All right, good morning, everyone. Thank you for joining us. I am Rick Patel, Senior Research Analyst at Raymond James, covering digital commerce and retail soft lines. We're thrilled to be joined today by Revolve, which is an online seller of fashion apparel, footwear, beauty, and accessories. The company operates under two banners, which include its namesake Revolve banner, as well as FWRD, which is a luxury site. The company was founded in the early 2000s and, perhaps unique to fashion commerce, has been profitable for a really long time. I find a lot of investors are drawn to founder-led companies, especially when they own a big chunk of the business, as Mike and Michael do, which we see as a nice plus for the business. So I'm happy to introduce CFO Jesse Timmermans. Jesse, the floor is yours.
All right. Thanks, Rick. Thanks for having us. Good to be here, and thanks, everybody, for joining. We'll start with just a quick overview if you're not familiar with Revolve, but really four key aspects we want to highlight here. Number one, which was true from day one, is that we are founded on technology. Mike and Michael were not fashion people 20-plus years ago. They needed to rely on data to make those merchandising decisions, and now, 20-plus years later, that is just as true, if not more true than ever, especially with the advent and kind of pace of development of AI in the recent couple of years. So technology is part of the culture. It's ingrained in everybody's way of thinking. It's beyond data-driven merchandising.
It impacts everything we do, from marketing decisions to G&A decisions, and definitely investing a lot there in the recent year that we'll get into a little bit more. Number two, the powerful marketing engine that really drives that connection with this next-generation consumer, whether that's the millennial consumer or that Gen Z consumer. Just a little highlight here, we partnered with the women's professional volleyball league, so that will be an exciting 2025 development for us. Really engaged and captive audience there and some really exciting things coming up. And the market is huge, so a lot of opportunity to continue to engage with her. And then the global reach and consumer appeal. International is about 20% of the business right now, and we'll get into more of these numbers later, but we think there's a phenomenal opportunity to drive growth, not just domestically, but internationally.
And then finally, as Rick mentioned, a profitable and capital-efficient model, which has been the case, again, since day one. Mike and Michael, founders still in the office every day, grinding it out. Very founder-led mindset and very disciplined in all the investments we make, which, again, serves us well, especially in more challenging times that we've encountered over the last 18 months. With that, we have seen some inflection this past quarter, so a quarter over quarter, so sequential growth in the number of active customers that we've added, nearly doubled that. And then getting back to double-digit sales growth after a challenging, again, kind of hangover period after that COVID acceleration that we saw coming out of COVID, so really great to be back in that double-digit zone. Revolve increasing more than that 10%, FWRD flat. And then growth across domestic and international, specifically international, seeing 20% growth.
And then within international, growth across all regions, which is kind of tougher to do, as there's always something going on in some regions. So even in China, this past quarter, we saw growth. That's been a challenged geography for many others. And then finally, again, just hitting on the profitability gains for the nine-month period year to date, saw a 50% increase in net income and nearly the same on Adjusted EBITDA. So again, back to that really kind of founder-led mindset and very capital-efficient. If we step back and look at kind of what we are, who we are, we operate two platforms. Rick mentioned that as well. Revolve, that is 85% of the business. FWRD, that's 15%.
If you look at the differences here, Revolve is the larger segment, focused on emerging and established brands in the dresses and fashion apparel product categories, very highly curated, complemented with FWRD. And we say complemented because FWRD skews more handbags than shoes, and we know that if she's buying a $200 dress, she's complementing that with a great pair of shoes or a nice handbag. So we do see these two platforms as very complementary. You can see some representative brands here. And we think there's more opportunity for crossover. Right now, it's around 5% crossover of those Revolve customers shopping on FWRD. We think that can be much greater over time as we continue to market to that very active customer base and really expand the product assortment. And then customer-first mindset.
Again, going back to day one, this was a day-one initiative and thesis for Mike and Michael. Number one, customer service is of the utmost importance, and that comes through in a number of ways. But number one is the home is a dressing room. If you think back 20 years ago, nobody was offering free shipping, free returns, maybe Zappos. We're not sure who was first. But this was core to the thesis. If you're going to offer 100,000 styles online, you need to have her be able to try that on at home and make sure that it works and have great customer experience. Our customer service is 1P. We don't outsource. Our fulfillment is all 1P. We don't outsource.
