All right. Well, welcome, everyone. My name is Anna Andreeva, and I cover footwear, stock lines, and global brands here for Piper. Welcome to the conference. Next up, we're very excited to have the management team from Revolve. We have the CFO, Jesse Timmermans, as well as Erik Randerson, IR, who's in the audience. So welcome, Jesse.
Thank you. Thanks for having us. Good to be here.
Terrific. Terrific. So I figured, a lot of debate about the consumer nowadays, as we know. Taking you back to the beginning of August, you reported a very solid second quarter. Talked about July trend accelerating. Mid-single digits is what you called out. Can you talk about what you were seeing in the business? Any additional KPIs that you can share? And just, we've been talking about this aspirational consumer malaise, really for some time now. What are you seeing in terms of her demand?
Yeah, yeah. No, we were very pleased with the second quarter results. Definitely not where we want to be longer term, but good to see that inflection back to positive year on year growth in the second quarter at 3%. But also, just as important or more importantly, that acceleration you mentioned into July, we had plus mid-single digits. What we saw in July was similar to Q2, where we saw Revolve outpacing the FWRD business and international outpacing the domestic business.
Mm-hmm.
And I think that point on FWRD is kind of echoes what you mentioned on the aspirational customer, where we do see that aspirational customer still challenged. It's still very unstable there, a lot of macroeconomic pressures-
Mm-hmm.
Saving rates are lower, credit card debt is higher. So I think, you know, great execution by the team led to that positive inflection, but still a challenging environment out there for that aspirational consumer. I think still in some of that post-COVID hangover, where-
Mm-hmm
... she bought up, at a time when she had savings and stimulus, and she doesn't need to replenish as often, especially in that aspirational luxury side of the business.
I think your monthly comparisons as we think about the August as well as September are roughly comparable. Can you talk about last year, just taking it back to that, and any opportunities that you feel were missed in the business that you can take advantage of now?
Yeah, yeah. No, to your point, it is relatively consistent across the quarter.
Mm-hmm
... through from August to September. I think opportunities different this year from last year is that last year, number one initiative was to right-size the inventory balance. So we're more in an inventory correction position-
Mm-hmm
... versus this year being more offensive on inventory. So we think there is opportunity there, and that's probably the biggest difference. And then, maybe I forgot to mention on your first point, the other KPI that we're really excited about is price sales-
Mm-hmm
... and the full price customer acquisition. So full price sales and full price new customers outpaced the overall. So that's one of our leading indicators for kind of health of the business. So it's good to see that come back after the markdown-
Mm-hmm
... pressure that we experienced last year.
So I hate to ask a CFO-
Mm
... a question about fashion trends, but, you know, I will from a bigger-
Yeah
... picture standpoint. Revolve provides, you know, very nice disclosure about your category performance and your two biggest categories, which is fashion apparel and dresses, really inflected nicely, this past quarter, I think for the first time in over a year. Can you just simplistically bridge, you know, for us, fashion trends this year versus, you know, a couple of years ago or last year? Are they more beneficial to your business at both brands, and I know you've talked about diversifying the mix and becoming more of that casual destination for her and him-
Yeah
... outside of just the dressing that the brand is usually known for. Can you talk about how you view some of those opportunities?
Yeah, yeah. Yeah, definitely not the fashion guy.
It's okay.
I'll do my best here. But, you know, I think beneficial this year, again, versus last year, being in the inventory offensive mode.
Mm-hmm
... versus more defensive last year. I think also just naturally, the data-driven nature of Revolve, we have and FWRD, we have 100,000 styles across over 1,000 different brands at any given point on the site. So we're constantly reading new trends, new fashion, what's clicking. We have
Mm
... up to sixty data points on every piece of clothing. So even the new buys are influenced by existing performance of product. So it's a constant iteration on what's working.
Mm.
Merchandising is also important. The product is important, but the merchandising of that product is important, and we've made some really great improvements and continue to get better and better on the merchandising and personalization for that customer. From a trend perspective, to your point, dresses being positive-
Mm-hmm
... fashion apparel being positive, dresses has been pressured for the past year. So to see that inflect back to positive growth is really encouraging and says that she is now-
Mm
... apparently going out more, kind of replenishing her closet with that dress. So really excited to see that flip. There was a really good, I don't know if it's today or yesterday, but a really good article in WWD from Divya Mathur.
