithms. We're really going against Google Retail. They're offering that we outsource to them, and we are beating them quite excitingly. We are continuing to get better. We're going technology for technology against the search giant who is obviously the best in the business that we're seeing. The internal team drive better results. That's very, very encouraging, and things are going well there.
We see that things like chatbots for multiple purposes. I think it's going to be again like phases. We think that we're experimenting with chatbots in the zones of customer service and customer experience, kind of like where's my item?, what's the return policy?, things like that in the early zone. But ultimately, long-term, the excitement aspect would be chatbots evolving to really styling agents. We're a little bit a while from that, but we think that ultimately this is where the world will be going where you'll have that real engagement when you go to a store and you have a person who sees you, understands your style, who really understands fashion, really understands merchandise, and helps you find the right product.
I think that that's further away, but I think that long-term wise, this is the type of the ways that we think the AI will interact with our business.
Interesting.
Actually, another thing that's interesting too, sorry, just to rewind, I totally missed it, but it's also something that's super active also, is that on the generative AI side, this is a fun one because it passed the literal Turing test and that we currently use generative AI to produce homepage imagery, editorial imagery. And it's also the type of thing where even internally, our internal teams don't even know whether what's a photo shoot that we put together as well as what's kind of generative AI. It's at the scale where we can do it. We know that it works, but also from a skill set perspective and from a cost perspective, it's not dramatically different from a traditional photo shoot, but it also is the use case and proves that it, yeah, this is where things are going.
We can imagine we could see the path to a future where every consumer can come to the homepage and really have editorial imagery that's geared towards kind of their shopping needs and things like that. So very, very fun times for AI technology meets fashion, which is ultimately how Mike and I ended up in this space.
Interesting. Let's talk about owned brands. You've got a big owned brands business. You made a lot of changes to business. Remind us where owned brands is the percent of the mix today and maybe a realistic target.
Yeah, owned brands is about 20% of the mix today. I think this is a healthy part of the business. owned brands penetration, what percent of sales come from owned brands is a metric that we used, call it pre-IPO. This was kind of like an early way to phrase the business. But internally, that's not the biggest of the goal. I think ultimately what we kind of view it as profitability per style and the profitability of the business, where I think that when we're looking at penetration, we can achieve penetration, but in not the most healthy ways. Ultimately, we think that it's best to really think about the profitability of the division.
So those internal metrics on a, call it a percent- by- percent basis, I think the 20% that we have now are much more profitable than the 20% we've had in times past. Things like that. With owned brands, we have to produce directionally 100 units per style. If we're buying from a third party, we can modulate that from literally like 6-8 units to 100 units and beyond. Of course, it's easier to produce 100 units for owned brands. But ultimately, the full price depth of each unit has been climbing and climbing. We're feeling really, really healthy about that. The new owned brands, the two most kind of fresh brands that we have, Helsa as well as putting Marianna Hewitt in charge of L'Academie as Creative Director, which is also the first real creative director of an internal brand that we've done.
It's kind of like an evolution of our strategy. These brands are going incredibly, incredibly well. So we feel that the strategy has evolved and it's on a pound-for-pound basis, extremely, extremely healthy. Penetration will continue to come with time as we go into different categories and such like that. Historically, our owned brands have really been focused on kind of like some of the core, the big obvious zones, things like dresses and going out clothes. But as we nurture and start to focus on other aspects of the business, call it denim, call it kind of wardrobe essentials and basics, call it athleisure, call it a little bit more diversified, I think that's where we'll see continued profitability per unit as well as expansion of penetration.
I guess backing up then and connecting that, you pointed out on the last call, the gross margins at the Revolve banner are 200 basis points above 2019 with half of the owned brands mix, owned brands that carry a higher gross margin. Maybe just walk us through, are there big pockets of the third-party brands mix that are much higher today? Where are the owned brand margins versus history? Help us understand what's helping the Revolve banner right now so much relative to that anchor point pre-COVID.
