Revolve Group Inc Aktie

Good afternoon. My name is Jordan and I'll be your conference operator today. And at this time, I'd like to welcome everyone to the Revolve Group second quarter 2026 earnings call. [Operator Instructions] I would now like to turn the conference over to Erik Randerson, SVP of Investor Relations. You may begin.

Afternoon, everyone, and thanks for joining us to discuss Revolve's second quarter 2026 results. Before we begin, I'd like to mention that we have posted a presentation containing Q2 2026 financial highlights for our investor relations website located at investors.revolve.com.

I'd also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, our marketing events and their expected impact, our physical retail stores, our own brand and luxury brand expansions, our use of AI, our market position and competitive positioning, our partnerships, and our outlook for net sale, gross margin, operating expenses, and effective tax rate.

These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially from these statements, including the risk mentioned in this afternoon's press release, as well as other risks and uncertainties disclosed under the caption risk factors and elsewhere in our filings with the Securities Exchange Commission, including without limitation, our annual report on Form 10-K for the year ended December 31st, 2025, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.

During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented and prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures, as well as the definitions of each measure, their limitations and our rationale for using them can be found in this afternoon's press release in our SEC filings.

Joining me on the call today are our co-founders and co-CEOs Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

Hello, everyone, and thanks for joining us today. We had a very solid quarter highlighted by strong and profitable growth across segments and geographies leading to continued market share gains. In fact, we achieved double-digit net sales growth across Revolve, FWRD, domestic and international for the third consecutive quarter. Our underlying metrics illustrate our increased momentum with next-generation consumers. Trailing 12-month active customers further accelerated in the second quarter to 11% growth year-over-year, fueled by a record quarterly performance for new customer acquisition and increased engagement from pre-existing customers.

The 115,000 increase in active customers in just three months is our highest quarterly growth in four years, which has enabled us to surpass the 3 million active customer milestone in Q2. Also notable, our product return rate decreased year-over-year for the second consecutive quarter, outperforming our expectations. The win reflects a favorable mix shift helped by successful expansion of product categories outside of our historical core and continued progress on our initiatives designed to reduce our return rate in customer-friendly ways.

And our net sales momentum has continued into the third quarter with net sales in July increasing approximately 18% year-over-year, reinforcing my confidence in our path to achieve our goal of double-digit revenue growth for the full year 2026. The continued strong growth signals that our investments in brand, technology and AI, site experience and category expansion are truly paying off. Beyond the numbers, Michael and I are most excited about the progress on our longer-term initiatives. 2026 is a foundational year for Revolve, focused on successfully launching longer-term investments that we believe have the potential to transform our business over time.

I'm excited about our early progress against these large opportunities, such as building our physical retail muscle and developing our first-ever Revolve namesake label within our own brand assortment. Moreover, our [ Grow Good ] Beauty products developed in partnership with [ Cardi B ] were introduced in the second quarter to much fanfare that exceeded our expectations. Seeking to capitalize on such growth opportunities, our investments in 2026 have been meaningful, approximating two points of adjusted EBITDA margin in 2026 to seed these exciting initiatives in our efforts to ensure their long-term success.

As a founder-led company bolstered by a rock-solid balance sheet and consistent cash flow generation, Michael and I are focused on maximizing value over the long term. Michael will talk more about each of these initiatives in his remarks. Underscoring our confidence in our future outlook, we repurchased nearly 500,000 shares of Revolve Group common stock in the second quarter, reducing our Class A common shares by more than 1%. The approximately $10 million return to shareholders represents less than a third of our free cash flow generation year-to-date.

With that as an introduction, I will step back and provide a brief recap of our second quarter results before reviewing the progress on our longer-term initiatives. Net sales for the second quarter were $347 million, an increase of 12% year-over-year. This marks our third consecutive quarter of double-digit top-line growth. By segment, Revolve net sales increased 13% and FWRD net sales increased 11% year-over-year. By territory, domestic net sales increased 11% and international net sales grew 16% year-over-year. The gross margin was 56.6%, which included an approximately 160 basis point benefit from [ IEPA ] tariff refunds, up from 54.1% in the second quarter of 2025.

Excluding the tariff refund, gross margin increased approximately 90 basis points year-over-year, fueled primarily by successful AI and data-driven recalibration of our markdown algorithm. Growth in our operating expenses in Q2 and year-to-date 2026 reflect the strategic investments in longer-term initiatives that we are so excited about, which is particularly evident on the marketing line. In the second quarter, we also experienced elevated logistics cost headwinds, particularly in international markets affected by today's dynamic geopolitical environment where variable surcharges on international customer shipments increased meaningfully year-over-year.

Shifting to our bottom-line results, net income was $19 million and diluted earnings per share was 26 cents, which includes a 6 cents gain from [ IEPA ] tariff refunds. This is an increase from diluted EPS of 14 cents in the second quarter of 2025, which was negatively impacted by a loss on the disposal of a former subsidiary as well as a higher than normal tax rate. Adjusted EBITDA increased to $27 million, including a $5.6 million benefit from [ IEPA ] tariff refunds and was achieved while heavily investing in the compelling longer-term growth initiatives discussed earlier, all of which we believe could be game changers. This is up from adjusted EBITDA of $23 million in the second quarter of 2025.

Incidentally, we filed for approximately $8 million in [ IEPA ] tariff refunds, most of which we received and recognized in our second quarter financial results. As a reminder, we successfully mitigated the vast majority of the tariff impact thanks to the great work, agility, and execution by our team. Now I'll conclude by recapping our progress against our longer-term strategic priorities and growth drivers. We're advancing on a strong slate of initiatives and the team's execution has us well positioned for meaningful long-term value creation.

We continue to invest to expand our brand awareness, grow our customer base, and strengthen our connection with the next-generation consumer. We had a very active and impactful second quarter for brand building, featuring incredible activations at REVOLVE Festival and Stagecoach, attended by countless A-listers, our first-ever men's brand marketing and World Cup activations, and aspirational lifestyle events in Monaco and Spain that collectively generated hundreds of millions of press and social media impressions. We are very pleased with the results of our brand building efforts and investments and growth initiatives that drove a record number of new customers and strong growth and active customers in the second quarter.

Second, we continue to meaningfully expand our international penetration, highlighted by 16% net sales growth outside of the U.S. Sales increased across all regions, with Mexico again delivering exceptional growth on the heels of the marketing and service enhancements discussed last quarter. Most impressively, after a weak start to Q2, the Middle East region rebounded to strong double-digit growth for the quarter, helped by our agility and opportunistically capitalizing on driving demand at a time when competitors pulled back. All told, International generated nearly 23% of total net sales in the second quarter, the highest mix we have ever reported. Yet we still have so much white space for future growth in a market that is more than 3 times larger than the U.S. opportunity.

Third, our second quarter results further validate our successful efforts to expand our share of wallet among our loyal customers. The fashion apparel category outpaced our net sales growth in Q2, driven by particular strength from wardrobe essentials, including tops, pants, outerwear, intimates, shorts, and jeans. Emerging product areas of beauty and men's also continue to perform very well, growing faster than the overall business on a combined basis. Finally, we continue to leverage AI to drive innovation, growth, and efficiency across the platform. I'll provide two examples of our incredible progress, one that is customer-facing and another that has delivered huge gains for internal analytics, strategy, and faster decision making.

First, I'm excited by the promising evaluations of an enhancement to our on-site search algorithms that will soon allow consumers to upload photo images to discover similar items from our assortment. For example, a customer could upload a photo of a celebrity wearing a cute dress, and our AI-driven innovation will show the exact item, if available, along with similar items on Revolve to elevate product discovery and drive increased customer engagement and fashion inspiration and serve as a foundational technology for future enhancements. Testing of this feature on the Revolve site will begin in the coming weeks.

Shifting gears, we have also leveraged AI technology to develop proprietary data repositories that serve as powerful in-house analytics tools. For example, our team members can now query our full data warehouse in plain English with AI agents returning insights in minutes with full reporting and analysis. Particularly exciting is a related feature we have developed from scratch to help us elevate the shopping experience and drive higher conversion in our retail stores. Leveraging AI, we built custom algorithms to analyze store visual feeds to provide insight into store performance. As a result, we can now see in real time the traffic and conversion rates by store and floor among many other metrics. This AI innovation has helped us to build the foundational data pieces for physical retail that we've always had in e-commerce.

To wrap up, our business momentum is strong and we are making great progress advancing our exciting longer-term initiatives that further strengthen our foundation for profitable growth. I want to thank our team for their focus, dedication, and resilience that have played such critical roles in delighting our customers every day and positioning the company for future success. Now, over to Michael.

Thanks, Mike. And hello, everyone. We delivered another quarter of double-digit profitable growth while continuing to invest in long-term strategies that we believe will strengthen our brands and accelerate our growth potential. We believe our market share gains validate our core competitive advantages, which position us for continued success over the long term. Our data-driven DNA and proprietary technology infrastructure, our operational excellence and agility, and our powerful brands in connection with the next-generation consumer. With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and that we are especially excited about. Owned Brands and our new Revolve namesake label, FWRD's momentum in the luxury market, physical retail expansion, and our joint venture with [ Cardi B ].

First, owned brands. Our owned brand penetration of Revolve segment net sales increased year-over-year for the sixth consecutive quarter in Q2, with even more excitement and newness ahead in the second half of the year. In late June, we dropped our second assortment of [ Revolve Los Angeles ], the summer collection of our first-ever namesake label. Our brand campaign featured [ Revolve Los Angeles ] and brand ambassador Irina Shayk, who perfectly showcased our brand vision of effortless glamor and confidence. I am thrilled to share that the sell-through metrics for [ Revolve Los Angeles ] drop #2 are even stronger than our first assortment in the early going.

Our Revolve namesake label is a multi-year journey. The focus in this initial stage of the journey is to build the brand with a disciplined and thoughtful integrated product, merchandising, and marketing strategy. The initial drops are beautiful statement pieces offered at higher than average price points that will help establish the premium, aspirational positioning of the [ Revolve Los Angeles ] brand in the eyes of consumers while also providing a halo for the broader Revolve brand and ecosystem, both online and in store. We are deeply investing in marketing strategies to build favorable brand awareness that will be the foundation for driving more meaningful sales volume in 2027 and beyond. To that end, following this initial brand building phase, we plan to introduce Revolve branded offerings in greater depth across additional categories and price points to drive increased demand and higher sales volumes. We are truly encouraged with our progress to date with [ Revolve Los Angeles ]. The product looks incredible and everything is moving ahead as we have envisioned.

Second, FWRD. Our FWRD segment delivered 11% net sales growth year-over-year, roughly 4 times the estimated growth rate of the global personal luxury goods market in 2026, according to Bain-Altagamma Research. FWRD was also a key contributor to our strong second quarter for customer acquisition that Mike discussed. An encouraging rebound in handbags net sales growth in recent months was a key driver of FWRD's impressive growth, including our FWRD Renew pre-owned luxury handbags that are available online and prominently showcased at our retail locations. Also significant, luxury brands are increasingly creating in-demand products that are exclusively available on FWRD.

In June, we launched our second annual FWRD Summer Club capsule that features exclusive to FWRD styles from coveted luxury brands, including Missoni, The Attico, Cult Gaia, and Same, as well as the first-ever [ Flows and Elu ] collaboration. Net sales for the Summer Club capsule increased nearly 50% year-over-year, resulting in very positive feedback from our brand partners. In an industry scarred by retailer bankruptcies in recent quarters, luxury brands increasingly recognized FWRD as a clear winner in the space for the long term. As such, we were proud to recently launch Christian Louboutin on FWRD, an iconic luxury brand with only limited wholesale distribution, including women and men's collections.

Third, physical retail. We remain very excited about the growth opportunity in physical retail ahead of us. With learnings from Aspen and Los Angeles and supported by ongoing investments in our team, operations, and retail technology platform, we are on track to open our third retail store in the fourth quarter. We are excited to expand to greater Miami, a top five market for our business, where we will open in Aventura Mall, Florida's largest retail destination attracting 30 million visitors annually. Aventura is a natural fit for our retail strategy. It will expand our brand awareness and addressable market, will enable us to engage more deeply with many new and existing customers, and gives us a stronger platform to increase the penetration of our owned brands.

Our strong customer concentration in South Florida has been shopping Revolve online for years, and soon we will be able to meet them where they are. Revolve's future storefront is centrally located near other premium consumer brands, ideally positioned for Aventura's high traffic volume from locals and international tourists. Our Aventura store will emphasize experiential retail, including events and activities for our millennial and Gen Z consumers who are drawn to immersive, shareable environments that mirror the communities they engage with online. Our brand partners are also excited to participate in store events to create meaningful brand experiences, such as our successful Skims activation recently held in our Los Angeles store at The Grove. We'll have much more to say on this exciting topic during our November earnings call.

Finally, I'll provide an update on our [ Cardi B ] joint venture, highlighted by the phenomenally successful launch of [ Grow Good ] Beauty products in the second quarter. In short, early demand for [ Grow Good ] offerings has outstripped available inventory across the board. Our first three drops in April, May, and early July sold out within hours, with key products selling out within minutes and our most recent drop in late July had the highest customer repeat rate and highest conversion rate out of any drop thus far. With such incredible demand, brand heat and growing awareness among [ Cardi B ]'s massive following, we have ordered a much larger restock of [ Grow Good ] inventory that we expect to begin receiving this fall as we look to build on the strong early market response.