Mm-hmm
... our new Chief Merchandising Officer, and she talked-
Mm
... about a lot of the trends that she's seeing in the business, all which really favor Revolve and FWRD.
Okay. All right, terrific. And another one just from a supply consolidation standpoint. A lot of good things have been happening competitively, and Revolve talked about this on the last call from the Matches, as well as Farfetch, you know, undergoing some business model changes, and things happening with, of course, Saks, and Neiman's as well. Can you talk about how you guys try to capitalize on that opportunity? Because it seems like that would be not just in the luxury space with FWRD, but for Revolve consumer as well.
Yeah, absolutely. Yeah, we think we are a net beneficiary of all the turmoil that's happening-
Mm-hmm
... especially in the luxury sector right now. You mentioned Farfetch going through changes, Matches essentially closing their doors, which adds a lot of near-term pressure in that they are marking down more, there's more competition in the short term.
Mm-hmm.
But in the mid to longer term, Matches was doing, you know, nearly $500 million a year. So there's almost $500 million up for grabs from a consumer perspective. Also, opportunity from a talent perspective, and we're finding a lot of really great talent, especially on the FWRD side, and making the investments there. And our strong balance sheet allows us to do that and stay on the offensive, grab that talent, invest in technology. And then the third point is from a partner perspective, being a really good partner for our brands, the simple things like paying bills on time and really engaging with those brands, and being a good partner over time, which leads to better selection, better terms, and better partnerships.
Terrific. One more, on the revenue side of things. Own brands has always been a big differentiator, of the Revolve model, and that penetration, right, it's been coming down, and there are a lot of reasons for that. Seems like we're finding some trough. How do you think about growing that penetration again in, 2025 and beyond? And, remind us, what's the profitability delta, if you'd disclose that, gross margins, own versus, branded?
Yeah. Yeah, we're really excited about the own brand platform.
Mm-hmm.
It is lower penetration than it was in the past, but in a good way.
Yeah.
The underlying economics are much more favorable than they were-
Mm-hmm
... back in 2019 when we peaked. So we're really excited about that, and that's the number one, is to get those metrics where we want them to be, which we think they are. Next step is to increase the penetration over time, but at a nice, moderate pace to make sure those metrics stay in check. So we will increase it over time, but again, at a more moderate pace. So going from, you know, 20 and inching up over the coming years, not a specific percentage target in mind.
Mm-hmm.
We wanna make sure the assortment's right, the curation is right. And to your point, that is the key, is making sure that curation and assortment is right, and maintaining those underlying metrics because the profitability differential is meaningful. So those own brands carry a significantly higher gross margin-
Mm-hmm
... than a third-party brand. And not only that, we get all of the marketing benefits because they are our own brands, and in the eyes of the consumer, she doesn't know if it's a Revolve brand versus a third-party brand, so it comes with a lot of marketing and customer benefits as well.
What's driven the better economics now versus 2019, as you mentioned?
Yeah, a piece of it is quality. A piece of it is quality in terms of the assortment. Back in two thousand and nineteen, we were got over our skis in certain categories and price points. We were way over-penetrated, you know, close to 60%-
Mm-hmm
... in some of those categories and price points, which is too much.
Mm-hmm.
Which then adds pressure to the overall assortment, not just own brands, but third party as well. So being careful there, and also expanding into other categories outside of dresses, more kind of-
Mm-hmm
... essentials, office wear, kind of that everyday attire. Couple of really good recent successes with Helsa-
Mm-hmm
... which is a brand collaboration with Elsa Hosk, and then relaunching L'Academie with Marianna Hewitt, who's been a longtime brand ambassador. Both of those have a different aesthetic than that core dress that was historically the main driver.
Okay, all right. That's perfect. The lower returns, right, switching gears to that, that was a pretty big highlight from the two Q prints, and Revolve has talked about various initiatives, really for some time, and it's great to see that they're starting to resonate, and it sounds like you're not embedding much of an improvement in return rates as we go through the year because it's still early days. Out of the initiatives, can you discuss what's really moving the needle, and how do you think about the opportunities still ahead?