Really important to Mike and Michael and to that customer experience to control the journey of that product from initial website visit to the receipt of the product all the way back on the return and re-fulfilling back to her. That focus on customer service has led to a very high customer satisfaction score and one that continues to increase over time. Not just focused on it from day one, but focused on increasing and getting better and better over time. That's led to strong customer loyalty. We'll get into some of these numbers in a minute. Strong sales at full price are a really key metric for us. To have sales at full price, that mix being starting with an eight is really impactful to margin and really shows that customer loyalty and her affinity towards full-price products.
She's not coming to us for the sale, for the markdown, for the discount. She's looking for great product and great service. If we talk about a little bit kind of double-clicking on some of the technology that I mentioned in AI, a lot of investments over the last couple of years in AI. Again, from day one, we are data-driven. We've used machine learning, very tech-focused over the last 20 years. But the pace of AI development has accelerated so much in the last couple of years, and we've really embraced that, invested in the team, invested in servers, and invested in these projects. And just a few examples here. Number one, enhancing the digital merchandising effectiveness. So this is more and better curation on the site. We have 100,000 styles at any given point on the site.
It's all about showing her the right product at the right time for the right customer. Double-clicking on that, another feature is the site search. Again, you take the curation, then you look at site search. We actually historically used a third party. Mike challenged the team to develop our own internal search, which the team did. Now that search, our internally developed search, is performing better than the third party and more flexible and nimble. Again, all about that site experience for her, expanding our digital marketing reach. A number of things going on here, using AI to provide better feeds, better product information to our marketing partners to expand what we're showing her. Also, a double benefit here of efficient marketing spend and also a reduced return rate, suppressing ads to the high return rate customers.
The partners only know kind of that initial gross sale. They don't know the return information. We know that return information, so we can suppress those ads. Again, benefiting us on marketing efficiency and then also on the customer experience, and then intelligent routing of customer service inquiries. This is just one example of more back-office things that we're doing that leverage AI. So one is this, intelligently routing customer service inquiries, internally developed. Another one is using AI to determine which product is selling within Europe so that we can keep products that are returned in the UK and Europe and refulfill those in the UK and Europe instead of shipping things across the Atlantic back and forth, so a number of things going on here and a lot more opportunity as AI advances and as we leverage this.
Again, this goes back to the strong balance sheet, being able to invest in these things while others are playing defense. The market opportunity. If we step back and look at that market opportunity, I mentioned domestic, $600 billion-plus market in the U.S., 36% digital. There's a $3 trillion market internationally, 26% digital. The market is one thing, and then even more important is the shifts in the market. We see continued shift to digital. Even though there's been kind of reversion coming out of COVID back to stores, there's still a longer-term shift to digital. At 20%, 26% globally, still a lot of room for digital to grow. The second is the shift in purchasing power to this younger next-generation consumer that we have been focused on. Both of these playing in our favor and giving us tailwinds over the coming years.
If we look at the long-term track record, I mentioned the inflection and talked about the most recent quarter, but that's not just a recent quarter phenomenon. We have been a consistent grower over time, with the exception of a couple of bumps along the way, like COVID and then the hangover post-COVID that we've been in after the rebound in the most recent 18 months. But a 17% CAGR since 2016, consistently profitable, not just on a non-GAAP basis of Adjusted EBITDA, but also on a GAAP basis, net income basis, which is very unique. If we look at just the last seven years and compare that to others, so pick your premium department stores or the e-commerce market, and this is just showing how much market that we've taken over the last seven years.
And then also, if you combine that with the market that we just looked at, how much more there is to take. So premium department stores down 1%, e-commerce up 14% versus our 19% CAGR. And all that, the profitability, the consistent growth has led to a very strong balance sheet. As you can see, cash provided by operating activities and free cash flow over time has led to a balance sheet with $253 million of cash and cash equivalents. No debt. That's up $187 million since 2019, essentially all from operations. Again, no debt and really puts us in a good position to invest. You benchmark that against other peers. We're one of the only with positive profitability and positive free cash flow. So again, really stands out.
And if you look at the list, a number of these players really forced to play defense at a time when we're able to play offense, investing in technology, AI, physical stores, people, merchandise, curation, etc. Just to kind of highlight the challenges out there, just two examples here. Farfetch being acquired by Coupang for essentially nothing. Matches completely going out of business. And that was a $400 million-$500 million business. So combination benefit from the consumer has to go somewhere. There's fewer players out there, and the players that are out there are distracted, which benefits us and also benefits from a brand perspective. We think this plays out well from a brand relationship perspective when others are not paying bills, maybe not paying bills on time, very challenged in their merchandise buys compared to our strong balance sheet and really maintaining those strong brand relationships.