There are many positive signals that reinforce our confidence in the exciting opportunity ahead. In just a few months, the [ Grow Good ] brand has attracted 670,000 Instagram followers, several hundred thousand consumers have requested back in stock notifications, and an even larger number have signed up to receive product marketing via email, and SMS. Early customer reviews for the products are glowingly positive, with an exceptional customer review score averaging 4.9 out of 5 stars across the [ Grow Good ] product line. This has already led to significant numbers of repeat purchases. In fact, nearly a third of [ Grow Good ]'s orders in early July were repeat customers who had previously purchased the products in April or May, and this ratio was even higher for the most recent drop in late July.

Most exciting is that [ Grow Good ]'s gross margin is highly accretive to our business model, directionally similar to our own brand's assortment. Also notable is that [ Grow Good ] customers are nearly all incremental, with very little overlap with Revolve and FWRD. Exclusively available on [ Grow Good ]'s DTC site, every [ Grow Good ] product direct retails under $20, ideally priced for the mass market. We're still in the very early innings here, and the momentum has us excited about what lies ahead.

To close, we're energized by the momentum across our business and the breadth of initiatives underway that we believe will fuel growth for years to come. We remain committed to investing in our brands, innovating for our customers, and pursuing the substantial market opportunities ahead of us with the same discipline and ambition that have gotten us here. Now I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. We are excited about the current momentum in the business and the progress being made on our growth initiatives that we believe set us up well for further growth and margin expansion. We are very focused on the long term, putting our balance sheet to work by investing in longer-term initiatives to capture further market share, while at the same time striking a balance by delivering profitable growth in the near term. I'll start by recapping our second quarter results and then close with updates on recent trends in the business and guidance for the balance of the year.

Starting with the second quarter results, net sales were $347 million, a year-over-year increase of 12%, our third consecutive quarter of double-digit growth. Revolve segment net sales increased 13% and FWRD segment net sales increased 11% year-over-year in the second quarter. By territory, domestic net sales increased 11% and international net sales increased 16% year-over-year. Growth in trailing 12-month active customers accelerated to 11% year-over-year, surpassing 3 million active customers for the first time. That momentum has carried into the third quarter, reinforcing the strength of our brands contributing to the healthy top line with 11% growth in total orders placed year-to-date to 2.7 million.

Average order value was $299 compared to $300 in the second quarter of 2025. The very slight decrease was driven by initial orders of [ Grow Good ] Beauty products, which have much lower price points and average order values. Absent the addition of the [ Grow Good ] business, AOV would have been in excess of $300, reflecting a slight increase year-over-year. Incidentally, the [ Grow Good ] product sales are included in the Revolve segment and also within the Other category for the Net Sales by Product Category disclosures in our 10-Q filing.

Consolidated gross margin was 56.6%, which was positively impacted by 162 basis points from [ IEPA ] tariff refunds received during the quarter, in the second quarter of 2025. Excluding the tariff refunds, gross margin increased approximately 90 basis points year-over-year with margin expansion across both segments. The Q2 financial highlights presentation posted on our investor relations website today has a breakdown of the tariff refunds recorded to cost of goods sold split between the two operating segments.

Now moving on to operating expenses. Fulfillment costs were 3.3% of net sales, a slight increase from 3.2% in the second quarter of 2025. Selling and distribution costs were 17.9% of net sales and slightly above our guidance range. The 47 basis point increase year-over-year primarily reflects increased costs for customer shipments, including variable fuel surcharge by the geopolitical environment, partially offset by a reduced product return rate. Our marketing investment was 16.5% of net sales, an increase of 130 basis points year-over-year and higher than our guidance. As with the first quarter, we meaningfully increased our marketing investments to support our growth initiatives such as our new [ Revolve Los Angeles ] label and we are continuing to invest in new marketing channels this year for the first time, such as connected TV, which have contributed to some of the variability quarter-to-quarter.

General and administrative expenses were $43.4 million, an increase of 13% year-over-year and slightly above plan as certain strategic growth investments advanced more quickly than we anticipated. Zooming out, the three largest contributors to increase G&A spending year-over-year in the second quarter relate to the longer-term investments in our Revolve namesake label, physical retail, and our joint venture with [ Cardi B ], all of which we are incredibly excited about.

Below the operating line, in the second quarter, we recorded other income of $2.3 million, an increase of $1.2 million from recording other expense of $2.9 million a year ago. Recall that results for the second quarter of 2025 included a $2.4 million loss from the disposal of a former subsidiary, as well as higher than typical foreign exchange losses within other expense. Our tax rate was 25% in the second quarter, consistent with our guidance, and a decrease of nearly 9% from the prior year. Net income was $19 million and diluted earnings per share was 26 cents, which includes a 6 cents positive impact from [ IEPA ] tariff refunds. This compares to diluted EPS of 14 cents in the second quarter of 2025, which was negatively impacted by the charge from the disposal of a former subsidiary and higher than typical foreign currency exchange losses noted earlier, as well as a higher than normal effective tax rate.

Adjusted EBITDA was $27 million, including a $5.6 million positive impact from [ IEPA ] tariff refunds achieved while heavily investing in the compelling longer-term growth initiatives. This was a 17% increase from adjusted EBITDA of $23 million in the second quarter of 2025. Moving on to the balance sheet and cash flow statement. Net cash used by operating activities was $8 million and free cash flow was negative $11 million in the second quarter, primarily due to unfavorable working capital movements that more than offset the increased net income. For the six-month year-to-date period in 2026, we generated positive operating cash flow and free cash flow of $41 million and $34 million, respectively.

Our strong financial position enabled us to continue to invest in the business while at the same time returning capital to stockholders through the repurchase of Class A common shares as part of our commitment to enhancing shareholder value. During the second quarter, we repurchased nearly 500,000 Class A common shares at an average price of $19.98, retiring more than 1% of our Class A common stock in just three months. Inventory at June 30th, 2026, was $276 million, an increase of 25% year-over-year. Of note, the year-over-year growth in inventory is skewed by tariff-related delays experienced in the second quarter of 2025 that resulted in a year-over-year decline in inventory in last year's second quarter. On a two-year stacked basis, comparing our results to the second quarter of 2024, our net sales growth outpaced our inventory growth by approximately 5 percentage points. As of June 30th, 2026, our balance of total cash and cash equivalents was $312 million, an increase of $1 million year-over-year, and we continue to have no debt.

Now, let me update you on some recent trends in the business since the second quarter ended and provide some direction on our outlook to help in your modeling of the business for the balance of the year. But before I do, there are a few items that deserve mention to provide additional color as it relates to our guidance outlook for the balance of the year. First, we still have an additional $1.4 million in outstanding potential [ IEPA ] tariff refund claims that we have not received or included in our financials or guidance. Second, increased net sales of [ Grow Good ] Beauty products in the second half of 2026 could lead to further downward shifts in our combined average order value year-over-year. On the other hand, [ Grow Good ]'s unit economics are highly accretive to our gross margin and bottom-line profitability, so it is a trade we're happy to make. And third, given the reduction in our return rate in the first half of the year, we're feeling more confident in the opportunity to drive it down further over time, though we're not yet baking that into our guidance.

With that, let's start from the top. We're off to an encouraging start with net sales through the month of July 2026, increasing by approximately 18% year-over-year, a 6 point acceleration compared to our growth rate in the second quarter of 2026. Shifting to gross margin, we expect gross margin in the third quarter of 2026 of between 53.5% and 54.0%, which implies a decrease of approximately 88 basis points year-over-year at the midpoint of the range. Embedded in our guidance assumptions are the more difficult gross margin comparisons from the third quarter of 2025, which increased roughly 3.5 points last year and meaningfully benefited from the data-driven recalibration of our markdown algorithms. Consistent with year-to-date trends, we also expect our full price mix of net sales to remain slightly lower year-over-year, but still very strong relative to the broader market. For the full year 2026, we continue to expect gross margin of between 53.5% and 54%, which implies a year-over-year increase of around 25 basis points at the midpoint of the range.

Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.4% for the third quarter of 2026, and between 3.2% and 3.4% of net sales for the full year 2026, unchanged from our previous guidance.

Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.5% for the third quarter of 2026 consistent year-over-year. For the full year, we continue to expect selling and distribution costs of between 17.1% and 17.3% of net sales.

Marketing. We expect our marketing investments to be approximately 15% of net sales in the third quarter and north of 16% of net sales in the fourth quarter with some key brand building investments planned in Q4. For the full year 2026, we now expect our marketing investment to be between 15.8% and 16% of net sales, an increase that largely reflects the second quarter performance and continued investment in our longer-term growth initiatives.

General and administrative, we expect G&A expense of approximately $43.5 million in the third quarter of 2026, and now expect G&A expense of between $170 million and $172 million for the full year 2026, as we continue to prudently invest in key growth opportunities, such as the Revolve namesake label, physical retail, and the [ Cardi B ] joint venture.

And lastly, we continue to expect our effective tax rate to be around 24% to 26% for the full year 2026. To recap, I am very excited about the momentum in the business and believe the growth initiatives we're investing behind have the potential to supercharge our profitable growth and market share gains in the years ahead. Now we'll open it up for your questions.

[Operator Instructions] First question comes from the line of Rick Patel from Raymond James. Your line is live.

I was hoping you can unpack the acceleration that you saw in July to 18% growth. How much of that do you think reflects a strong consumer versus the timing of activation and new initiatives you have? And how are we thinking about the durability of that growth in 3Q and 4Q?

Yes, we feel great about the trends we're seeing in July month-to-date. From our perspective, we don't necessarily see this sign as a broader consumer trend across all companies, but we're certainly seeing nice trends internally. And we think it's a result of a lot of the execution we've done, especially heading out of Q2. We made some larger market investments in Q2. We think those are starting to pay dividends, and we're seeing that in the form of the accelerated growth in Q3. And as we look to the back end of Q3, we're certainly hopeful that we'll continue to see better growth trends in Q3 than Q2, which was also strong.

And then, can you also talk about where your new customer acquisition is coming from? I guess, how do we think about gross customer adds as we think about geography or any particular categories or channels that have been particularly effective?

Yes, so we've seen really broad-based strength across the business, both on the revenue side and the new customer side. So it's really across the board. And internally, there's some key growth drivers. We've talked about international being particularly strong. Of course, domestic category quarter as well. Category expansion is something that we've been investing in for years, and we saw continued progress in the most recent quarter there. And then of course, some of the newer marketing investments that we're making. And of course, when we experiment with some new marketing channels, some of that money in the short term isn't going to work out, but it's still money well spent. And so we feel good about the marketing capabilities that we've layered on with some of these new investments and the ability to drive growth in active customers.

Your next question comes from the line of Nathan Feather from Morgan Stanley. Your line is now live.

Can you have a think through the ramp trajectory for [ Grow Good ] into the back half in '27? And when did it reach that point where it tips over to really being material to results if it's not already? And then any learnings you're taking from that as you think about the owned brand strategy going forward?

Yes. Hey, Nathan. Thanks for the question. Yes, we're really excited about the [ Grow Good ] launches, those first three launches performing extremely well. As we mentioned in this call and in the prior call, you know, the growth has largely been limited by the inventory availability, and we expect to get more inventory in this fall to drive more meaningful top-line growth. And then that will continue into 2027. So I think, you know, if all goes well, by the time we exit this year, we'll have more to say and more granular disclosure on how well [ Grow Good ] is performing.

Thank you. And then can you give a little more detail on what you're seeing on the return rate side? What have you done to continue to push that downwards? And what do you think about the opportunities going forward that remain in order to continue that downward pace?

Yes, so in the second quarter in particular, it's a mix of a couple of things. Part of it is a category mix shift, which is certainly part of an ongoing long-term strategy of ours, and so that had a healthy impact on return rates in the second quarter. Then the other thing, of course, is these initiatives that we continue to roll out or expand against return rate, and so we saw some nice gains there as well. The back half of the year we're feeling good about the direction of return rates, but for now we're forecasting flat. In terms of specific details on initiatives, I don't want to get into specific initiatives, but we're continuing to roll out both existing initiatives that have had some positive impact and continuing to R&D new efforts. And of course, as technology advances, I think there's some really exciting things we can do on the return rate side and the visualization side for customers.

Your next question comes from the line of Michael Binetti from Evercore ISI. Your line is live.

So if we strip out the tariff refund, Jesse, I think the flow-through was a little lower than it's been in a few quarters, but I can hear you guys feel good on the business and where you're at. Is it safe to say that you took the opportunity to invest when you got the refund or that you invested more than you were planning because you got the refund in hand? I'm trying to think about flow-through, how to think about it for the rest of the year, if you don't mind. And then I know you mentioned full price selling was a little lower than last year in third quarter. Can you just comment on what you're seeing in the promotional environment and how you set your expectations for markdowns and full price selling through the year? And then anything you can comment on that the nice July trends you're seeing any comment on the consumer in the U.S. versus international would be appreciated.

Yes, thanks, Michael. So maybe for the first one, we didn't necessarily invest because of the tariff refund. We felt really good about the investments we were making. Like Mike mentioned, we saw some really good results out of the marketing. So I think we would have done those absent the tariff refund, just given the results that we were seeing. Now it is nice to have that tariff refund back. But all in all, I think we're feeling really good about the growth initiatives, those early green shoots that we're seeing in active customers, the strong top-line growth. So again, even absent the tariff refund, we would have invested.

And then full price markdown, you know, markdown is a little bit heavier than we would like. Full price mix is still very healthy, starts with an 8. So really good in the broader scheme of things. But we do expect continued pressure similar to what we saw this quarter for the back half of the year until things start to normalize out. And then in July, not much more to add other than what Mike said. We are just seeing that nice broad-based growth across both segments and geographies. I think really impressive and a surprise to us was the Middle East rebounding into strong double-digits this quarter. We did not forecast that. So I think it is very much a story of the growth initiative starting to play out and just good broad-based growth.