Yeah, we were really excited to see that return rate decrease year on year for the first time-
Mm-hmm
... in a long time. And just as important is that we saw a Q2 return rate essentially flat with Q1, and historically, we see Q2 return rate higher than that Q1 return rate due to mix and other factors. So good to see that check. That said, it came later in the second quarter-
Mm-hmm
... so we wanna just balance expectations, and that we are excited, but it came late. We wanna get a couple more quarters under our belt before we start baking that into the model, but it does have a significant impact. For every one point of return rate-
Mm-hmm
... decrease, we get 30-50 basis points of leverage on the cost structure between selling and distribution and fulfillment. And because it was so late in the second quarter, it's hard to parse out and attribute how much was due to each kind of initiative that we're working on. But-
Mm-hmm
... we're working on, call it a dozen-plus initiatives, specifically related to return rate, and if we bucket those into kind of maybe categories, one is, call it policy-type initiatives.
Mm-hmm.
So we did reduce the return rate period or the return period from 60 days to 30 days. Still, arguably industry-leading, a very beneficial return period for customers. So that's one. Cracking down on high return rate customers and then cracking down on wardrobing-
Mm-hmm
... where she's buying the dress, wearing it to the event, and then returning it. So those are kind of policy changes, all of which are working, but still early. And then there's experience changes, call it.
Mm-hmm.
So personalization, recommendations on the site, size and fit, technology, testing video fit model that explains more about the fit and the flow of the dress or the piece of clothing-
Mm-hmm
... on the site. So a lot of testing going into those initiatives that are starting to play out.
Your return rate, I remember in 2019 and 2018, I think, was around mid-fifties, and we got to 60%.
Yeah
... you know, most recently. How do you think with all of the initiatives, but still, you know, staying very true to providing that great customer experience, which I know is so important for Revolve-
Yeah
... how do you think about the kind of a normal state of the business return rate over time?
Yeah. Yeah, yeah, absolutely. On the kind of what is kind of maintaining pressure on the return rate would be international.
Mm-hmm.
So if you look at 2018, 2019 versus today, we've made significant improvements in the international customer experience and layering on more regions for free shipping and free returns, which has a negative impact on that one line item of return rate.
Mm-hmm.
But a much more positive impact on growth sales and net sales. So that's one structural difference between the past and where we are today, which will keep that return rate elevated. That said, all the improvements we were working on, you know, we hope to bring that return rate down.
Mm-hmm.
You know, a goal would be to get back closer to that 2019 level, but it will be tough.
Sure.
Given the international experience that that we've layered in. Also, longer term, opportunity in product category expansion. Beauty has been a great growth driver that has a much lower return rate than the overall and our core category of dresses.
Mm-hmm.
Moving into essentials and basics and some of those categories, much lower return rate.
Mm-hmm.
And then, men's. Men's is another growth opportunity, much lower return rates than the current business, and physical retail, which I'm sure we'll talk about, a much lower return rate than the online. So over time-
Mm-hmm
... there are structural benefits that we could see that could bring that lower than it was in the past, but those are much more longer term initiatives.
Okay. All right, terrific. Since you mentioned physical retail, I know as you talk about Aspen now, that's no longer a test, right?
Right.
That's become a permanent store, which is very exciting. Can you talk about how you think about this opportunity and just any of the KPIs or economics that you can share from the Aspen experience?
Yeah. Yeah, Aspen has been great. We've talked about physical for a long time, but haven't necessarily pulled the trigger because the stars haven't aligned. But Aspen really told us that this is an opportunity. It started as a pop-up-
Mm-hmm
... and more of a marketing experience, but we decided to really test physical in a real way. The KPIs really checked from sales per sq ft relative to rent per sq ft, high AOV, high proportion of new customers, which was-
Mm-hmm
... really great to see. Low return rate, going back to the return rate.
Mm.
Good conversion. You know, essentially all metrics checked, which told us, "Let's look at moving this into a more permanent experience in Aspen." Not only that, let's look to other opportunities in the physical world. We are currently undergoing assessment on kind of our next location. We'll probably have another store before-
Mm-hmm
... kind of mid 2025 we're also quick to acknowledge that we are not retail experts, so we brought in a third-party consultant to help us get through this. And Aspen is also a unique market. It's a destination. It's a higher income consumer. She's traveling in from all over the world, so it's hard to, you know, really, measure that kind of halo effect-
Mm-hmm
... that you would naturally see from having a store in a region. But the metrics were good enough that it told us we need to pursue this. So the next store will be in a more major metropolitan market-
Mm-hmm
... where we can really, really test the reaction from the consumer. And we think it'll be great from not just a sales perspective, but a marketing perspective-
Mm-hmm
... and experience for the customer to, you know, really physically engage with the product.