With fewer and fewer distribution points, we believe that the brands will look for and value those existing distribution points. Some of the key metrics driving our performance, if we kind of go below those high-level net sales and profitability metrics, active customers growing doubled in the last five years. Net sales at full price, I mentioned this, at 79% in 2023. It's starting with an eight now, which we think is really healthy. You can see it was 87%, 85% in that post-COVID rebound. That was a post-COVID rebound phenomenon. We don't expect that going forward, but to start with an eight, very healthy. And then average order value, very premium, which provides a lot of benefits on the cost structure when we talk about fulfillment and back and forth and being able to sustain a return rate that is higher than others.
The premium price point gives us a lot of leverage there. The customers, we talked about the customers and that loyalty driven by the strong customer service. They're shopping at full price, so the average number of total orders placed per active customer. Again, it's been a bumpy road coming out from COVID to the rebound and then the kind of post-rebound hangover, but in 2023 versus 2019, the number of orders per active customers increased, the net sales per active customer has increased, and the retention is higher. Those existing customers are very important. If you look here, 52% of our active customers are existing customers. They place 79% of the orders and represent 80% of the net sales, so this shows that, number one, the existing customer is important because she's coming back and ordering both more frequently and at higher average order values over time.
And how do we think about capital allocation given the strong balance sheet, the consistent profitability? So number one, highlighting and again, reiterating what Rick mentioned in our founder-owned investor mindset. So Mike and Michael still own just less than half of the business. They are in the office every day, grinding it out, just as engaged as ever. So a long-term investor mindset in the business, which leads to capital allocation priority number one, is invest back in the business. Again, back to the massive opportunity out there, just continuing to invest back into the business. Number two, thoughtfully evaluate M&A opportunities. We think there is opportunity out there. That said, we're very disciplined, and we want to find the right opportunity at the right price. But we are thoughtfully evaluating those opportunities. And then number three is return of capital.
So if we look at some more specific examples here in that number one priority, we mentioned some of these, but continuing to invest in AI and technology, testing physical retail at the moment, category expansion, beauty, men's, additional categories like essentials and basics. Continue to invest in marketing. We commented on the last quarter's earnings call that we would expect 2025 marketing to be in the 15%-16% zone, which is higher than where we have been operating, just to show that we do think there's opportunity out there. We've got some exciting things coming up, and this is not a line item that we intend to get leverage on. This is one where we're going to continue to invest. And international, making a lot of investments international through team, customer experience, marketing. So a lot going on internally. Number two, the M&A opportunities.
We acquired 80% of Alexandre Vauthier in Q2 of 2024. This is a French haute couture brand where we saw an opportunity to really kind of pull that brand in and leverage our expertise and also leverage Alexandre, his design talent, and really getting a foothold in the French/Paris fashion ecosystem. And then number three, the return of capital. We authorized a $100 million buyback program, of which we've spent $42 million and at an average price of $14.28. So really great investment there. And that still leaves us with a lot of cash on the balance sheet to continue to invest in these other areas. So kind of taking that and looking ahead into the key growth drivers. As I mentioned, number one, still a massive opportunity to grow just in the U.S. alone. We still think we are 3% penetrated.
You can look at that from a dollar perspective and how many dollars are going through the kind of fashion apparel market in the U.S. or the number of people in this demographic that we are focused on. Or to be more specific, you can look at the number of active customers across some of the other legacy players out there. If you just look at Nordstrom and Macy's combined, for example, there's 70 million customers up for grabs. So a lot of opportunity in that core domestic, which leads back to that invest back in the business priority, number one. Number two here is expansion in product categories. So we list beauty, men's, and basic/essentials here. We think there's massive opportunity right now for us to really expand in those categories. Our dress mix right now is 30%.
Top of mind for her when she comes to us is for the event, for the festival, for the brunch, for the wedding. We need her to think about us for every day, for active, for beauty, for workwear. And this benefits us in a number of ways. Number one, expanding wallet share. Number two, reducing return rate and just really serving all aspects of her life. We use beauty here as just one example to double-click on. Right now, 4% of net sales. We think that can be much larger. If you look at some of the legacy premium department stores that are in the low double-digit %, there's no reason we can't be at that level. Men's, it can be much greater than where it is today. And then again, serving more aspects of her life through those basics and essentials. The next one here, international sales.