Your next question comes from the line of Anna Andreeva from Piper Sandler. Your line is now live.

We wanted to follow up on the guidance. Can you just talk about what's driving the higher G&A for the year? This line item has grown double-digits really for some time now, and obviously lots of initiatives that are working, but can you talk about where you are in the investment cycle? And secondly, just on gross margin, I'm not sure if you mentioned, what are you seeing with input costs and what's embedded for the rest of the year? And then we have a follow-up as well.

Yes, thanks, Anna. So for G&A, it's largely the growth initiatives that are driving that higher year-on-year growth. If you kind of break that up, we mentioned there was about a 2 point impact to adjusted EBITDA for the full year. About 50 basis points of that is in G&A and about 150 is in marketing. So some really meaningful investments in marketing, but also G&A. As far as the investment cycle goes, it's largely a this year story where we'd expect to start to see some leverage into next year. So if you strip out those growth initiatives from G&A for the year-to-date, G&A was 12.4% as stated. It would be about 11.8%. So that would just show some nice leverage year-on-year.

So that's kind of more indicative of what we'd expect in the out years where G&A is growing in the mid-single-digits. And then, of course, top line, if we continue to deliver that double-digit top-line growth, we should see some meaningful leverage. And then on input costs, we have factored those higher input costs into the guidance, similar to what we did last quarter and what we mentioned. And we are starting to see those trickle in. And that's primarily on those petroleum-based synthetic fabrics, but then also in the other products, just higher mill and factory costs, transportation costs, et cetera. So that's factored into our guidance, and it is a pressure point. But it's not abrupt. It's more of a gradual impact.

Okay, that's super helpful. And just as a follow-up, looking at the gross margins between FWRD and Revolve, so the delta is like 12 to 13 points. Currently used to be higher. How do you think about the potential to further narrow that? Do you think structurally FWRD can be a high 40s gross in business over time and I guess what needs to happen to get there.

Yes, I think contrary to that, we'd hope to expand that differential. FWRD is in a really good place in that kind of low to mid-40s is a good place for FWRD to be. Of course, last year in Q3, we had a really phenomenal 45% gross margin quarter for FWRD. But in that, you know, that low to mid-40s is a good place for FWRD to be. Now, we'd tend to expand that differential given the own brand expansion on the Revolve side. We're still caught around 20% on Revolve versus the 36% that were back in 2019. So as we continue to expand own brand penetration, we'd expect to see that Revolve gross margin expand.

Your next question comes from the line of Janine Stichter from U.S. Bancorp and BTIG. Your line is now live.

Want to ask about [ Revolve Los Angeles ]. I think you mentioned that you're planning to expand it to more categories and price points. Can you elaborate on exactly where you're going and the timing of that? And then on marketing, just curious for your thoughts on what the right percentage of marketing is. Is that something we should expect to see leverage next year once we get past this big investment year for [ Revolve Los Angeles ]? Thank you.

Yes, for [ Revolve Los Angeles ], it's positioned initially out the gates as our premium pinnacle product, akin to a Ralph Lauren Purple Label. And over time, we'll extend to a range of categories. Our customer shops us across her entire closet, so we really see an opportunity for Revolve label product to be in every aspect of our wardrobe, whether that's particularly [ Revolve Los Angeles ] or another Revolve label. We're super excited because the early stages are going extremely well. It really gives us permission and license to expand the Revolve label products into every aspect of her lifestyle. So very excited about that.

Yes, and then with regard to marketing, we've had some great opportunities to invest this year, some newer channels, some channels that are really checking well, as well as big initiatives to put dollars behind. So, market investments are up a bit this year. We're always going to play the line item, the marketing item, a bit quarter-to-quarter depending on the opportunities that we see and also what we have going on strategically. But as we look forward to next year, I would expect that marketing line item to come down a bit since we've invested heavily this year.

Your next question comes from the line of Peter McGoldrick from Stifel. Your line is now live.

I wanted to ask about inventory levels. So you pointed out the inventory build measures favorably on a two-year stack. Can you help us think about the flow of goods relative to your forward plans?

Yes, thanks, Peter. So last year, and just to kind of reiterate what we said, we did see receipt delays last year in the height of the tariff uncertainty. So inventory was down last year. We're seeing really healthy receipts this year. So if you look on a two-year stack basis, net sales is outpacing that inventory growth by about 5 points. Now with that, inventory is a little bit heavier than we would like, still within the range of normal for us. We'll continue to see that comp dynamic in Q3 before it normalizes in Q4, but starting to see really healthy receipts as we look into the back half of the year.

Yes, thanks for that. And then on [ Grow Good ], it's encouraging to hear the really strong start. It seems you're seeing strong repurchase behavior out of the gate. Can you tell us about the potential for crossover behavior with the Revolve segment? And then, you mentioned [ Grow Good ] was reflected in the AOV metric. Is that also influencing your active customer numbers?

Yes, on the [ Grow Good ] side, yes, we're encouraged by a lot of metrics on [ Grow Good ], you know, certainly the off the charts demand, but the repeat and retention rates have been really strong with the most recent drop approaching 40%, which for a brand this early is an incredibly good sign because, you know, it's only one thing to command the attention of consumers, but you want them to love the product and you want them to come back, the retention rate showed they're liking the product and then also, you know, you look at the product reviews and all that, I think we have a hit on our hands. And then with regards to the AOV question, yes, [ Grow Good ] had certainly had an impact on AOV in the quarter. Absent [ Grow Good ], AOV would have been up. It's a bit of a different business model than Revolve, but still actually much higher AOVs than we initially anticipated when we projected and forecasted that business because we're seeing consumers make purchases with lots of items.

Yes, and Peter, to your question, because it is consolidated, [ Grow Good ] is reflected in all of the metrics, including active customers.

Okay, are you breaking that out?

Not at this point. And when it gets more meaningful, which ideally is later this year when we get the higher inventory receipts, then we'll start breaking that up more granularly.

All right, thank you and continued success.

Your next question comes from the line of Mark Altschwager from Baird. Your line is now live.

First one on stores with Miami coming, you'll have three and I think probably a better read on what that means for the halo. What do you need to see from these stores to shift from opening one store per year to committing to perhaps a faster pace of rollout? And is there a market count that you're thinking about in your head yet that you're willing to share?

Yes, going backwards, not necessary at this point in terms of count. I think one thing that is really up for grabs, I think how we think about it internally is square feet. I think that we're really in the early stages of figuring out the appropriate format, hopefully, you know, how large these stores can be. We can see cases of much larger stores, or we can also see cases of a high number of smaller stores, depending on, you know, what we've seen in the marketplace in terms of, you know, works. I mean, we're all not really, this is, you know, the patient, you know, build out of the infrastructure process and technology for us. This is really making sure that we have this, you know, the robust systems that we have in our e-commerce business that we can roll out in a very, very aggressive way.

What we're trying to do is a little bit different than other chain type stores where every store is identical. We're really seeing that with our broad mix, we really have this huge opportunity to really connect with our customer in each neighborhood and each territory in a very unique way, as well as a combination of high volume and high touch service. I think we're in uncharted territory in a very, very cool opportunistic way. The early stages have mixed, you know, very, very awesome with a lot of learnings. But also there's a lot of investment, you know, across the board with, you know, technology team process and, you know, everything needed to be, you know, achieved $2 billion plus in revenue. So patient and slow up front so we can be super speedy and powerful over the long term.

Thank you. And follow-up for Jesse on gross margin. You're holding the guide for the year, even as those tariff refunds are now hitting the numbers. What are the incremental offsets you're considering? Is that the working in of higher markdowns given the inventory levels being slightly higher than you wanted, you mentioned? Or is there anything related to tariff Section 301 changes that are impacting the outlook? Thank you.

Yes, yes, we held the margin guidance for the full year the same. With the tariff refunds, it's at the high end of that guidance. And then without the tariff refunds, it's at the low end of the guidance. I would say margin is still within our expectations that we laid out last quarter. So nothing significantly changed there. Still within the range. Now the new Section 301, we have factored in the new, call it average 12.5%, not any incremental that could come in a later phase. So that is a potential, but that to my understanding is still under investigation and timing is uncertainty. So right now it's just the 12.5%.

Your next question comes from the line of Matt Koranda from Roth Capital. Your line is now live.

I guess the question has been asked in different ways before, but maybe I'll attack from a different angle. The July acceleration, any categories that you guys want to call out as showing sort of the most strength. And then just remind us, maybe Jesse, if you could, the cadence of comps from third quarter last year, so we know sort of how much more difficult they get for the remainder of the quarter.

Yes. Yes. So on the comp, I'll take that first. So, as you recall last year in the Q2 earnings release, we said July was up 7 and then we closed the quarter at plus 4. So it does indicate that comps get a little bit lighter for this back half of the quarter. And then Q4 pops back up to 10%, so they get a little bit tougher in Q4. But again, really pleased with not just that one-year growth, but growth that increased sequentially in each month of Q2 and further increased in July. So feeling good about the underlying momentum. And I don't think there's anything really specific to call out on any category other than to say just continued momentum across both segments, Revolve and FWRD, and domestic and international. And I guess, you know, maybe the one, you know, which is relevant to Q2 as well. We continue to see men's, beauty, home outpace the overall growth. So again, speaking to that category diversification, that continues to play out nicely.

Okay, great to hear. And then maybe just one more on, sounds like the owned brand expansion is going really well, just given some of the commentary that you gave. But I guess it doesn't seem like it's coming through in the gross margin outlook. I guess, can you just speak to the factors at play there and why the gross margin outlook wouldn't be a little bit higher given the mix of owned brands is improving for the remainder of the year?

Yes, we feel great about the owned brand progress. It is increasing year-over-year, that penetration on the Revolve segment. That said, it's increasing at a very, call it, modest rate and I think we mentioned this in prior quarters too, where we wouldn't expect to see that rapid expansion that we saw back in 2018-19, but more like a 1 to 2 point expansion per year. With more opportunities as we expand the categories under [ Revolve Los Angeles ] and some other things, but at this point, it's a more modest increase on own brands. And then offsetting that, of course, is what we've talked about, the slightly lower full price mix and some of those input costs. So kind of net-net, all reflected in the guidance, but there's some offsets to that own brand penetration.

Your next question comes from the line of Jay Sole from UBS. Your line is now live.

Mike, my question is for you. Just talking about AI, it sounds a lot of different initiatives are happening. How much of all these different initiatives giving you better visibility into, you know, demand planning, inventory management, in terms of can you look out now two quarters or three quarters longer than before, just because you have better information and a better idea of where things are going and better intelligence. Maybe just gives a sense of how you just, your confidence in predicting and forecasting the business and taking, you know, as making long-term investments, given what you've done in AI? That's the first question. Thank you.

Yes, so AI is certainly having a huge impact on our ability to properly optimize our inventory, forecast what categories are going to do the best, analyze recent trends in the business. At the same time, our focus was primarily on how do we leverage those things to increase sales, increase demand. And we've been seeing some really nice results the past four quarters and certainly a meaningful portion of that, I think, is driven by a lot of these enhancements, both from a back end in terms of optimizing category mix and product mix and those sorts of things to meet demand of customers. And then on the front end is when customers visit, you know, to make sure we're putting the right products in front of people.

And what's exciting to me is it's so early on, right? And I think we have much cooler things, both already in beta and test internally, and then certainly in the works as part of longer-term plans that can really help us optimize things. That said, as you look from a planning the forecast standpoint, I think for us primarily the benefit of AI and technology to date has really been optimizing the mix on the marketing side, the inventory side, what to show to customers. And there's still going to be some level of uncertainty as far as consumer confidence and how the wind shift and further out quarters. But we feel good about our ability to project those things. And our target for this year was to achieve double-digit plus growth. And I'd say we're well on our path achieving that forecast.

Got it. Maybe one other question. Can you talk about the token costs? You know, as you've invested more in AI, I mean, have you been able to control token costs? Like how have you done that? Is it impacting SG&A? Any thoughts on that would be helpful. Thank you.

Yes. So that's a big area of focus. You know, at the same time, we're trying to strike the balance of not squashing innovation internally. And so, you're right, like, you know, certainly part of, not a meaningful part, but not negligible either. Some of the increased G&A is token costs. And we have a number of internal optimization strategies that we both executed on and are continuing to execute on. But at the same time, we're trying to balance that with giving our employees some reasonable free reign to innovate, even if it means we're not fully optimized because we think the value of that innovation is going to pay off big in the long term.

And maybe, Mike, if I can ask one more. It's just, you know, with some of the development of these open source models that have, you know, much – that seem to be much lower cost, I mean, is that an opportunity for the company? I mean, how do you think about open source versus maybe closed source models?

100%. We're already leveraging open source models in a very significant way. And so we already have optimizations in place that can route certain types of tasks and queries automatically to where we think it's going to still produce the result we need, but with the cheaper open source model. So yes, and I think long-term open sources in some of these lower cost models is going to be a huge part of the mix. It's already a huge part of our mix, but at the same time, kind of on the sort of foregrounds of innovation, I know a lot of times our employees like to use the latest and greatest. And so, we give them some leash to do that, even if it isn't fully optimized just because again, I want to strike that balance between giving them some free reign while controlling costs, but 100% like equally important to the AI innovation is parallel cost efforts and optimization efforts constantly analyzing, okay, what work was done on the frontier models that we can move to a cheaper model or an open source model and you know the difference between the frontier models and the open sources that gap is diminishing day by day. So you know we feel very good about our efforts there and long term our abilities to optimize cost versus benefit.

Your next question comes from the line of Oliver Chen from TD Cowen. Your line is live.