Yeah, it's really.
Yeah, yeah, yeah, it's both. Kind of tagging on to Michael's comments, the owned brand business and the per style metrics are much healthier today than they were back in 2019. So there's a meaningful increase in the owned brand margin, again, despite the lower mix, but really healthy margin there. On the other side, third-party margins are also higher than they were back in 2019. So that's in combination of full price mix, which is stronger, but also continued with scale with brand power, continued leverage with the vendors, and then kind of the fallout of some of the competitors also helps. So a combination of both sides.
Got it. Talk about influencers. I know it's a topic close to your hearts here. Can you talk to me about the market for influencers today, how you've seen it evolve? I said at the beginning, but you guys taught me a lot of what I knew about, what I do know today about influencers going back five years to the IPO. Is it getting more competitive? And what's your advantage in the marketplace today? And maybe whether it's as efficient as it used to be.
Yeah, the space has continued to evolve. I think that it's like being really very, very active in really the inception of the field, really being pioneers in that space, and then staying very, very focused and very, very invested throughout the many years. I think we've been able to develop the nuanced kind of evolution and strategies and the multi-prong approach to ultimately leverage things to the maximum. I would say it's fair to say that things are more competitive. There was definitely this golden age where it was very, very easy. Influencers were super exciting. People working for free. Everything works well and everything converts well. It was just wide open space. And of course, this was 6, 8 years ago or such like that. But the spaces evolved and ultimately our strategies evolved.
Really, maybe outside looking, it might be a little bit more new, maybe a little bit not super obvious that things are dramatically different, but within the four walls here, things are dramatically different. There's this really multi-prong approach from working with literally the biggest influencers to the world to being able to work with micro, micro influencers with, call it 20,000 followers. We have different strategies to approach both. We also have the efficiency and the organizational structure and the technological systems to really scale to work with thousands, if not tens of thousands. Instagram Stories is a different strategy than Instagram posts. Obviously, TikTok is a completely different zone. Beauty, across all of those channels, is different. There's different ways we approach through everything. There's different influencers to work with every single different category and such like that.
Of course, in terms of whether from dresses to cold weather to denim to all that aspect of things, there's nuances there. Also, there's huge nuances and obvious ones with geographies and such like that. So there's just multiple layers and layers and layers to kind of nurture and work things. But it has evolved, but also we've been able to really evolve and stay ahead of things. I think probably the most recent example I can think of that we're very proud of is the Revolve Festival. Very, very influencer-centric. And this year, we spent millions of dollars as compared to previous years. And we were able to drive more influencer social media impressions than last year while also spending millions of dollars less and also nearly twice as many press impressions, which also is a reflection of the general buzz of the event.
So this is really kind of like the perfect case study of how it looks like us doing this for potentially, I think, I believe it's the seventh time, but also internal metrics are like, wow, this was the best ever, and we spent significantly less. There's no doubt the competition during that time is heavier than ever, but also the results are crystal clear that we're doing the best ever. So really proud of the team. The additional savings there, we will reinvest into other zones. I think that it really gives us the opportunity to really experiment with fresh new things where our core, core activations and kind of like the go-to kind of weapons that we have are working better than ever. It really gives us the opportunity to evolve and experiment with what we do.
There'll be a lot of exciting things coming in the future. The other probably the last thing I'll probably say, which is helpful, is that influencer marketing as a whole in times past was a little bit broader where we do awesome things and this is cool, we'll Revolve. I think we really got really refined in how we work with influencers and we're able to send with that multi-prong, the layered expertise, really sharper messages. This first quarter, we did a lot of influencer-associated brand marketing energy in Aspen. This was if you're not local or you're never going to Aspen, it feels like Revolve, it feels like winter, it feels like us doing cool things with cool people and cool times of the year. Also there's this huge layer of it that was pointed towards this Aspen store and really building equity there.