We mentioned this. Massive opportunity internationally. Right now, it's around 20% of the business, and growth initiatives come from customer experience initiatives, serving her better across the world, refining the marketing, more market-specific marketing, so on the right here, you can see expanding the loyalty program, technology insight improvements, marketplace partnerships, whether that's through the platforms in China or an example here in Nykaa in India, and then expanded payment options, so really all about serving her in the geography that she's in, the way she shops. We've highlighted China here, again, because, one, we think it's a massive opportunity. Two, we saw growth in China in Q3 at a time when others are really struggling, and why was that? We've made investments there. We have a new-ish head of China started last year that's really engaged with these marketplaces and really expanding.
China has our second-largest social following by our read, so a lot of opportunity internationally, and then expanding our collection of own brands. Own brands is around 20% today. Was 20% in 2023. It was up to 36% back in 2019. We think there's opportunity there. Our goal for the last couple of years coming out of COVID was really to get those metrics dialed in, really get that business performing in those kind of sub-metrics that really feed and build the foundation for this business. Now that we're there, there's opportunity to expand, whether that's through new brands. That could be a new brand developed 100% by us or partnering with a celebrity or influencer. We used Helsa here, which is a partnership between us and Elsa Hosk. Additional categories. We launched our first men's own brand.
We think there's more opportunity in those additional categories like men's, basics, essentials, active. And then finally, existing brand expansion, leveraging our existing own brands that have resonated with the customer to expand categories within those brands. And then finally, physical expansion. We have one store in Aspen that started out as a pop-up, very seasonal destination, so a very unique market for us. We signed the lease for a flagship store in LA that should open by mid-2025 and also operating a pop-up, a temporary holiday shop at The Grove right now in Los Angeles. So we think there's opportunity here. Digital should continue to expand, but if you go back to that other slide and do the inverse, 74% of the market is still going through a physical door.
We think we have a strong brand that really resonates with the customer and really being able to get in front of her in her market and show her the product and engage with her. It also allows us to invest in brand marketing events, whether that's through brand partnerships and brand activations or an influencer coming into the store for an evening and doing a special event or happy hours or any number of things. It just gives us opportunity to really continue to engage with the customer in a different way. And with that, I'll pause maybe for questions if we have any time.
Thank you, Jesse, for that great overview. And we would love to make this interactive, so please raise your hand and happy to take your question here. Maybe I can warm up the floor by just talking about the revenue trends that you're seeing.
So revenue growth did inflect positively this year and has been on an improving trend despite many companies calling out a more selective consumer, just a tough environment overall. Can you dig deeper into what drove the positive improvement and your confidence in the sustainability of it?
Yeah, we think it is our execution, just all of the initiatives that we've been focused on over the last 18-24 months. Again, when others are playing defense, we've really invested in AI, technology, people, merchandising. So we do think it is more us than macro. The consumer is still challenged. We're not out of the woods yet. Economy is still shaky. We'll see how that plays out. But we think it is us. And I think if you look at just a couple of examples, really important is the merchandising on the site, the curation on the site.
We have 100,000 styles at any given point. So again, going back to showing her the right product at the right time. We have some new leadership in place in the merchandising department that has led to combination that with the technology has led to some great improvements on that. Again, the curation on the site, the search functionality that I talked about, and that feeds into the marketing channels, feeds into email, feeds into the engagement with the customer. And again, just getting started. I think there's a lot of opportunity there to continue to leverage technology and continue to refine.
Talk about the change in return rates over time and the economics of that because it seems like that's what really killed all your competitors.
Yeah, yeah, yeah. So question was talking about return rates over time, the trend there and the impact.
So again, back to day one, the thesis was home is the dressing room. So it's really important from a customer experience perspective to be able to order the product, try it on at home, and return it. Now, that said, coming out of COVID, we did see return rate increase pretty meaningfully. And that's for a couple of different reasons. One, the consumers are returning more. Two, we've also made it easier for international customers to return. So that's a good increase in the return rate because, again, that allows more gross sales, more net sales, better customer experience. But there's things that we can do to reduce the return rate in win-win ways for us and the customer. And to put those in maybe three buckets. One is the return policy.
We had expanded the return policy from 30-day credit, 60-day exchange pre-COVID to 60-day credit, 90-day exchange during COVID. On May 1st, we reverted back to the 30-day credit, 60-day exchange, which is still very premium compared to many, if not all others out there. People are starting to charge for shipping, charge for returns, cutting it back to 10 or 14 days, being much more strict on that return policy. We think, again, it's still very important for her to be able to try on the clothes and be able to return. The second bucket is, I guess, getting more strict around high-return rate customers. So starting to charge for the outbound and the return shipping for those high-return rate customers. And these are high, high-return rate customers that were contribution margin negative. We turn that cohort of customers into contribution margin positive. So that has played out well.