The active customer growth in top line has been impressive. How do you see where you are relative to past longer-term algorithms? You clearly have a lot of investments as well that you're making on the OpEx side that seem really prudent for where you're going, but how might we contrast this and how you're thinking about the algorithm top and bottom line relative to years past and the snapshot we're seeing now. And then on that topic of AI, Mike, reinforcement learning and how that intersects with personalization, is that on your mind as a material driver and then specifically as you continue to think about physical how can you do the rapid A/B testing and the inventory management and the personalization engines that you run physically or what's on your mind for scaling that? Because I think it can be harder to do stuff that you do digitally so quickly within seconds, you know, in a physical environment.

Yes, 100%. So just to continue the AI thread, I'll start on the AI question with regards to the impact of AI on personalization and just bringing the right product to customers at the right time. You know, I think the impact there is potentially absolutely huge. I think we're very early on. I think we have great personalization capabilities compared to others. I think we're just scratching the surface of what we can do with that, particularly from the standpoint of contributions. But at the same time, you know, I don't want to say every week, but it seems like every week, you know, at least every month, you know, the team comes to me with something new and innovative and interesting, and we have some really nice things in the works, you know, AI-driven further enhancements to our search. And I know search doesn't sound sexy, but it's really the building block of how do you get customers the product that they want at the right time, what they're looking for, that are even better than the enhancements that we've already made.

And then I think actually we can roll out a nice way to the buying side. We can use that same building block to optimize the inventory management further, just further ability of AI to really dissect and diagnose products and understand how to categorize things and the difference between one product and another and what consumers are really gravitating towards. So opportunity for that is absolutely huge. With regards to physical stores, you're right. It's a different beast for us. And for us, there's a learning curve on some of those elements, including us, I don't want to say discovering because it's common sense, but like, you know, on the site, you can change an algorithm or swap out inventory instantly, kind of no cost in terms of what you're showing to a customer, but obviously with physical, you have to be much more deliberate.

At the same time, what I'm really excited about is, our continued kind of growing abilities on the physical side with regards to just kind of all of the kind of historical learnings and infrastructure and team and basics that maybe some other stores already have in place, but then really leveraging in the kind of innovation that I think only Revolve or certainly very few can bring to the table, including some of the AI innovations, analyze the video feeds, and give us real-time metrics on what's going on in the store, and diagnoses, and recommendations, and all that. So I think it's quite exciting the direction that we're going in, as Michael said. We want to make sure we get it right before moving too fast, but it's quite exciting for us.

And then finally, with regards to the active customer and top-line growth, yes, we're really pleased and I think it's a combination of things. I think from a sort of trajectory change, we're still in the early innings on some of these big growth initiatives, physical and [ Grow Good ]. And certainly they're contributing some growth, but I wouldn't say at this point that's kind of the large part of the growth acceleration you're seeing is from those initiatives, but they're already starting to contribute a bit. And then I think the rest of it is a lot of the core things that we've been doing in terms of how we've been executing and us getting better and better at how we execute the core business. And I think you're really seeing that in some of the acceleration of the numbers there.

Is low double-digit the new normal for active customer growth? And when you think about cohorts and demographics, is that changing as you continue to scale, or is it holding? And then should OpEx grow faster than profits grow slower or faster than sales, in acknowledging that you're making investments that are creative, but over a certain time horizon.

Yes, I don't want to necessarily say that low double-digits is the new norm for active customers. Maybe what I would say is that net sales growth and active customer growth get closer together and align closer than they have in the past, especially given all the wild comps we've had over the last five years. Looking ahead, net sales growth in the double-digit, active customer growth in the double-digit. Variable costs are largely variable. Some leverage on marketing as we exit this investment year. And then G&A is where you see the real leverage as we comp the growth initiatives. And if we're growing top line double-digit and G&A mid-single-digits. And then the other big piece, the big driver there is gross margin. If you back out the tariff refunds year-to-date, we're at 53.8 and our target is to be at 55. So you get a solid point or more out of gross margin and then the leverage on G&A gets you up to that 50% profit growth that we'd expect to see in 2027 and beyond.

Your final question comes from the line of Simeon Siegel from Guggenheim. Your line is live.

Hi, this is John Elias on for Simeon Siegel. You noted lower full price sales mix this quarter. Just curious, are there any product categories you would call out there? And then it's great to see the buyback activity in 2Q. How should we think about capital allocation for the rest of the year.

Yes, the full price mix is a little bit lower year-over-year. We had a really phenomenal full price mix last year. So it has come down off of that, but still starts with an 8, still very healthy. And that's been increasing at a good rate over time. So we feel good about that mix. So in capital allocation, we feel really good about our position and that we're able to not only buy back shares, but invest in these growth initiatives at the same time and pursue opportunistic M&A. So it's a really great place to be. No comment on the balance of the year in terms of M&A or buyback, but there is continued growth investments in the back half of the year that's reflected in our guidance.

That concludes our question and answer session. I will now turn the call back over to management for closing remarks.

Thank you for joining us once again. We're very proud of another quarter, and particularly the healthy top line, and exiting with an even healthier top line. While we have many investments that we've discussed, many of them are not contributing in meaningful ways yet. So we're very excited for the results in future quarters and years ahead. Thanks, guys.

This concludes today's conference call. You may now disconnect.

Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Revolve Group First Quarter 2026 Earnings Call. [Operator Instructions]

And I would now like to turn the conference over to Erik Randerson, Senior Vice President of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's first quarter 2026 results.

Before we begin, I'd like to mention that we have posted a presentation containing Q1 2026 financial highlights to our Investor Relations website located at investors.revolve.com.

I would also like to remind you that this conference call will include forward-looking statements including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, our marketing events and our expected impact or physical retail stores, our own brand expansion our use of AI, our partnerships and our outlook for net sales, gross margin, operating expenses and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our annual report on Form 10-K for the year ended December 31, 2025, in our subsequent quarterly reports on Form 10-Q all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented in prepared in accordance with GAAP and Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures as well as the definitions of each venture, their limitations and our rationale for using them can be found in this afternoon's press release and in our SEC filings.

Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions.

With that, I'll turn it over to Mike.

Hello, everyone, and thanks for joining us today. Outstanding execution by our team within a dynamic operating environment led to strong first quarter results and continued market share gains, highlighted by our net sales increasing 16% year-over-year, our highest growth rate in nearly 4 years. This growth acceleration, particularly in the current environment, is evidence that our investments in brand, technology and AI, site experience and category diversification are paying off. In addition to our strong top line growth, diluted earnings per share increased 25% year-over-year despite a several million dollar increase in marketing investments year-over-year to support our growth initiatives, including the launch of Revolve Los Angeles, our first-ever namesake label that we are incredibly excited about. And we generated $49 million in operating cash flow significantly strengthening our pristine balance sheet with cash and cash equivalents increasing to $336 million at quarter end.

Our core underlying business metrics illustrate our increased engagement and deepening connection with next-generation consumers. Year-over-year growth in active customers accelerated in Q1, and we are generating increased revenue per active customer, fueled by our success in capturing a greater share of the consumer's wallet and a lower product return rate year-over-year.

Beyond the numbers, I am most excited about our visible progress and longer-term initiatives, such as international expansion and advancing our use of AI technology that have become key contributors to our momentum and reinforce my confidence that we will continue to drive profitable growth in the future. Continuing with our longer-term initiatives, Michael will talk about the exciting new chapter for our own brands assortment with Revolve Los Angeles as well as an important new milestone in our physical retail expansion. We view each of these initiatives as potential game changers for our business over the long term. Our ability to invest in and execute on many exciting initiatives simultaneously underscores that our strong cash flow and balance sheet are key competitive advantages particularly at a time when many industry peers with weaker financials are stuck playing defense.

With that as an introduction, I will step back and provide a brief recap of our Q1 results before reviewing the progress on our longer-term initiatives. Net sales for the quarter were $343 million, an increase of 16% year-over-year, a more than 5-point sequential improvement from our 10% year-over-year growth rate in the fourth quarter of 2025. Gains were broad-based as year-over-year growth rates improved across Revolve, forward, domestic and international compared to the year-over-year growth rates in the fourth quarter with double-digit growth across the board. Also notable is that our dresses category net sales accelerated by 13 points compared to the fourth quarter of 2025 performance, and we delivered even stronger growth in fashion apparel, validating the momentum behind our category diversification strategy. The strong start to the year puts us on a good path to achieving our goal of double-digit revenue growth in 2026.

By segment, Revolve net sales increased 15% and forward net sales increased 17% year-over-year. These were our highest growth rate since 2022. By territory, domestic net sales increased 15%, and international net sales grew 20% year-over-year in the first quarter. We achieved these outstanding international results despite a meaningful slowdown in the Middle East that has continued into the second quarter amidst significant geopolitical uncertainty.

Shifting to our bottom line results. Net income was $14 million and diluted earnings per share was $0.20, an increase of 25% year-over-year. Adjusted EBITDA was $21 million, an increase of 9% year-over-year all while investing in a number of meaningful growth initiatives, including investments to position the new Revolve Los Angeles assortment for long-term success. Most exciting is that our profitable growth once again converted very strongly to cash flow. Our business generated a $33 million increase in cash and cash equivalents in the first quarter alone, even while investing $11 million in January for a synergistic minority investment.

Now I'll conclude by recapping our progress against our longer-term strategic priorities and growth vectors. We have many exciting initiatives underway, and the team has done a great job executing to position us to deliver meaningful value for shareholders over the long term.

First, we continue to efficiently invest to expand our brand awareness, grow our customer base and strengthen our connection with the next-generation consumer. I could not be more excited about our recent brand team that Michael will talk about in his remarks ranging from the impactful and well-received launch of Revolve Los Angeles to an incredible and efficient Revolve Festival held last month attended by countless A listers. The recent launch of Grow Good Beauty developed in partnership with Cardi B also serves as a powerful demonstration of our brand-building capabilities, 1 that exceeded our highest expectations, amassing several billion impressions and 640,000 Instagram powers within days of the official launch.

Second, we continue to successfully expand our international penetration highlighted by 20% growth outside of the U.S. in the first quarter. It was the 13th straight quarter that international growth has outpaced the U.S. and we are still very early in our journey. I'm particularly excited about a strong growth resurgence in Mexico following our launch of elevated service levels and an impactful new marketing playbook in recent months. In fact, new customers in Mexico increased more than 80% year-over-year in the first quarter contributing to our improved growth in active customers.

Third, our first quarter results provide further confirmation that our investments to capture market share in the luxury segment are paying off. Ford net sales grew 17% year-over-year our highest growth rate in 4 years and foreign gross profit increased 36% year-over-year. Notably, at a time when the world's largest multi-brand luxury retailer is closing most of its store locations, we are rapidly expanding our customer base attracting coveted new brand partners and having particular success in generating increased sales from high-value customers.

Finally, we continue to leverage AI to drive growth and efficiency across the company including to further elevate the shopping experience and drive higher conversion. I'm pleased to report that we have successfully tested and recently launched into production, our internally developed generative AI feature discussed last quarter that services contextually relevant questions and answers about our products. This new feature is now live on our Revolve mobile channel for our vast assortment of dresses and delivering meaningful gains. The conversion lift was so compelling that our team is already hard at work to expand our A/B testing to include additional channels and product categories, consistent with our efforts to continuously raise the bar on the customer experience.

Also notable, we use generative AI to significantly assist in the creation of marketing collateral for the incredibly successful launch of Grow Good Beauty that Michael will talk about in his remarks. It's another great example of how we are able to leverage our data-driven culture and AI technology innovations to drive revenue and efficiency throughout the company.

To wrap up, I would like to thank our passionate and innovative Revolve colleagues for their incredible efforts in driving strong results in the first quarter, while also advancing our exciting longer-term initiatives that further strengthen our foundation for future profitable growth. It is gratifying to see our team so energized by these growth opportunities, such as physical retail, international and AI expansion, which we believe give us the opportunity to accelerate our market share gains. The current momentum in the business and the great progress on our initiatives reinforces my confidence in our ability to drive profitable growth in 2026 and beyond.

Now over to Michael.

Thanks, Mike, and hello, everyone. We delivered an outstanding first quarter with strength across geographies, segments and categories. It is gratifying to see the strong results from the investments we've been making over the recent quarters. Our top line is accelerating, brand heat is building and customer connection is strengthening. We believe this momentum in the business illustrates our core competitive advantages that position us for continued success over the long term. our technology and data-driven DNA and proprietary technology infrastructure, our operational excellence and agility and our powerful brands in connection with the next-generation consumer.

With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and that we are especially excited about, the launch of our first-ever Revolve label, our ninth Annual Revolve Festival physical retail expansion and our joint venture with Cardi B.

First Revolve Los Angeles. For years, Mike and I have talked about launching a Revolve namesake label. Over the past 23 years, we have diligently focused on building Revolve as a brand, a true brand beyond just a fashion retailer. With this focus and disciplined investment, we have earned the trust and loyalty for millions of Revolve consumers, resulting in incredible brand power we are truly unique as a multi-brand retailer that consumers completely trust to provide fashion discovery.

As background, our customers rarely search for a specific brand on Revolve. In fact, less than 10% of products added to shopping carts on Revolve originate from a brand page. Instead, our community views revolve as their preferred destination to discover what is new and on trend from our edits of more than 1,600 brands, which is very different from other retail destinations.

On countless occasions, I have met customers who are excited to share that they are wearing Revolve. They can't remember which brand they are wearing, but now they bought it on Revolve.

And with that as context, we couldn't be more excited to leverage our brand strength, design, talent and operational excellence to provide our customers with a true Revolve label.