So the people who are in Aspen, the people who have homes in Aspen, the people who will visit Aspen will be aware of the store. So there's also not only this big Revolve halo that's created, but also there's this Aspen equity that will also drive the value of the store that we have, which is going extremely, extremely well. So there's just able to stack kind of broad awareness with kind of sharp messaging. And I think that, I guess, long story short, it is competitive, but also we're probably better than ever and feeling as strong as ever in the space.
Let me double-click right into that. Physical retail is the next question I wanted to ask you. The Aspen store has been a big hit. Sounds like it's going to be here to stay for a little longer. It was certainly unexpected, created a buzz to see a brand we associate with seeing huge Instagram campaigns around beach parties and things like that. Here we are in a mountain town. Very, very cut through a lot. I think I can tell you're happy with it. Not just as a commercial center. You sounded very happy with the awareness building, the marketing aspects of the physical asset. What does this tell you to do next in the real world?
No, it was super, super exciting. It was very calculated and intentional. The overwhelming results are always a nice positive surprise, but it really shows that, wow, we can leverage our incredible brand building and point it to the physical world and not just in a moment in time, but in ways that could be very, very enduring. So we're super, super excited about the long-term potential of physical retail. Just the raw numbers, just the raw numbers of Aspen alone with no store would have been incredible because you would have seen awesome people coming through, great brand messaging, super, super elevated, a fresh take where it's Revolve in the snow. You might get that exciting, fun moment where it's like, "Oh, crazy Revolve girls swim in the snow," but it's attention getting and fun. It's like that good positive energy.
But it really gives us the confidence to pursue physical retail with a lot more seriousness. So we'll be, we are exploring opportunities. It's not the situation where it's like, "Okay, here's the roadmap. We're going to open 50 stores in three years and just do this mad rush." But it is the, "Let's take this seriously and focus and learn how to do this in a really smart way. Let's experiment with some strong location and ultimately further evolve our thesis and further validate that." So we will be pursuing that. And I think it's also exciting that it could be leveraged all the core what we're doing without distracting us, but really enhancing the story in exciting ways. And it's awesome. The numbers are awesome. It's clearly more profitable thus far. I'm feeling great about that.
It's probably the other aspect that's most exciting is that new customer acquisition was incredible. We figured that because it's Aspen, because it's kind of a smaller community that we would have our customers there, but there were so many new customers there. 50% of the people making purchases were new customers, especially in a day and age where the Googles and the Facebooks of the world are a little bit more maturity, a little bit more mature, squeezing a little bit more value from the customer base. We do get that little bit of pain when we see that the Googles are paying dividends. They really say we see that it was paying dividends while also sharing less information with us these days than ever before.
But if we're able to really do this, we think we can ultimately acquire new customers at highly, highly effective rates while driving profitable stores. This is a potential kind of trifecta of perfection here that it could really drive huge, huge growth, especially when we have a wide open playing field and global awareness that there's a long journey ahead of us. Again, no rush to force anything. We will definitely, but also intensity and focus to really execute well. And as we further validate the global brand, I think that if we continue to do what I think we can do, I think there's a potential for, as we all know, physical retail is, call it, depending on what we're looking at, call it 2/3 to 70% of the market and us being purely online.
You can do the math and see how if you do an incredible job and execute well, this could be literally billions of dollars for us. Super excited there.
All right. Well, we'll be watching closely. So let me ask you about aspirational customers. It's been a big conversation over the last year. That's a customer that shops more with you on handbags, shoes, some of those categories. You mentioned those as seeing some sluggish trends early in the year. Any light of day with that consumer? Roll us forward a little bit with that layer of consumers, I suppose.
We're still seeing that hangover there. And I think the aspirational categories, right? I know the aspirational categories are still the ones that we're struggling most. I think the most obvious and the crystal clear aspirational purchase was that luxury handbag or that other luxury handbag on top of the other one that you bought during that money falling from the sky period. So those categories still have that hangover for us. We're still seeing handbags on a growth basis, kind of one of the most challenged categories. If we were to choose a category that'd be slower or we might be a little bit over inventory, at least we feel on the handbag zone, the inventory doesn't age as well. The inventory doesn't degrade as well. It holds value quite well. So that's of all categories, we feel good about that. But of course, we're seeing negative trends there.