Are you thinking for the next store, I don't know if you can share this, but also a combination of FWRD and Revolve under the same roof?
Yeah. Yeah, yeah.
Okay.
That is the plan.
That is the plan.
You know, to what extent and what, you know, how many square feet each takes up, we have to determine, but also likely, you know, a small portion of beauty, some men's.
Mm-hmm.
So, really testing that engagement from each one of those customer sets.
Okay. All right, terrific. Marketing efficiency was another big highlight in terms of profitability performance this past quarter. And you talked about getting better leverage out of the Revolve Festival, doing it more of a one-day, you know, type of a format, but you're seeing other efficiencies as well. So can you talk about I guess the sustainability of those, and how do you think about marketing as a percent of sales, just looking out?
Yeah, yeah. It was a really great quarter for marketing-
Mm-hmm
... efficiency on both sides. Maybe I'll start with the biggest piece, which is the performance marketing, which is the more traditional digital performance marketing. And that's, you know, call it roughly 75% over the course of a year. It fluctuates quarter to quarter, but that's a big piece of the spend. And we saw lower CPCs, lower CPMs.
Mm-hmm
... for that performance marketing. Some of it is market driven. There is ebbs and flows in the market on performance marketing, but some of it is also the team's execution, testing new channels, being more efficient.
Mm-hmm.
One thing, tying it to return rate, we suppress the ads to high return rate customers, which also has an impact, a positive impact on return rate, but also on the marketing efficiency as well. So good efficiencies there.
Mm.
That is sustainable and more opportunity. That said, there is some market dynamics there, so there could be future pressure. That's a day-to-day, very tactical, real ads-
Mm-hmm
... based, opportunity, and then on the brand marketing side, the biggest lever there was Revolve Festival-
Mm-hmm
... this past quarter, where we spent significantly less, cut it from a two-day event to a one-day event.
Mm-hmm.
But got more press impressions, more social media impressions, had a really great, kind of new influencer base at the festival.
Mm-hmm.
Influencers were over-delivering on their obligations, which was-
Okay
... great to see. So it shows not just the efficiency, but the excitement about the brand-
Mm-hmm
... and being associated with Revolve and FWRD. And that was just one event that played into the following weekend, Stagecoach. We did F1.
Mm-hmm.
We did a couple international activations. So we do think that is sustainable.
Okay.
That said, we're very opportunistic when it comes to the brand marketing, so that's a more volatile piece of the-
Mm-hmm
... the marketing line item. So when we do see opportunities, we will lean in. So there could be quarter-to-quarter fluctuations, and we've got some exciting things coming up in the back half of the year, but.
Okay. That's, that's fair enough. You made a pretty exciting acquisition, Alexandre Vauthier. We fielded a lot of questions about that. So maybe talk about how do you think this brand fits in strategically into the portfolio? And how do you think about the synergies that you can get from this?
Yeah. Yeah, it was a great opportunity. A brand that we've known for years. We've carried Vauthier on the FWRD site, for a number of years.
Mm-hmm.
So the FWRD buyers were really excited about the acquisition and the brand. He's a phenomenal designer. So, I think, you know, that's the natural opportunity, is just to have that brand as part of our own brand infrastructure, leverage his design talent with our infrastructure, back office, own brand capabilities. Also, from a marketing perspective, he built a phenomenal brand and did zero marketing.
Mm-hmm.
So layering on our performance and brand marketing capabilities to build that into an even bigger brand. It also gives us, kind of brand clout, halo, to be part of one of 15 haute couture brands in the world. So really good company there. Also, being part of the Paris French fashion ecosystem.
Mm-hmm
... both just being in the ecosystem, and then also from a talent perspective as well, and getting really good design talent in Europe.
Mm-hmm.
And combined with our LA-based design talent. So, it will likely be a wholesale component, plus the direct-to-consumer component-
Mm-hmm
... plus, of course, still selling on FWRD as well, so.
I think you talked about revamping the site-
Yep
... just now as we speak.
Yep.
And, some investments that I think are still-
Yeah
... necessary for the business. Can you talk about those?
Yeah, yeah, absolutely. It's really a restart.
Mm-hmm.
So, you know, zero revenue base, but investments needed to rebuild the site. We have a team of 30-ish people in Paris, a facility, so those are the upfront investments-
Mm-hmm
... before the revenue starts to come when we relaunch the brand, relaunch the product, and really refine the assortment.