In March, we introduced Revolve Los Angeles, our first-ever namesake label that features elevated apparel and evening were to fill a genuine gap in the market. It aligns with our expansion into physical retail, allowing customers to engage with our brand in real life and in a more permanent meaningful way. We believe this new collection could expand our market opportunity and create a halo effect on the entire business. Revolve Los Angeles is just the beginning of a new Revolve branded assortment that will extend across categories and price points over time. Since we see incredible potential for this initiative, we are investing incremental brand marketing dollars to drive its success. We have invested in elevated print, billboard, YouTube and Connected TV brand advertising featuring Revolve Los Angeles brand ambassador, Bella Hadid, who perfectly embodies the brand's quintessential Los Angeles Energy. We estimate that the impactful campaign has already generated more than 200 million impressions, creating 1 of the most powerful brand moments in our 23-year history. Revolve and Forward also sponsored the ultra-exclusive and prestigious Vanity Fair Oscar after-party where Amelia Gray impress in a striking black down from Revolve Los Angeles.

These longer-term investments are already creating favorable awareness and moving the needle. During March, consumer interest in the Revolve search term increased more than 40% year-over-year according to Google Trends. We are also continuing to see strength in revolve mobile app downloads, which increased by more than 50% year-over-year in March. This is particularly exciting, considering that our mobile app converts at a much higher rate, and app customers have the highest expected lifetime value by a wide margin.

Second, Revolve Festival. On April 11, we hosted our ninth Annual Revolve Festival in Coachella Valley, an exclusive experience where everything we're known for comes to life, blending fashion, community and culture. Every year, we push ourselves to create something more immersive more unexpected and more iconic than the last. Our team met the challenge and again raised the bar, delivering an incredible lineup featuring Dan Tolliver, Kehlani and Mustard that captivated the crowd of A-Listers and kept the energy buzzing throughout.

Built for the next generation of fashion consumers, Revolve Festival ensures that our brand stays connected and strong with the trend-setting young consumers who define what's next. In true Revolve fashion, our event transforms every detail into a story worth sharing on social media with curated photo moments and immersive brand activations that put Revolve and forward looks at the center of the cultural conversation.

Our brand elevating event delivered an incredible experience to our community of celebrities, brands, content creators, partners and fans attending what 1 editor called the real main stage of the weekend. The impressive range of A-Listers and attendance included Tiana Taylor, who looked stunning in a futuristic gown from our Revolve Los Angeles label. Black Pink members Jenny and Lisa, who turned head styled in our Halo owned brand. Emma Roberts, Gabriette, Becky G, members of Katseye, Damson Idris, Charlie and Dixie D'Amelio, members of Vinnie, Dwayne Wade, Page Beckers, Cameron Brink, Tyga, Big Shawn, Thomas Doherty, Sean White with Kalifa, Rachel Zoey, Victoria Justice, Ty DollaSign, Alandria Karthen, Lia Cateb and Dylan Efron.

The proof of our success is in the incredible numbers. Revolve generated the highest earned media value among all brands during both weekends of the Coachella Music Festival. Even though our Revolve Festival was only held during the first weekend according to Creator IQ, an influencer marketing analytics firm, as icing on the cake, the top-performing posts during the entire Coachella festival generated nearly $25 million in earned media value for Revolve according to Meltwater, a media intelligence firm.

Third, physical retail. We remain very excited about the growth opportunity in physical retail over the long term. As we approach its 2-year anniversary, our Aspen store continues to achieve great progress on the top line and conversion gains year-over-year. We are especially pleased with our recent performance, considering that Aspen Tourism has declined year-over-year in recent months, coinciding with well below average snow conditions during the ski season. Our investments in the team, operations and retail technology platform are clearly paying off and further raising the bar on our go-to-market retail strategy.

While our Los Angeles store at The Grove is just getting started, several of the early metrics are encouraging. The owned brand mix of net sales at The Grove in Los Angeles is meaningfully higher than online and improving month-over-month. Also very exciting, even in our L.A. roots, where the Revolve brand has the highest consumer awareness, we are seeing a measurable lift in e-commerce sales in the local community surrounding the growth. This illustrates the halo effect synergies between retail stores and our core e-commerce operations and further validate physical retail as a key growth strategy for increasing brand awareness acquiring new customers and expanding our market share as stores generate over 60% of global retail spend on apparel and footwear.

With these positive signals and the momentum of our brands bolstering our confidence, I am thrilled to share that we have signed a lease for an incredible retail store location in Miami. We expect to open our doors by year-end in what has become 1 of our strongest U.S. markets. At a recent Miami event held for our VIP clients, our vibrant community of local customers were beyond excited to learn we were opening a store nearby.

Before I close, I'll provide an update on our joint venture with Grammy award-winning performer and global style icon, Cardi B. The partnership leverages our strong operational brand building and marketing expertise with Cardi's powerful brand, trendsetting fashion and beauty inspiration and a global audience that extends well beyond our current core target demographic. We recently launched the Grow Good Beauty assortment of hair care products with Cardi and early results have exceeded expectations. In fact, every product sold out in less than an hour during a March presale event and sold out again in less than an hour when we officially launched the Grow Good brand in April. Cardi's and our teams did a great job driving awareness leading up to the launch promoting grow good on impactful social channels during Cardi's sold out tour of 30 cities across North America and at Revolve Festival the brand was also prominently featured during Cardi's appearances on The Today Show, the Tonight Show starring Jimmy Fallon and in press features, including WWD, Allure, Essence, Marie Claire and People.

Most striking is Grow Good's rapid ascent to over 640,000 Instagram followers in a matter of weeks. But compared to Cardi's 164 million Instagram followers, the gap underscores the brand's extraordinary untapped potential as we look ahead. The market response has been exceptional, and we're moving aggressively to scale on the back of that early demand. We're just getting started and are very excited to build on this early momentum.

Wrapping up, our continued profitable growth and strong balance sheet are strategic advantages that give us the capacity to invest for long-term success from a position of strength. With the acceleration in the business, it's clear that our investments are working, setting us up for our next phase of growth. We have incredible momentum, and I am more excited than ever about our many initiatives underway that we believe will enable us to gain further market share in 2026 and beyond.

Now I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. I am very proud of our first quarter results, highlighted by strong double-digit growth in net sales and earnings per share and meaningful cash flow generation that further solidifies our balance sheet. I'll start by recapping our first quarter results and then close with updates on recent trends in the business and guidance for the balance of the year. Starting with the first quarter results.

Net sales were $343 million, a year-over-year increase of 16% and a more than 5-point improvement from our net sales growth in the fourth quarter of 2025. Revolve segment net sales increased 15% and Forward segment net sales increased 17% year-over-year in the first quarter.

By territory, domestic net sales increased 15%, and international net sales increased 20% year-over-year.

Growth in trailing 12-month active customers accelerated to 8% year-over-year, increasing to $2.9 million. Contributing to the strong top line was 12% growth in total orders placed year-over-year to $2.6 million. Average order value was $298, an increase of 1% year-over-year. The increase was driven by growth in average selling price, or ASP, that was partially offset by lower units per order. Consolidated gross margin was 52.7% and an increase of 68 basis points year-over-year that primarily reflects meaningful margin expansion in our Forward segment. The slight margin decline year-over-year in our Revolve segment primarily reflects a slightly lower mix of full-price net sales compared to the first quarter of 2025 and partially offset by shallower markdowns and an increased mix of owned brand net sales year-over-year.

Now moving on to operating expenses. Fulfillment costs were 3.1% of net sales, outperforming our guidance and a slight decrease year-over-year. Selling and distribution costs were 16.8% of net sales, outperforming our guidance by 30 basis points and a slight decrease year-over-year, contributing to the better-than-expected result was a decrease in our return rate year-over-year partially offset by higher shipping costs.

Our marketing investment grew to 15.8% of net sales, an increase of 152 basis points year-over-year. Consistent with our guidance, we meaningfully increased our marketing investments to support exciting growth initiatives such as the launch of our Revolve Los Angeles label.

For the second straight quarter, we achieved operating leverage year-over-year in general and administrative expenses, all while making meaningful investments in various growth initiatives. In dollar terms, G&A expense of $42 million exceeded our guidance. Most of the overage, however, reflects costs that are excluded from adjusted EBITDA, including nearly $700,000 in nonroutine costs that were not factored in our outlook and higher-than-anticipated stock-based compensation expense as our business momentum drove an increase in equity compensation tied to performance objectives.

To align our interest with shareholders, a meaningful portion of our equity grants are performance-based with vesting tied to achievement of long-term targets. Below the operating line, other income increased to $2.7 million from $900,000 a year ago. Our tax rate was 25% in the first quarter, a decrease of approximately 1 percentage point from the prior year. Net income was $14 million and diluted earnings per share was $0.20, an increase of 25% year-over-year. Adjusted EBITDA was $21 million, an increase of 9% year-over-year.

Moving on to the balance sheet and cash flow statement. We generated $49 million in net cash provided by operating activities and $45 million in free cash flow an increase of 9% and 5% year-over-year, respectively. The healthy cash flow generation has further strengthened our balance sheet and liquidity.

As of March 31, 2026, our balance of total cash and cash equivalents increased by $33 million or 11% in just 3 months compared to year-end 2025, and we continue to have no debt.

Inventory at March 31, 2026, was $245 million, an increase of 15% year-over-year, broadly consistent with our 16% net sales growth for the first quarter.

Now let me update you on some recent trends in the business since the first quarter ended and provide some direction on our outlook to help in your modeling of the business for the balance of the year.

Starting from the top, we're off to an encouraging start with net sales through the month of April 2026, increasing by approximately 14% year-over-year. For modeling purposes, I want to point out that we face more difficult prior year comparisons for the rest of the second quarter as net sales in April 2025 following Liberation Day were softer than normal due to peak tariff uncertainty before rebounding into the low double-digit growth territory for the months of May and June 2025.

Shifting to gross margin. We expect gross margin in the second quarter of 2026 of between 54.1% and 54.6%. The which implies an increase of 25 basis points year-over-year at the midpoint of the range. For the full year 2026, we now expect gross margin of between 53.5% and 54.0% and which also implies a year-over-year increase of around 25 basis points at the midpoint of the range. The slight decrease from our prior full year guidance reflects the first quarter results and slightly lower trending of full price mix of net sales year-over-year.

Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.2% for the second quarter of 2026, consistent with the second quarter of 2025. For the full year 2026, we continue to expect fulfillment costs of between 3.2% and 3.4% of net sales.

Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.5% for the second quarter of 2026, an increase of approximately 10 basis points year-over-year. For the full year, we continue to expect selling and distribution costs of between 17.1% and 17.3% of net sales.

Marketing. We expect our marketing investment to be approximately 15.7% of net sales in the second quarter and between 15.3% and 15.8% for the full year 2026, unchanged from our prior guidance.

General and administrative. We expect G&A expense of approximately $43 million in the second quarter of 2026 and now expect G&A expense of between $164 million and $168 million for the full year 2026. Approximately half of the increase from our prior G&A outlook is due to increased performance-based equity compensation expense resulting from our business momentum. We are also increasing our investments in the Cardi B joint venture to capitalize on the incredible recent launch of Grow Good Beauty that we believe has tremendous upside potential.

And lastly, we continue to expect our effective tax rate to be around 24% to 26% for the full year 2026.

To recap, I am very excited about our strong momentum and confident in the promising growth initiatives we are investing behind and that we believe position us well for continued profitable growth and market share gains in the years ahead. Now we'll open it up for your questions.

[Operator Instructions] And our first question comes from the line of Anna Andreeva with Piper Sandler.

Congrats on a nice brand momentum. We wanted to follow up on gross margin declined at the Revolve brand for the past 2 quarters. What are you embedding in terms of the pressure again for Revolve in the second quarter and for the year? Are you guys seeing the shipping cost pressures, just given the Middle East conflict? And how are you thinking about those in the guide? And what tariff rates are you basing the guidance on? And then we had a follow-up as well.

Yes. Thanks, Anna. Yes, I think you hit all of the points. I think first of all, for the second quarter, we're factoring in the kind of a consistent trend on what we've been seeing for the full price mix.

And then second, to your point, we are seeing higher input costs, both on the freight side and then also on materials for those petroleum-based products that are impacting the margin there and that has a bigger impact on Revolve than it does on Forward given the owned brand mix on Revolve. So those are the big drivers when it comes to the forecast looking forward.

For tariffs, we are factoring in the current tariff rate, which is the incremental 10%. That said, as we've talked about before, we've been really successful in mitigating the vast majority of tariffs, we don't see that as a significant driver 1 way or another. And just stepping back, really happy with the overall results on margin with a 70 basis point increase year-on-year and particularly on the forward side, which increased almost 6 points. So I think overall, good results, and we're just kind of seeing some of that increased input cost pressure.

Great. That's really helpful. And just as a follow-up, you guys talked about the strength in the high-value consumer at Forward. Are you seeing that at Revolve as well? I would think, yes, just given the launch of Revolve. What percentage of the mix currently is coming from this cohort. And just how do you think about that opportunity over time?

Yes. So we think the opportunity in the high-value customer segment is very large for us over time, not just for but also Revolve revolves a premium price point and A lot of our top 4 shoppers shop significantly on Revolve as well. So we're seeing strength across both websites with that high-value consumer. We don't release a specific mix percentage publicly. And of course, it depends where we put the cutoff, but we're seeing that as a real area of strength in our business.

And our next question comes from the line of Rick Patel with Raymond James.

I'll add my congrats as well on the strong execution. A couple for me. First, can you help us understand trends by month and whether you think tax refunds were a material benefit the results? And what does guidance assume in terms of the health of the consumer for 2Q in the back half? And then I also have a follow-up.