That's still crystal, crystal clear there. I think as that aspirational consumer kind of has gone away or things, the cyclicality takes its course. I think the one other aspect that we're seeing kind of as we enter prime summer is that we are also, despite the consumer potentially being a little bit better, I think the worst is behind us in ways. Fingers crossed. We see the most recent inflation numbers are feeling better. So things are decent. But the one thing I still think that is there is that travel still kind of trumps physical purchases. And I still think that experience is still trump goods after that kind of period. It is crazy to think that it has been a multi-year period, but the pendulum is still on the services side. We've checked recently and TSA checkpoint numbers is higher than last year.
Last year was higher than previous. So literally travel, American travel is at an all-time high. I'm sure everyone in the audience, I'm sure most of you are traveling this summer. I'm sure you're looking at hotel rates and flights and saying, "Dang, this is still as elevated, if not more elevated than it's ever been." So I think that if the consumer was feeling great, she would be able to spend on travel and get new outfits because that's how it used to be for many years to come or many years in times past. And I think that this is still kind of cycling through that kind of in-your-house-to-revenge travel period. I still think that we're on the other end of the spectrum. And I think looking forward to the days where things are a little bit more normalized, but that's still something that we see this summer.
I guess just to click one click deeper on that, if we think about that impact in the U.S., is there an overconcentration of that type of customer in the US that you have to work through? And is that pressure on that customer's growth, is that from them not shopping or are they still shopping but looking for lower AOVs? There are different categories that have lower AOVs. Any second-level metrics that we could think about with that customer?
I think it's kind of just noticeable all across the board. There's nothing like stand out like, "Oh, all of a sudden she's shopping less here. All of a sudden this and that." Everything, when these macro situations are happening, we see just takedowns in everything a little bit and kind of death by a thousand cuts where her frequency of purchase ticks down a little bit. In some parts of the zone, you see a little bit of AOV tick down, but also honestly, the AOVs are still pretty healthy. But it's kind of like all mixed bag there, but nothing glaring, glaringly obvious. We don't see it from a category mix other than handbags particularly being down across the board, a little percentage here, a little bit there, but nothing too dramatic.
The one interesting thing is that the U.S. economy is strong and we're seeing good international growth. The U.S. dollar is still extremely, extremely strong. The one thing that the team is doing is that I think it's actually a strength, internal strength in the international part of the business. We're seeing that as we continue to make investments and logistics and experience that even in challenged economies, everything outside of China, we're seeing surprisingly healthier business. We're seeing that as we make investments, that those businesses continue to grow. In Australia and U.K., not necessarily particularly Australia, definitely not booming economies and such, we're seeing as we improve service levels, as we reduce costs, we're able to improve service levels. Through upgraded kind of infrastructure relationships and processes, we're able to reduce thresholds for free shipping.
And every time we do that, we see increased growth, more customer acquisition and such like that. So the team, despite the global economy not being quite what it is, we're seeing the American consumer being one of the most vibrant. We're seeing growth internationally because the team continues to make investments and make investments and make investments. So that's really, I think that's actually what makes the U.S. business feel not quite as strong. This is because there's still a lot of fundamental effort on the international side of the business that continues to highlight strength.
Interesting. Jesse, let me bring you back in here. Selling and distribution, you're clearly happy about that, showing leverage for the first time in three years. Good proof points of the work you're doing there. Last quarter, that's a cost line still well above 2019, I think 300 basis points roughly unfavorable. I think that a lot of tied to the returns. Returns are well above 2019 as well. If you had pre-COVID returns rates, I'm trying to understand where the inflation is in that line. If you had pre-COVID returns rates, would selling and distribution be as unfavorable to 2019? Or are there other inflationary lines there we should watch as we model it forward?
