Revolve Group, Inc. Q4 FY2025 earnings call

Michael Karanikolas mentioned the fourth quarter had double-digit top line growth and 44% increase in adjusted EBITDA. Full year 2025 net sales increased 8% year-over-year. They invested in AI technology, including personalization enhancements on e-commerce sites, generative AI in marketing, and operational AI uses. Brand building activities like reimagined brand identity campaign. FWRD segment had 14% net sales growth and margin expansion. Owned brands penetration in REVOLVE segment increased to 20% in 2025. Physical retail expansion with opening of second permanent store at The Grove.

Net sales were $324 million, an increase of 10% year-over-year. Net sales in the REVOLVE segment increased 10% year-over-year, and net sales in the FWRD segment increased 14% year-over-year. Gross margin increased by nearly 80 basis points year-over-year, driven primarily by data-driven recalibration of the markdown algorithm and an increased mix of owned brands.

Expect gross margin in Q1 2026 of between 52.8% and 53.3%, full year 2026 gross margin between 53.7% and 54.2%. Fulfillment as % of net sales expected at ~3.2% in Q1 2026 and 3.2%-3.4% for full year 2026. Selling and distribution as % of net sales expected at ~17.1% in Q1 2026 and 17.1%-17.3% for full year 2026. Marketing investment expected at ~15.7% in Q1 2026 and 15.3%-15.8% for full year 2026. G&A expense expected at ~$40.5 million in Q1 2026 and $161 million-$164 million for full year 2026. Effective tax rate around 24%-26% for full year 2026.

Risks include impact of tariffs, market competition risks, uncertainties in execution of physical retail expansion, and variability in gross margin due to tariff and mitigation efforts.

Q: I want to ask a bit more about owned brands. I think you mentioned that you feel like it can be considerably bigger than where they are right now at 20% of sales. Maybe help us put some parameters around that. And then you alluded to, I think you said a new chapter for owned brands in 2026. Can you elaborate a little bit more on what that might mean for the growth of owned brands in this year?

A: Yes. It's called -- I guess, quite some time ago, owned brands was, call it, mid-30s penetration. We think that's well within reach. We're in no rush to get there. We have to get there in the long term, but increase profitability in super-sustainable way. But that's well within reach and even beyond that. We do have 2 exciting things coming up, potentially 3 that are as big as anything we've ever done. But that's all marketing-oriented things in the future. We choose to tease them when it's optimized for the consumer and release them when really consumer focused. So don't want to steal that thunder and excitement from the consumer. So I'll refrain from commenting too deep on all the super exciting things I'm working on.Q: Congrats on a nice holiday. I guess this is the first quarter we haven't talked about returns in a while. It looked pretty stable year-over-year, but it was increasing in third quarter. So it seems -- I'm sure there's more noise in it than just stable year-over-year. So maybe you could just tell us -- I know you've said for a while, you had a bunch of initiatives going on there. Maybe what's going on beneath the covers on that one a little bit. And then I'm curious if you do plan on having any physical stores open in '26. And then maybe, Jesse, if I could just hear a little bit more -- I guess, jump ball, guys, a little bit more on the marketing increase. Mike, I think you mentioned efficiency improved on marketing quite a bit in 4Q. I have to think that plus a big step-up in the marketing deleverage in '26 gives you quite a war chest of media impressions. Is there an unusual event there? Is that the new run rate? Or anything you can tell us about the big step-up there?

A: Sure. So I'll start with the return side of things. So yes, we're pleased with the progress in the fourth quarter. It was relatively flat quarter-over-quarter after an increase in Q3. It's a combination of a few different factors. There's some category mix shift that played a role there. But then also some of the newer initiatives around returns that we started ramping up played a role there as well. So we're pleased with keeping the return rate stable and our forecast for the upcoming year would be relatively stable return rates. But as always, we're continuing to invest in new initiatives on that front and hopeful that we can continue to see success there. With regards to physical store timing, we just recently opened and launched, of course, The Grove store in Los Angeles, thrilled about the start we have there. We're not providing specific guidance on the number of stores that might open in '26. But loosely speaking, you could see a store -- an additional store to open in '26, depending on locations and timing and the things of that nature. So it's still TBD. And then on the marketing side of things, I'll speak to it a little bit, and then Michael can maybe speak to some of the bigger investments in the upcoming year. We did have a very efficient fourth quarter, which was great to see. A combination of some really nice gains on the performance marketing side, some of which driven by new algo changes on our side and AI enhancements to the way we're advertising. And then also a little bit of a decrease in brand marketing investments. And to your point about having a war chest built up for the marketing side and the impression side, we're definitely looking to have a big year in this upcoming year with regards to marketing deployments and specifically around some of the launches that Michael alluded to, but that we can't yet reveal.