Yes. Thanks, Rick. So on the monthly cadence, as you recall, we were plus 16% for the first 7 weeks of the year. And then we closed that plus 16%, an that was on tuber comp. So I think, really great progress as we move through the quarter, and we had some really great marketing activities, Revolve Los Angeles, for example. So really pleased with the cadence of the growth throughout the first quarter. And then on the go forward for April, we are seeing some pressure, specifically in the Middle East regions as a result of the geopolitical uncertainty there. So that is definitely having an impact, and that started in March and it's continuing to have an impact in April. And then likely, as you've heard probably some consumer confidence, consumer sentiment impact building as a result of that conflict.

Got it. And then can we double quick on operating expenses. So revenue growth was pretty strong, but you still had a bit of deleverage in the quarter. What's the right way to think about the level of sales growth that would result in operating leverage? And if the strong demand that you're having now does gotten variability? How confident are you in cutting back spending to protect margins?

Yes. We -- as we've talked about before, we're investing in a number of growth initiatives. So that's a big driver in -- especially the Q1 results, but also for the full year. So if you just take marketing, for example, up 150 basis points year-on-year. That was largely due to the growth initiatives that we've been driving, Revolve Los Angeles, grow good, et cetera. And then that impacts G&A as well. So really impressive that we got 50 basis points of G&A leverage while investing. If you pull those growth initiatives out specifically out of G&A, G&A would have been up kind of mid-single digits, call it, so we would have had more than a point of leverage on G&A. So just kind of setting the stage for kind of what it would take in getting to your question. So on G&A for the year, I think at the high end of the range, it would be plus 7%. So anything north of that, of course, on revenue. We get leverage on that line item. The other line items are largely variable. And again, in marketing, we're continuing to invest. So that will be an investment point for this year. And as we look ahead to future years, that marketing will balance out after this initial investment year and then also on the G&A side.

And our next question comes from the line of Peter McGoldrick with Stifel.

First, I wanted to ask about the Revolve Los Angeles brand. I was hoping you could share a framework for us to think about the planned resources to support future growth. I'm trying to get at, like how the Revolve LA brand will fit into the portfolio of your owned brands?

Yes. We think that given the strong, strong beloved nature of the Revolve brand itself, having the Revolve brand will be a very, very powerful own brand. This allows us to focus and attack with a strong, strong halo that drives product sales in those zones, but also it gives greater awareness and affinity for the overall Revolve band, which should halo into all other categories. Revolve L.A. is really the beginning of multiple Revolve-oriented brands, which will allow us to touch a range of categories that we currently are not active in. So that's very, very important for us over the course of come the next 12 to 24 months, we'll be attacking very high-margin categories that will be really, really a whole new white space for us. So super excited about that. We'll be able to attack and really have a strong presence in a range given that you do have a broad range of reasons why customers love us, the Revolve and will ultimately touch a wide range of that. And ultimately opens up some new fields that we haven't really attacked with our existing brand kind of roster. So super excited. This is a multiyear road map. If you fast forward 2 to 3 years from now, you'll see that this is going to be the next chapter for our business. We're super excited about this and everything is going perfectly according to plan with that first launch.

Excellent. And then I just wanted to follow up on the full price mix. How should we be thinking about the change in full price mix? Is this a new consumer behavioral trend or a function of inventory access. And I was curious if you can size what the change in full price mix represents a gross margin guidance relative to the prior outlook and on a year-over-year basis?

Yes. I would say full price mix fluctuates month-to-month, quarter-to-quarter. So I wouldn't put too much weight towards any significant shift. There could be some consumer sentiment, consumer confidence impacting that. But over time, we've driven that up. And although it is down year-on-year over the past few years, it's meaningfully higher than it was kind of in the pre-COVID era. So I think not putting too much into just the month months quarter-to-quarter volatility there. And it's still in a very healthy zone. We saw a double-digit increase in full-price sales and really healthy increase in full-price customers. So at this point, we feel good about the inventory composition and the mix, although it was lower year-on-year and a little bit lower than our expectations.

And our next question comes from the line of Michael Binetti with Evercore.

Jesse, on input costs, could you just double-click on that a little bit more. Could you talk through where you're seeing the input cost pressure? You mentioned maybe a little bit more on the materials bucket. Maybe you could help us separate that from anything you're seeing on freight, either domestic or ocean or airfreight? And then on the -- if I have our math right here, the product returns looked like it was a pretty good improvement year-over-year this quarter? Is there anything new that came online to help support that in the quarter? I know you guys are always talking about some new initiatives there and whether you think those are durable improvements that could continue through the year?

Yes. Thanks, Michael. So first of all, on the input costs and fuel. So on the input side, as it relates to gross margin, seeing both on the freight and then also on product to any kind of petroleum-based products. We're seeing increased costs there, and that's just starting. So that impacts the go-forward guidance on gross margin and more of an impact on Revolve, as I mentioned, given that the owned brand mix there has a more direct impact than the third parties where we're marking up. And then we are seeing higher freight costs outside of gross margin, higher freight costs within selling and distribution. We've done a really good job in managing fuel surcharges and managing rates with the carriers, but there still has been increased surcharges, especially international that we're battling against right now. So some pressure there. And then offsetting that, to your point, return rate was down nicely in the first quarter, 80 basis points on top of a 280 basis point reduction last first quarter -- first quarter of 2025. And then even sequentially historically, we do see an increase from Q4 to Q1 around 150 basis points. And this year is sequential increase with half of that. So really result on return rate. And we do have a number of initiatives still in place, not getting too specific on it, but we've got a couple of rolling out around the middle of this year. So we continue to work on it and continue to try to drive that down in the right ways without impacting the customer experience.

And our next question comes from the line of Nathan Feather with Morgan Stanley.

Really encouraging to see the positive early reception to Grow Good. I guess given how quickly that sold out booking really presale and official launch. What are the key limitations to scale? And how quickly can you ramp up inventory there? And can you give an update on the timing for the other or not grow good portions of the Cardi B partnership?

Right now, the current limitation is really inventory. So we have a big wave of inventory coming sequentially over the next few months. So we'll definitely see a sales ramp up there. Sales velocity is just so fast that predictability is going to be interesting to see over time, but we have nothing but literally like the highest momentum that we've ever had for our product or our brand ever. So feeling excited and excited about that. Also an extremely, extremely exciting road map for the grocer band in product construction and beyond. There's a really cool plan, Cardi B has been nothing but the best, best partner, as locked in as possible. So super could not be going better. There will be an apparel brand planned for the future, which we'll get into to me details just yet, but that is extremely exciting as well. It is a zone that is complete white spots in our universe. So excited to do very, very special over there as well. So super excited for the partnership could not be going any better.

And our next question comes from the line of Oliver Chen with TD Securities.

This is Julie Slaski on for Oliver Chen. I'm curious if you could walk us through the main drivers of the improvement in return rates from this quarter and how you think about that evolving as categories like beauty and own brands continue to scale. And second, I would love to hear some more color on how much the net step up in marketing is recurring infrastructure versus onetime cost for Revolve LA?

Yes. So with regard to the return rates, there's a couple of factors in place. Certainly, there's things we've been working on over the longer term in terms of getting that -- those return rates down, including, I'd say, some pre-existing initiatives that we were able to step up in a bigger way. during the quarter. You're also going to have some fluctuation quarter-to-quarter, period-to-period in the return rate number, just like the gross margin number, depending on category mix shift and other factors. So that played a bit of a role there.

And then shifting over to marketing expenses. I wouldn't say there's any structural change in marketing, but certainly, to the extent that we have exciting things to launch that we think can be big growth drivers for many years to come. such as Revolve Los Angeles incredibly strategic and then, of course, the Grow Good brand quite exciting as well. We're going to make sure we fuel those investments with the proper marketing support, and we think it's going to deliver nice returns from those.

And our next question comes from the line of Janine Stichter with BTIG.

I want to ask about the double-digit growth algorithm. I know you've talked about getting back there for a while. You've been there for 2 quarters in a row now. Maybe just speak to your confidence in this being the right level of growth to the business and sustaining double-digit growth going forward?

Yes. So I think we've seen really nice execution the past couple of quarters in terms of delivering growth numbers, and it's certainly our intention that, that should continue. Revolve itself has huge continued opportunity in just the Revolve Core. Our brand awareness is still relatively low compared to much larger brands. And we're still adding active customers at quite a nice rate, and there's a lot of new areas of marketing that we're investing into. So just the core itself is going to provide plenty of opportunity for growth in the coming quarters and in coming years. And then on top of that, you have category expansion, which is a big growth driver for us. You have international expansion where we're seeing consecutive quarters with international outpacing the U.S. And we saw strong growth in international across pretty much every major region in Q1 despite some in the Middle East. And so really on core drivers. And now on top of that, you have these really high upside drivers, physical retail, completely untapped for the Revolve brand, right? And we think that's going in a really nice direction, and ultimately can have a huge impact on our overall TAM and revenue. You have Revolve L.A., right, which strategically, we think just opens things up completely from a marketing playbook perspective. And also from a kind of product category perspective as far as merchandise that can be more broadly appealing and kind of fit with consumers in a different way than Revolve historically. And then, of course, you have these brand partnership opportunities, right, with Grow Good launching in the quarter, and that's something that's been obviously building we've been investing in it for some time, an absolutely incredible launch, and we think can be a brand that's quite substantial in value and revenue, and there may be more of that to come. And so yes, I think the core growth algorithm has a ton of upside and then we have these huge opportunities on top of it. And I think we're positioned very well.

Great. And then maybe just from a consumer lens. Anything you've seen in terms of consumer behavior last year, you saw some volatility, but any of that this year?

No, nothing significant to call out outside of the obvious Middle East impact, nothing outside of that. And we talked about the high-value customers continuing to really perform, especially on the forward side. So kind of more of the same.

And our next question comes from the line of Simeon Siegel with Guggenheim.

Nice job. Could you elaborate at all on that $11 million minority investment you talked about, how should we think in general about your approach to building that building cash balance? And then maybe just 1 for Jesse. Just what -- how do you think about the 1% AOV growth, recognizing the mix shift to the higher ticket forward segment? So I guess, maybe how would the vol versus forward on a segment basis? And how are you thinking about AOV going forward?

Yes. So I can start with talking about our approach to considering acquisitions. First and foremost, we're going to be disciplined. We're going to be opportunistic. In this case, we found that we feel like is very strategic for us in terms of the category that it operated in. And we felt it was an incredible brand with an incredible team behind it. Its investment terms a lot of sense. And so those are the sorts of opportunities we're looking for. We're really excited about the partnership, and we're hopeful it's going to work out quite well for both sides.

Yes. And then on AOV, up 1%. It was up across both Revolve and forward. And we did see a higher increase in average selling price, partially offset by units per order. So as we look at that going forward, a similar trend in April, and we'd expect to flat to slight increase in AOV for the balance of the year.

And our next question comes from the line of Dylan Carden with William Blair.

Jesse, you mentioned kind of guiding or exiting at 16% growth, but then sort of talking on the latter part of the quarter. So presumably sales came in above your expectations. And I'm just curious, is the strategy here to take that kind of upside and invested back in the marketing such that you're kind of doing presumably not dissimilar thing and talking down sort of the latter part of this quarter, to the extent that you see those trends hold, would you want to temper expectations on flow-through?

Yes. I would say we had the marketing plans in play ahead of that revenue growth and the revenue growth came through very well for us. So really happy with the way that played out. I wouldn't say that we are taking excess revenue and investing it back into marketing. But I will say that when we see something working, we'll continue to invest. So you could see that going forward.

And is there anything you can share on the efficiency or any incremental efficiency on marketing that gives you sort of confidence that ramping it here is the right strategy? Or is it simply just to support these initiatives.

Yes. Most of it was to support these initiatives, and it impacted both performance and brand. We talked about in the prepared remarks, investments in billboard placements, connected TV and other areas that we typically haven't done in the past, but have been playing out very well and a really good ROI on those incremental investments.

And then finally, anything to share on maybe the lift in your beauty business in the quarter given the launch and the success of it, are you seeing kind of traction or follow-on or any sustained growth beyond that 1 item or 1 brand?

Yes. So with regards to beauty, Grow Good -- the Grow Good launch in sales, we did not hit the GAAP numbers for the first quarter because any sales that occurred in the first quarter were all presale. So beauty as a whole, as you noted, we saw strong growth, excluding the Gogo launch, which was incredible. And that's really just a continuation of a trend, I think, that we've seen for a number of years now and of course, we think that business has a lot more room to grow.

And our next question comes from the line of Jay Sole with UBS.

Two questions. Michael, for you. Just on retail, sound excited about the Miami store. What have you learned so far about retail, maybe crush your store demographics, price points, traffic that maybe informs your long-term store count opportunity in the U.S., do you see 50 stores, 100 stores possible? Can you give us any kind of color on that? And then maybe, Mike, for you, you mentioned AI as a key contributor to recent momentum. Can you maybe just give us some examples of how AI is currently impacting operational metrics or fulfillment efficiencies or some other part of the business?

Probably the most notable thing about physical retail says that our customer loves our own brands we're pushing the limit there and pushing further and further. And on brands performs better on the versatile foot space on back space. So we will continue to ramp there. This has also been part of the insight that's helped us invest more into own brands, large revolves Angeles, expand into categories that we haven't historically been active in because they were more for physical retail versus e-commerce. So those 2 coming together over the long term will be incredibly, incredibly powerful. Also, thus far, we feel quite confident in our choice of locations. We were very nervous that we get a wrong location. We really can't do much about that, but we'll be very disciplined about locations that we feel extremely derisked. And this location in Aventura, specifically where an event all it is, we feel 100% positive that we will get our customer for sure. What are you guys going to run with the AI question, I can go with super fun for all of us.