And then the third bucket, the most exciting, is the things that are going to play out over the longer term. So improving the site experience. I talked about the search, the curation, also better size and fit information, combination of third-party technology and homegrown measurements and technology to give better size and fit recommendations on the site. We also expanded that to mobile. Mobile represents about just over two-thirds of our orders. So a really important channel for her and a really important channel to impact our return rate. And then reviews, getting better and better on reviews and using AI to better refine, present, and show her the right reviews because two-thirds of the reason people return is size and fit. So being able to read the review and what people are saying to influence her decision is really important.
So a number of things going on there, a lot more to go. But return rate does have a positive or negative impact on the cost structure for every point in return rate, plus or minus. It impacts our cost structure by 30-50 basis points. So you can see that come through in Q3 where the return rate was down nearly two points year over year. And selling and distribution in combination with fulfillment was down 240 basis points year over year, return rate being a meaningful driver of that. Open the back.
Yeah, if I heard you right, it sounded like your own brands were down quite a bit since COVID. And I guess describe that retrenching a bit. What did you actually do? And as you've kind of relaunched, where you are in that relaunch?
Yeah, so if I go back to 2019 own brands, or maybe even back further than that, from 2016, 2017 through 2019, it ramped from essentially nothing up to 36%, so really fast expansion on own brands, and part of that was intentional and really kind of pushed the boundaries and really tested, but went too far, and then COVID hit, and we were forced to pull back because we have to build own brands at a greater depth than we can buy on a third-party basis, so that was one factor. The other factor was just stepping back and making sure we got the assortment and the underlying metrics strong on own brands, so that's been the journey, and the focus over the last couple of years was really to get those underlying metrics solid on own brands.
Those metrics are assortment, price point, kind of the merchandise hierarchy. And then the most important one, just that full price, going back to that full price metric and how many units are selling at full price out of what we built. Those metrics are now solid. So we're at the point now where we can start to invest. That said, not expecting to go from 20%-36% overnight. That's too fast. We're going to be very measured about the growth going forward. So we should see some slight expansion over the next couple of years, but it'll be much more moderate than what we saw back in the 2016-2019 era.
And you mentioned that the business itself is relatively asset light. What's kind of the secret behind that?
Yeah, it is. So the question, the business being asset light, what's the secret behind that?
I think number one, it's Mike and Michael, that founder-led entrepreneurial mindset. Number two is the data-driven element of the business and being able to leverage data to do a lot of the work. And number three is the business is 20-plus years young. So that platform has been built over the last 20 years. So that being able to internally develop the systems, ERP, inventory management, customer service, marketing, and just being able to iterate on that with the existing team that operates very efficiently versus leveraging third parties and doing big upgrades.
Inventory is really good, right?
Yeah, yeah, yeah. Everything is 1P. We hold the inventory. We buy the inventory. And then using data to drive the turns and inventory efficiency.
If I could squeeze in one last question here, I'd love for you to double-click on the initiatives around AI.
Can you just talk a little bit more about the investments that you're making there and how you're harnessing this power to improve the execution of the business?
Yeah, yeah. We are super excited about AI. Number one, what we've done, and number two, and more importantly, of what's to come, and we've been talking about the AI developments for the last several quarters. I think early on, a few quarters ago, when AI was just a buzzword, and we said, "This is not just a buzzword. We are leveraging this. We've always leveraged technology." So those investments are in team. We have a great team of data science and business intelligence analysts, servers, and really just the kind of the culture and the mindset and the drive from Mike and Michael to really embrace this and really challenge the team to develop these things.
A couple of examples I mentioned, the AI search. We had historically used a third party for our internal search on the website. Mike challenged the team to develop our own internal search. They did so, and that search performed better than the third party. Not just performs better, but also, again, because it's internally developed, gives us the ability to modify more on a more nimble basis. I talked about some of the operational initiatives, AI-routed customer service inquiries, AI reading of what product is most likely to sell in a region so we can optimize the inventory placement across the world. Marketing, that's a more recent one. We're able to leverage AI to serve better, more different product to the third-party platforms, which actually expands our marketing reach. Just using search, for example, it's seven-digit revenue expansion alone.
So these opportunities just kind of stack up over time as we continue to invest.