Okay, all right. That sounds good. You mentioned the strong balance sheet a couple of times, and you made an acquisition, and at the same time, you're buying back stock as well. Can you talk about, just strategically, how do you think about between those two, so continued M&A opportunity as well as the share buybacks?
Yeah. Yeah, and before those two, number one, opportunity is investing back in the business-
Sure
... which we continue to do. And having that balance sheet allows us to acquire the talent that's out there right now, allows us to continue to invest in AI technology, allows us to continue to invest in marketing when others are pulling back. So that's always our number one initiative, and we still think we have very low penetration in the U.S. and globally. So number one, best use of cash. Number two is M&A. So opportunistic M&A. That said, we're very disciplined. We made this one acquisition-
Mm-hmm
... but we've looked at literally hundreds of things over the years, so there are other potential opportunities out there that we'll continue to assess, and then third is the buyback, so we did see opportunity in buying back our own stock. We know the company, we know the business, and-
Mm-hmm
... and, I think there's a great opportunity there.
All right. All right. From a profitability standpoint, so your guided EBITDA margins this year are shaking out at about mid-single digits. The business used to be much higher than that. Can you talk about how do you think about the bridge over time, you know, returning to high single digits, EBITDA margin, and probably beyond?
Yep. Yeah, so starting, kind of at the top, and we'll kind of walk through-
Mm-hmm
... the P&L. But gross margin, number one, on the Revolve side, kind of the underlying cuts of margin, whether you look at Revolve third-party full price, Revolve third-party markdown, own brand full price, own brand markdown-
Mm
... all of those-
Mm-hmm
... margins are better than they were in 2019.
Okay.
The missing piece there is the own brand penetration.
Mm-hmm.
So that is the opportunity as we look forward on the Revolve side-
Mm-hmm
... which we do think there is opportunity in. On the FWRD side, we are still kind of at the, at the end stages of inventory correction and right-sizing inventory there. So margin is suboptimal on the FWRD side. There's a couple points of opportunity on FWRD.
Mm-hmm.
So that gets margin to the 55+ zone-
Mm-hmm
... from, you know, call it 54 in Q2, a little bit lower for the full year. So that's on gross margin. We think there's opportunity there, and that's a big lever. Fulfillment, you know, there's tens of basis points there.
Mm-hmm.
There's a scale component as we kind of grow into our facilities, leverage on that side, and also return rate.
Mm-hmm.
We talked about the benefit of a lower return rate. Selling and distribution is another big one, big line item.
Mm-hmm.
Return rate has a significant impact there, so the combination of fulfillment and selling and distribution opportunity, those are more variable costs, but opportunity and scale-
Mm-hmm
... and the return rate. Marketing, we don't typically talk about that as a lever line item-
Mm-hmm
... because we wanna continue to invest-
Yeah
... again, back to the low penetrations. So we don't wanna call that a leverage point, even though there are efficiencies to be had. We wanna keep the pedal down and continue to acquire customers. And then on G&A.
Mm-hmm.
G&A has deleveraged over the last year, eighteen months-
Mm-hmm
... as sales have not been as high as the investments that we're making in G&A. Those investments are very offensive in nature, so they will pay back over time. And then as sales gets back up into a zone that we want, there's meaningful leverage to be had on G&A. If you look back to the 2016 , 2017, through 2019 , 2020
Mm-hmm
... there's a couple points of leverage. We'd expect something similar as we look ahead in the FWRD few years.
Okay. All right, terrific. In the last, you know, literally twenty seconds that we have, the couple of questions that we ask our companies at the conference, the interest rates, lower interest rates for your consumer, as well as the presidential election, how do you think about the impact to her?
Yeah. Yeah, lower interest rates, we think, will have a positive impact. You know, lower borrowing costs, lower payback on her credit card debt. Also, just the sentiment out there. Sentiment is big for us.
Mm-hmm.
Our brand is, you know, all about going out there, living your best life, having a great time. When sentiment is positive, that, of course, impacts her purchasing behavior. So that we think will have a positive impact. Election, I think it's one of a number of distractions out there right now.
Sure.
So more than anything, it'll be nice to get past it and move on. We don't think it's a, you know, a significant impact to the consumer behavior, but we don't have very many data points to look at over our history, so we'll see how that plays out. But we don't think it's a huge.
Okay
... huge impact.
Fair enough. On this point, it's perfect to end this.
All right.
Thank you so much.
Thank you.
Great to have you.
Yeah, good to be here.