Yes, yes, for sure. So far as AI, yes, there's a whole host of areas. It's been impacting the business in a very positive way, which has enabled a lot of the revenue growth that we've seen and enabled our ability to go after opportunities quickly make better decisions, et cetera. So it's some the things we talked about on the call in terms of recent launches, launch of the new generative AI, Q&A section on portions of our website, we saw a really strong lift from that. And what's exciting is it was launched only on dresses and only on a subsegment of our property. So obviously, we have a lot of room to continue to expand that and roll that out. We also talked about the marketing collateral, how it really accelerating our ability to produce high-quality marketing collateral quickly. And we mentioned that with regards to grow good launch. But the reality is that's true across the business, right? And so that enables us to move faster and more quickly and do more from a marketing perspective. AI virtual silane tools we talked about on previous calls, that's another area where we're seeing really strong consumer reception and interest in another area where it's not fully rolled out by any means, right? So a lot of continued opportunity there. And then, of course, just across the whole business. We're continuing to develop new, better internal tools and algorithms to make better decisions. And you've seen a lot of the gross margin gains we've been able to gain through the years in terms of full price markdown ratios, better margins on markdown and things of that nature. And there's more in the works. We have some incredible internal tools for reporting purposes that can really kind of unlock and, I think, there'd be certain areas of the company in terms of quicker decision-making. So again, really across the board, taking a step back, if you look at a multiyear period, you have AI search enhancements that we've rolled out, you have improvements to merchandise and personalization algorithms, it's really impactful across the entire business.

[Operator Instructions] Our next question comes from the line of Matt Koranda with Roth Capital.

Maybe just wanted to spin back to the lower mix of full price sales. Could you pinpoint sort of when that trend showed up in the quarter. Was that more of a consumer behavior shift that you saw? Or is that an assortment and sort of mix shift based on what you had available?

Yes. So with regard to the full price markdown mix, I think it's important to take a step back. And 1 note that, again, these percentages are going to fluctuate a bit quarter-to-quarter. Over longer periods of time, we've driven that percentage up significantly over periods. And it's also extremely favorable versus, I think, a lot of the competition, especially in multi-brand retail. And then I think it's also important to kind of note and look at how we manage it, which is, by and large, alrithmic in nature, right? And so there'll be some mixes and product shift that can affect the full price markdown ratio from quarter-to-quarter. As you know, that there can be some shifts in consumer behavior. But overall, we think it's in a very healthy place. And again, it will fluctuate a bit quarter-to-quarter segment to segment. Also taking a step back, we saw -- the combined business had gross margin gains for the quarter. So again, we think it's in a very healthy place. And I think nothing particularly of note to call out with regards to the fluctuations.

Okay. And then on actives, the growth is really solid, and I don't know if anyone is focused on that just yet, but any color on drivers of the growth in active customers, reactivations versus entirely new? It sounded like maybe there was some strength in international that just wanted you to unpack the strong growth there a little bit more.

Yes. Yes, it was a really great number, that plus 8% on active customers, and it was driven by both new customers and existing customers. We saw orders per active and revenue per active go up. So really good engagement from the existing. And then on new customers, it was across the board. We saw really great growth across Revolve, Forward domestic, international full-price markdown. So I think it all goes back to the execution and the investments we've been making over the past few quarters. And then specifically, this quarter, we're very active in marketing and Revolve Los Angeles creates a nice halo effect for the entire business.

And our final question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So maybe just to start out quickly on international plus 20 despite the slowdown in the Middle East continuing. Could you just help us understand regional composition and maybe quantify what percentage total international Middle East represents? And then how much of that growth was driven by Mexico versus other regions? And then to follow up, just on tariff refund, if you could provide an update on the status of any claims you sold or just where you are in the process, what timing we should expect for potential recovery. And then just more broadly, is there anything embedded in the current gross margin guidance that assumes refund recoveries? Or are you treating any potential benefit as it to the current outlook?

Yes. So I can start with talking about international. So we saw broad strength internationally. Every major region was up year-over-year. So it certainly wasn't any particular 1 region driving the growth, including the Middle East, actually was up for Q1. Now if you pull the quarter apart, March was down for the Middle East, and that continued through April. But as a whole, we saw strong growth across the board. And then in terms of some of the outlier contributors in Mexico, we're having incredible growth in as a result of some service enhancements we've rolled out and some new marketing initiatives. So we're really pleased with in that region. And certainly, it drove a very significant portion of overall international growth. But again, at the same time, all major regions were up year-over-year. So we're seeing nice growth across the quarter.

Yes. Then on tariffs, the team was very on top of this. And I think the refund application process started on April 20, and they filed everything within a day or 2 of that. So claims have been filed, starting to receive responses. Timing, I think, is TBD. We've heard 60 to 90 days, but there is some tiering system. So I don't think we'll see it all in 1 fell swoop. It is not included in the guidance. So that will be a potential benefit. But again, timing is TBD on that.

And that concludes our question-and-answer session. I will now turn the call back over to management for closing remarks.

Thank you guys for joining us this quarter and a big thanks to our team for the hard work and focus. It's very clear to me that our multiyear strategic plans and investments are going exactly as planned to create work, continued focus and execution quarter after quarter will unvalued result in phenomenal results. Excited for the next quarter ahead and the many years ahead. Thank you, guys.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Hi, everybody. I'm Jay Sole, UBS' Retailing Department Stores and Specialty Softlines analyst, and welcome to the UBS 2026 Global Consumer and Retail Conference. Really excited that you're here.

Before I go any further, I just want to get the disclosure statements out of the way. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationships and that of UBS with any company on which I express to you at this event. These disclosures are available at www.ubs.com/disclosures. Alternatively, you can please reach out to me, and I can provide them to you after the event.

Now with that, super excited to have Revolve here with us today. Jesse Timmermans, who's the CFO of the company is here. He's going to give us a presentation, and then we'll go into a Q&A session. So without any further ado, Jesse, I'm going to turn over to you.

All right. Thanks, Jay. Thanks for having us. Thanks for giving us the coveted 8:00 a.m. slot. Lots of exciting things to talk about, a lot going on at Revolve. So we'll get right into it. We'll kind of hit first, who we are and what we've built. Second, we'll touch on most recent results. And then third, most importantly, where we're going over the coming years, couple of more statements.

So we are a leading fashion destination for the next-generation consumer. So if you rewind Mike and Michael, who are still our co-CEOs today and very active in the business, founded the business over 20 years ago. Neither Mike or Michael were fashion guys. Arguably, one is still not a fashion guy. So they had to rely on data from day 1 to make their decisions. So this is everything from data-driven merchandising to actually building essentially the entire ERP inventory management technology foundation from the ground up, all internally developed.

And this is very important, especially as we look ahead into this new world of AI and just really what that's built and really ingrained technology in the DNA of our culture. That is combined with a very powerful marketing engine and really addressing this next-generation consumer and really connecting with her in a very special and different way, very authentically. We have global reach and consumer appeal. And all of this combines for a very profitable and capital-efficient business model.

We operate in a very large and growing global market, over $700 billion market in the U.S. and several times larger internationally. About 20% of our business is international today. And like I said, we serve that next-generation consumer. The Gen Z and millennial share of household income is increasing, and we are squarely focused on that next-generation consumer, who we feel is still largely underserved today.

How we do this through 2 complementary retail segments. So first, we have Revolve, which is 86% of the business, and that's complemented and I say complemented with FWRD because it is very complementary. If you kind of look down the line where they're similar and where they're different. Where they're similar, very curated and a powerful marketing engine. Where they're different is largely in the assortment, where Revolve is focused on fashion apparel, dresses, event wear, complemented with FWRD, which is skewed more towards handbags and accessories.

And we think it's very complementary in that it's a very similar customer. Revolve SKUs are little bit younger, FWRD SKUs are little bit older. But we know that if the Revolve girl is buying a $300 dress, she's complementing that with a great pair of shoes and a handbag from FWRD. So we think there's a massive opportunity to continue to increase the overlap between Revolve and FWRD and really tap into that 86% of the business that is Revolve and move her to FWRD for those other accessories and handbags and such.

And more and more, we are cross-listing inventory across both the Revolve and FWRD sites. If you think about Helsa, one of our more premium brands on the FWRD side is also listed on -- or our Revolve is also listed on FWRD. And then we'll talk about a recent brand launch that we had just last week, Revolve Los Angeles that is listed on both Revolve and FWRD. So we think there's a massive opportunity here to continue to integrate these 2 platforms from a consumer perspective and in physical stores. Both of our stores, Aspen and Grove have both Revolve and FWRD offerings in them.

We have a long track record of profitable growth. So the combination of that powerful marketing engine and really touching this next-generation consumer, combined with a very capital-efficient business model, the founder-led mentality has led to very consistent growth and not just growth, but profitable growth. If you look at the 16-year CAGR, 13% net sales CAGR and a 9% both adjusted EBITDA and net income CAGR. And net income is important, both from a GAAP basis and non-GAAP and adjusted EBITDA, both profitable.

And this has led to significant market share gains over time, a 16% CAGR over the last 9-ish years versus 13% for the e-commerce market and 2% for the overall market. So taking share, but still a long ways to go. We still feel like we are -- we have very small penetration in the overall market in the U.S. and then even smaller globally.

And that stands out, that long track record of profitable growth. And again, not just adjusted EBITDA, but GAAP profitability and free cash flow, one of the only among our set of peers to have both of those. What are the key metrics driving our performance? So if you kind of double-click on that long-term track record of profitability, number one, it's active customers. We have a very strong base of active customers, 2.8 million today and growing very meaningfully, 13% CAGR.

We had a 6% increase in active customers this past year. And that customer buys at full price. She is coming to us for discovery, for finding what's new. She's not price comparing more often than not. She is going not to a brand page, but for what's new or our different shops on the site. So it's very much a discovery and a full price play. And it's a premium ticket. So a $300 average order value, which really sets us apart and especially differentiates us from the very crowded low price point players out there.

And our customer-first mindset, very important, especially as we think about loyalty, and we'll get into that in a minute. But from day 1, Mike and Michael knew that if we wanted to make this successful and really replicate that physical shopping experience, the home needed to be the dressing room. So again, day 1, free shipping, free returns. We were one of the, if not the first, to offer that, and that's been critical to our customer experience.

And that customer experience just continues to get better and better. While others are pulling back and making it harder to return, slowing shipping, not shipping on time, multiple boxes coming for a single order, our customer experience gets better and better. So our CSAT score continues to increase. And now over 1/3 of our deliveries happen in 1 business day, exceeding our 2-day business day promise.

And that's earned our customers' trust. So if we think about how that plays out, about 56% of our active customers today are existing customers. So a very, very significant portion of our customer base is an existing customer, and she's very loyal. That 56% of customers place 81% of the orders and 83% -- and represent 83% of net sales. So not only does she come back more frequently, representing that 81% of orders, but she buys at higher average order values over time.

After you get past the initial 1-year drop-off that's typical in e-commerce, year 2 and beyond, we have over 100% revenue retention, which blended results in that 89% revenue retention overall. And our cohorts are very consistent over time, and we have 20 years of data to look at this. Of course, there's been some volatility given COVID and rebound, et cetera. But if you normalize for all of that, it's been very consistent over time. And it continues to get better.

Our net sales per active customer is increasing. Our orders per active customer are increasing. And part of that is the customer experience that we offer and her trust in the brand and then also category diversification that we'll get into a little bit later, where we're giving her more and more reasons to come back to the platform.

And maybe Jay's favorite slide, AI. So this goes all the way back to founding and again, Mike and Michael being -- Mike being an engineer, Michael being a business analyst, everything built from day 1 on technology, on data. So even before this last 18 months of AI evolution using machine learning, again, relying on the data, we have a very rich set of data that's been built over 20 years. We have up to 60 attributes on each piece of clothing across that 2.8 million active customers, gives us a very rich set of data to rely on.

And AI is not just a buzzword. It's not just one area of the business. It really permeates throughout the business. So if we think about -- from the front end to the customer website experience, we developed our own internal search algorithm that displaced the third-party provider that we're using and it performed better. Not only did it perform better, but we're not paying several hundred thousand dollars to a third party to use that internal search functionality.

Also using AI for discovery on the site, different shops and curation using a virtual styling tool on the site. So it starts all the way from that customer experience site experience and then into marketing, using AI and marketing to expand the reach within one of our largest channels, using AI to suppress marketing to some of our high return rate customers. So not only are we getting better marketing efficiency, but also reducing return rate.

And then some of our processes, kind of those midstream processes like own brand development, using AI to speed up the design process. So using AI to create different variations within that design process. So it doesn't have to go back and forth in samples and different sketches, we can move faster. And then the -- all the way to the back office.

So using AI for customer service, translating voice to text to better mine the data, better call routing for customer service inquiries, which plays out in customer experience. And then all the way to the finance function where we're using an internally developed AI functionality to ingest invoices and process the payables.

So it really is across the board, and it is both, I guess, maybe 3 benefits. One is conversion and revenue, if you think about the website enhancements. And then two is efficiency. We are getting efficiencies we look at some of those back-office enhancements that we've made. And then some of it is just increasing speed and velocity and output, if you think about the own brand design function or using AI in some of our marketing and editorial processes where we are spending 25% of what we used to, given AI, but where output is 6x larger.

