Revolve Group, Inc. Q2 FY2025 earnings call

Key Points

• Strong second quarter results with net sales up 9% YoY and adjusted EBITDA up 12% YoY, achieving the highest adjusted EBITDA margin in 3 years.
• Improved inventory dynamics and tariff mitigation efforts led to a slight expansion of gross margin. Free cash flow in the first 6 months of 2025 was $52 million, nearly 3x the full-year free cash flow in 2024.
• Customer base growth, with average revenue per active customer increasing and return rate decreasing. International markets showed strong growth, with China being a key area of success, including REVOLVE being #1 cross-border store on Tmall Global and launching a dedicated REVOLVE Man store.
• Expansion of assortment in fashion apparel, beauty, men's, and home products, contributing to reduced return rate and increased revenue per active customer.
• Leveraging AI for growth and efficiency, including enhancements to AI search algorithms, voice-to-text technology on customer service, and personalization capabilities.

REVOLVE segment net sales increased 9% year-over-year, and FWRD segment net sales increased 10% year-over-year. Domestic net sales grew 7% year-over-year, while international net sales grew 17% year-over-year. REVOLVE segment had a higher mix of owned brands as a percentage of net sales. FWRD segment saw net sales increase 10% year-over-year with increased margins, and gross profit for FWRD increased 16% year-over-year in the second quarter.

Guidance

• Q3 2025 gross margin expected to be between 51.2% and 51.7%, full-year 2025 gross margin expected to be between 52.1% and 52.6%.
• Fulfillment as a percentage of net sales expected to be approximately 3.2% in Q3 2025 and between 3.1% and 3.2% for full-year 2025.
• Selling and distribution costs as a percentage of net sales expected to be approximately 17.5% in Q3 2025 and between 17.2% and 17.5% for full-year 2025.
• Marketing investment expected to be approximately 14.5% of net sales in Q3 2025 and between 14.8% and 15% for full-year 2025.
• G&A expense expected to be approximately $38.5 million in Q3 2025 and between $152 million and $154 million for full-year 2025.
• Effective tax rate expected to be approximately 28%-29% for full-year 2025, with second half expected to be ~27%.

Risks

• Tariff uncertainty, including potential impact on margins due to volatility in tariff rates and ongoing mitigation efforts.
• Challenges in return rate comparisons going forward after 5 consecutive quarters of year-over-year decreases in return rate.

Q: Active customer growth accelerated year-to-date versus 2024. I was hoping you could quantify the areas where you're picking up new customers, whether it be from category expansion, luxury, retail, international or picking up lapsed REVOLVE customers? Anything you can help with sizing there?

A: Relative strength aligns with net sales growth. Revenue per active customer and orders per active customer have increased sequentially and YoY from existing customers, with continued efforts to acquire new customers.

Q: Can you parse the contribution from expanding assortment from the underlying growth within the core product categories?

A: Category expansion and investments in non-traditional categories played a big role in fashion apparel growth. It's a mix of fashion trend changes and continued investment in other categories, with early stages of significant long-term opportunity if a mark is made outside traditional areas.