Revolve Group, Inc. Q3 FY2025 earnings call

• Financial performance: Solid third quarter with 45% year-over-year increase in adjusted EBITDA to $25 million. Net sales grew 4%, though lower than recent trend, but gross profit dollars increased nearly 3x net sales growth. • Brand investments: Marketing efforts to expand brand awareness, including Fashion Week activations and pop-ups. Partnership with LA Lakers for brand building. • International expansion: Strong performance in Middle East, Europe, and Mainland China; REVOLVE segment net sales in Mainland China up over 50% year-over-year. • Product assortment: Sales of beauty, men's, and home products grew double-digit. Notable owned brand launches like SRG with Sofia Richie Grainge. • AI application: Leveraged AI in owned brands design process for cost efficiencies and shortened cycles, and in back-office functions to automate workflows.

Net sales increased 4% year-over-year. REVOLVE net sales grew 5% and FWRD net sales grew 3% year-over-year. Domestic net sales rose 4% and international net sales climbed 6% year-over-year. Consolidated gross margin was 54.6%, a 347 basis point year-over-year increase. Adjusted EBITDA was $25 million, a 45% year-over-year jump, the highest ever for a third quarter.

• Gross margin: Q4 2025 gross margin expected between 53.1% and 53.6%, midpoint implies 80 basis point year-over-year increase. Full year 2025 gross margin expected at ~53.5%, a 100 basis point year-over-year increase. • Fulfillment: Q4 2025 expected to be ~3.3% of net sales, full year 2025 at high end of prior range (~3.2%). • Selling and distribution: Q4 2025 expected ~17.6% of net sales, full year 2025 ~17.3%. • Marketing: Q4 2025 expected ~15% of net sales, full year 2025 ~14.6%. • G&A: Q4 2025 expected ~$38.7 million, full year 2025 ~$153.5 million. • Tax rate: Q4 2025 effective tax rate 25%-26%, full year 2025 27%-28%.

• Tariff landscape is very fluid and unpredictable, which could impact gross margin. • Consumer behavior changes and competitive environment in the luxury industry pose risks.

Q: Congrats on strong results. I'd like to double-click on gross margin. So is there any way to size the benefit that you realized from the improved markdown algorithm?

A: Yes. We were super happy with the gross margin result this quarter. And to your point, the largest impact was that markdown margin optimization to our optimizing that markdown algorithm. So that was by far and away the biggest driver. And we did see that start in Q2 and that accelerated into Q3. It was across both FWRD and REVOLVE. And then we also had that shift in promotional strategy that we talked about, and that was another key contributor to the gross margin expansion leading to that 11% increase in gross profit dollars. But not to be lost on the fact that also full price mix increased and the margin on those full price sales increased as well. So really pleased with the core margin result even outside of that markdown and promotional shift. And then finally, a positive impact from the expansion in owned brand mix on the REVOLVE segment. So really pleased with the cadence there. And SRG just launched, so expect to see good things coming out of that in the future. So I think to your point on sustainability, we feel good about where we're at and then also the health of the inventory and more owned brand launches to come.

Q: Great. And I just had a follow-up on the quarter-to-date trends. October up mid-single digits. Are the drivers of October consistent with the trends that you saw in the second quarter? A lot of companies are calling out consumers buying closer to need. So I'm just curious if you see the potential for that growth rate to accelerate as you start entering the holiday season?

A: Yes. Yes, we'll see. October at mid-single digits, I don't know, I won't say we're pleased with that, but we're encouraged that it's at mid-single digits on tougher comps than we faced in the third quarter. And that mid-single digits, it puts October close to a 20% 2-year stack. So call it a double-digit CAGR or close to it. So I think encouraging, but we'll have to see how the quarter plays out. And it's always a little bit volatile in the holiday season. And comps do get a little bit tougher. If you recall last year, we had said that October was up low double digits, and we closed at plus 14%. So we have that to deal with as well.