Yeah, returns is the majority, but there are other aspects there. So if we start with returns on that selling and distribution line item, shipping and freight is two-thirds of that line item, 55%-60% of that line item. So it's a big piece of that. We've communicated in the past that for every, call it 1 point of return rate increase or decrease, there's a 30-50 basis point impact to the cost structure combined selling and distribution and fulfillment. So if you look at a return rate that's increased, call it roughly 6 points from 2019 to today, you can get to about two-thirds of the selling and distribution increase as a percentage of net sales is due to returns. Now, that's a piece that we are working on as we've talked about.
But there's also some fundamental increases and just structural increases in return rate that are actually positive. Going back to what Michael said on the international experience, over the last 5 years, we've optimized the international customer experience to make more regions free shipping, free returns. So if you look at Canada, one of the larger, more recent ones, when we launched that, net sales was up triple digits for several quarters post-launch. So it's a negative on the return rate line item, but positive overall given the net sales incrementality. Now, the other one-third that's not due to return rate, there's a few things there. Freight is higher than it was in 2019. Part of that's fuel. Part of that is just inflation. Credit cards is also in the selling and distribution line item. That has increased tens of basis points from 2019 to today.
There are some just structural inflationary pressures that comprise that increase as well. There is opportunity. We're excited about the early 50 basis point year-over-year decline there. Still work to do and still more opportunity.
Gotcha. And then I'll make this one more of a jump ball on marketing expense. I know you guys both work closely on that. You guys made it through some changes very nicely a few years ago. There's some changes to iOS. You've been very clear about, clever about pivoting marketing to meet the consumer where they're at. You did pare back on some events. You mentioned Revolve Fest, but you've added some events like New York Fashion Week. Can you just talk about, I think Mikey might have teased us with a comment that there'll be some wow events maybe later this year or next year? Where do you see the marketing strategy evolving to next?
Yeah, I think that as we've been able to get a lot more efficient with things that we've done in times past, it really gives us a lot of freedom there. So we will continue to do a lot of the same things that we've done, same kind of tactically, but fresh and different, different locations, different focus and such like that. So that will continue while we're kind of in the lab kind of exploring different things. So I think that, I think especially as we look into 2025, I think there's going to be a lot of freshness, a lot of things that we haven't done. I think new things are always exciting, but also new things always have risk and also new things take a little bit more time to develop and such like that.
So we'll be able to really do the things that we've done and we're most known for while also investing and experimenting in kind of fresh kind of innovations. So I think it's a very fun time for us where it's like building and kind of stacking kind of like a marketing kind of approach in the marketing playbook and getting to a new zone, I think for me is some of the most fun and also when successful, the most fruitful as well.
Okay. Let me ask you one last one because we're almost up on time. Some of the fun growth categories last quarter, you called out beauty again, men's and home as outperformers. How large are those businesses today? Where do you think they can go? Which ones do you see as the biggest opportunity investors should focus on in the near term?
No, I think as a group, we think that we're still well on track to hit $100 million collectively in this coming calendar year, fiscal year, same same. I think that beauty is the most ahead. It's the category that we think will put up the biggest numbers sooner, but also long-term wise, we think that if you zoom out, call it say 3+ years, men's could be very, very large as well. Long-term, home could be a very sizable chunk of the business, but I think it's a lot more longer term. And I think that as that business continues to grow, the percentage of the comparison in relation to the overall business won't quite be as big as beauty and home, sorry, beauty and men's, but also could still be very, very sizable as the business grows.
Excited there, trying to move on all fronts, but beauty is probably the furthest ahead there.
Beauty. Okay, great. Well, let's leave it there on a positive note with the growth categories. I know we got to get you guys to your next one. I'm going to say thank you for everybody joining us here today. Thank you to the Revolve Group for all the useful insights. Very helpful. Good to get caught up with you guys.
Thanks, Michael. We'll talk to you soon.
Bye.