So very important and a long ways to go. It's moving fast, and we are fully embracing it. And I think the key differentiator for us is having that, again, that technology DNA just ingrained in the culture and an entrepreneurial mindset, the founder-led mentality that the team has really embraced this and moving faster than we think anybody else in the sector.

Cash flow. We'll kind of flip to balance sheet and cash flow here for a minute. Very strong cash flow over time. We generated $59 million in operating cash flow last year, $46 million in free cash flow that has led to a very strong balance sheet, over $300 million in total cash at the end of 2025 and no debt. very important, especially in times of disruption like this, where we can leverage our balance sheet to invest in things like AI, and we can stay on offense and increase and improve the customer experience while others are pulling back or invest in marketing while others are pulling back. So we tend to thrive in times of disruption and innovation, and this is a very opportune time for us to invest.

With that, if we think about capital allocation priorities, number one, again, I'll go back to the founder-led mindset. Mike and Michael still own 43% of the business. They're still very active in the office every day, grinding, more energized and excited than ever given all the opportunities we have in front of us, and that permeates throughout the organization.

So #1 capital allocation priority is back into the business. That's where we think we have the greatest ROI opportunity. If you look at last year, a lot of investments in the back kind of behind the scenes to build for a lot of what's to come in 2026. And that was all the way from a little bit of marketing and then also within that G&A line item, we didn't get leverage in G&A in 2025, and that was largely due to the investments we have been making in AI and then in own brands, gearing up for some exciting launches that we have up ahead.

Number two priority is thoughtfully evaluate M&A opportunities. We think there is a lot of opportunity out there. At the same time, we're very disciplined on this front. But we do look at a lot of things, very disciplined, but we do think there's opportunity there. And then number three is return of capital.

So how are we doing on these capital allocation priorities? Number one, investing in the business. I mentioned some of these things, AI category expansion, owned brands. We think there's a massive international opportunity, and we'll get into more of these later. Physical retail, we think, is a massive opportunity. We opened a store in Aspen about 2 years ago and just opened our store at the Grove in L.A. about 2 months ago. Still 60% of the retail dollars are flowing through a physical door today. This next-generation consumer seems to be coming back and really thriving in that in-store experience. So we do see an opportunity there to expand physically.

Number two, on evaluating M&A investments and partnerships. I would put partnerships in this bucket as well. We did make a minority investment in a brand earlier this year that really supports our category diversification initiative. We are partnering with Cardi B in a joint venture to launch a beauty brand that is launching shortly. So just a couple of examples of our kind of M&A and partnership opportunities.

And then number three, return of capital. We do have a buyback plan in place. We've deployed $44 million of the $100 million plan at very attractive prices. Our average is just over $14 versus the stock price, whatever it is today or $26 towards the end of February.

So we'll touch on our most recent results. We had a very strong fourth quarter and entered 2026 on very strong footing. So in the fourth quarter, double-digit top line growth. The great thing is that this top line growth wasn't just one area, it really was across the business. So 10% overall, double digit across both Revolve and FWRD in both domestic and international.

We also saw great category diversification. Beauty was a standout at 43% growth. Our Fashion Apparel grew at 11%. Within Fashion Apparel, Outerwear was a standout. So it really showed the progress that we've been making on category diversification. We expanded gross margin, both for the quarter and the full year, about 90 basis points for the full year despite a lot of headwinds this year, of course, given tariffs and a lot of the challenges out there where others have seen contracting gross margin, we actually expanded gross margin.

And then had leverage across most line items on the P&L, which resulted in a 44% increase in adjusted EBITDA for the quarter and 35% for the year. So again, in a challenging year where others are struggling, we've seen bankruptcies, the tariff pressure, actually delivering a 44% increase in adjusted EBITDA was phenomenal.

And then I mentioned 2026 is off to a great start. We saw 16% growth for the first 7 weeks of the year. There was some comp dynamics there as we're comping the L.A. wildfires from last year. But despite that, the 2-year growth has maintained pretty consistently through the fires and then exiting that fire comp.

If you look at our 2-year growth and kind of normalize for a lot of those comps, we are at about 15% 2-year growth in Q3 that accelerated to 26% in Q4. And then again, really great progress for the first 7 weeks of 2026. And I can't not mention all the disruption and turmoil out there in the luxury industry and how that compares with how we're doing on the FWRD side of the business. So you all know about the Saks and Neiman bankruptcy this most recently, but this really started several years ago with farfetch matches. We had SSENSE, Luisaviaroma.

So a lot of turmoil out there in the luxury industry that we think benefits us. There's one report that says there's $500 million to $1 billion of for grabs in this luxury sector. And while others are going bankrupt and struggling and pulling back on inventory buys, pulling back on customer service, cutting heads, not paying bills, FWRD grew 14% in this most recent quarter and delivered a 33% increase in gross margin.

So we think this is a very opportune time to invest in FWRD. We've been making those investments. We've seen brands come to us, so both from a brand expansion opportunity and then also marketing. We've been increasing our marketing on the FWRD side of the business. We just named Rosie Huntington-Whiteley as our Fashion Director on the FWRD side of the business, which resonated really well with both brands and customers.

FWRD is performing really well in store. And our personal shopper program has been really important in that growth. So this is really focused on that high-value customer, that VIP clienteling, that business grew over 100% in 2025. So a lot of opportunity in the luxury side for FWRD.

Now the most exciting part, where we're going? So 5 key priorities. And I would say, outside of #1, there's really no one that's more important than the other. But if we go through these, number one is increase the customer base. That's where we see the most opportunity, still 3% penetrated in our core demographic. Number two, broaden our product offering; number three, grow international sales; number four, expand own brand mix; and number five, invest in physical retail.

So we'll hit on each one of those here. So number one, increase our customer base. As I mentioned, we think we're about 3% penetrated in our core customer demographic, and that is on a customer basis. If you look at females aged 18 to 44 in the U.S., we are about 3% if you look at our active customer base.

Also, if you look at our revenue of just over $1.2 billion compared to that $700 billion TAM in the U.S., less than 3% penetrated. And if you don't believe any of that, you can look at comparative active customer numbers for some of the peers out there. So even if you just pick one Nordstrom at 30 million active customers versus our 2.8 million, there's a lot of customers up for grabs out there.

And again, back to the luxury point where others are pulling back, customers are frustrated, brands are frustrated, we see a huge opportunity to continue to expand our customer base over time. So that's the #1 priority, #1 ROI, #1 investment. We are investing in marketing this year, largely behind the new own brand launch that we'll talk about, but that's also a halo for acquiring new customers and really expanding our customer base. Category diversification is an important part of this. So a lot of opportunity there.

Number two, I mentioned, broaden our product offering and increase loyalty and really tap into more aspects of her life and give her more reasons to come back, increase that retention, increase the frequency of orders. And this is across a number of different segments here. So Beauty, number one, is about 6% of the business today in the fourth quarter, 5% in 2025.

We think that can be double-digit percentage of the business that grew at 43% this past quarter. Phase 1 for Beauty was really getting the selection right. And Beauty is very similar to the overall Revolve's business, where it's very much about curation, emerging brands, what's new and giving her that kind of discovery. We feel like she's getting bored with some of the other players out there, so really giving her that engagement and discovery on the Revolve and FWRD platform.

Number two, I'll hit on is Men's. Men's, we feel like is a huge opportunity and that customer is very underserved today in this demographic from a multi-brand perspective. So we think there's a big opportunity here in Men's. The combination of Beauty, Men's and Home grew at over 2x the overall growth rate of our overall business in Q4.

And similar to Beauty, Phase 1 is really getting the brand assortment right and getting that curation right on the Men's side. Made great progress there, brought in a new leader about 2 years ago that's really developed the own -- or the Men's assortment. So Phase 2 on both Beauty and Men's is now start to market and really improve the site experience for both of those segments.

And then even within our core, that core female customer, we see a lot of opportunity for other aspects of our life. I mentioned outerwear, but there's also essentials, the Monday through Friday attire, more basics, active is another huge opportunity. So a lot of opportunity here. That feeds into own brands.

I'll skip to owned brands because we do think that owned brands complement this category diversification through development of both new owned brands and then also expanding the assortment within our existing owned brands. So some examples here, new brands like Sofia Richie, we launched about a quarter ago. So this is SRG partnership with Sofia Richie. More, I guess, you would say, kind of more of those kind of -- I wouldn't say essentials, kind of elevated essentials, not necessarily event wear that Revolve is known for.

Additional categories within our existing brands, for example, Helsa. We also have a huge opportunity internationally. This past quarter, we designed, developed and sold an owned brand, our first owned brand within China. So this brand was designed specifically for the Chinese customer in China, both from a design and fit perspective. It was developed and manufactured in China. It was fulfilled from our Hong Kong warehouse and sold via live stream. We had 100,000 viewers on the live stream. And because it was designed specifically for this customer, a very low return rate.

So not only was a great customer acquisition tool, but very cost effective and efficient given that the return rate was much lower than our overall return rate because of that design element and then also fulfilled all within the country. So we see a huge opportunity here for doing more of that.

And then just a few days ago, we launched Revolve Los Angeles, our first namesake brand. This is what we think will be very transformational. We are investing marketing behind this in 2026. It's not just about this one brand, but we think it really provides a halo for the overall business. And it really started with kind of the relaunch of our reimagined logo back in December of 2025.

So it was redesign, reimagine the logo that fed into this launch of Revolve Los Angeles with this first launch. That will be followed by several more launches. So we think it's really exciting, both from a category expansion opportunity, also from a brand halo opportunity. And people are asking why now and what is this? More often than not, when you talk to a customer on the street and you ask her what brand she's wearing, she doesn't know. She just says Revolve. So that told us there's a huge opportunity to create a Revolve namesake brand.

Also, if you look at the add to cart, 95% of the add to carts don't come from a brand page. They come from whatever funnel she's going through for discovery, whether it's one of our shops or searching for what's new or one of the curated selections that we have. So huge opportunity there, more to come, a lot of investments behind this in 2026 and a lot of the groundwork has already been laid behind the scenes in 2025.

Then we'll go back to international. So a huge opportunity internationally. If you look at our 21% penetration internationally for us versus the 78% overall for the market, we have massive opportunity to grow internationally. Phase 1 of international was really get the customer experience right from shipping to payment methods. Phase 2 is really getting the merchandise right and starting to really market to market for that international customer.

So a lot of opportunity here. China is a massive opportunity. I mentioned the own brand launch that we've had there, where there's more to come. Also leveraging these channels specific to China. For the rest of the world, social media marketing is largely consistent. It's very different in China. So partnering with the Tmalls, Douyins, REDs of the world to really engage with that customer in the way that she shops.

And then physical retail. We say prudent expansion into physical retail because we acknowledge that we are very good at online. We've been doing online for 20 years. We have not built the retail muscle yet, but we're getting there, and we're getting there fast. We opened Aspen 2 years ago, like I mentioned. We opened the Grove just over a month ago -- or 2 months ago. So a lot of opportunity here. But again, being very prudent and disciplined about our expansion.

We also acknowledge that Aspen and Grove are 2 very unique destinations. Aspen is a very affluent customer. Nobody is from Aspen that's shopping at the store. So it's hard to get a good read on the halo effect from that Aspen store, very low traffic, but very high conversion, high price point. So very productive store, but also a very unique store.

And then we have the Grove, which is higher traffic, lower conversion, skews a little bit more Revolve, a little bit more towards that premium price point versus the luxury and Aspen. So after we get a few months of experience and data from both of these destinations, we'll start to learn more and push the accelerator down.

That said, we're not holding back on talking to landlords. The Grove has been a great example of landlord recognition. rewind 6 months ago, we're talking to Tier 1 landlords around the country, and they had no idea who Revolve was because they're physical people. They think in the physical world, they didn't know about Revolve, which is predominantly online. After opening the Grove, they are now coming to us all of a sudden with space open. So we are in active discussions with landlords. These things take time, but we could reasonably see 1 to 2 more stores in 2026.

As I mentioned, there's still a lot of dollars flowing through physical doors. This next-generation consumer is seeming to now kind of be back in store and really embracing that physical experience. What we're seeing so far is that the new store -- the stores are a great source of new customers. We're also seeing great productivity from our own brands. Own brand mix is skewing higher in-store, not just from a mix perspective, but also from a sales versus inventory productivity perspective. And the return rate is a fraction of that of our online sales. So a huge opportunity here as physical stores expand to reduce our return rate, which provides significant leverage on the P&L. With that, I'll open it up, Jay, do you have any questions?

We'll see if any questions came in on the iPad here, but I'll start with just one question because Revolve Los Angeles is a big initiative for this year, and you touched on, you're making a lot of investments. Can you just dive in a little bit and tell us a little bit about what the big picture plan is beyond this year, like where do you see that going? Obviously, putting a halo over the entire Revolve brand, but on that.

Yes. Yes, we are super excited about this. This has been, I would say, years in the making. We've thought about this for years. We thought now is the right time, given all the investment we made in our own brands platform, the expansion that we've experienced there. And then again, like I mentioned, when you talk to somebody on the street, they don't know what brand they're wearing. They just think it's Revolve. So that told us we have the brand power to launch a brand with the Revolve's name.

And then also that add to cart rate stat that I mentioned, where 95% of the add to carts are coming not from a brand page, but from discovery. So all of that said, we thought now is the right time. There's also a lot of, again, opportunity and disruption in the market, putting a lot of marketing behind this because we do think it is transformational for the business.

This is the first launch. It is very elevated. I don't know if you've seen it on the site. We've already had several of those styles sold out. But this will be followed by a number of events and then also several more drops, I think 3 more drops this year that really kind of double down on our category expansion opportunity. So we think it's huge, both from a new customer acquisition, halo effect for the overall business, cross-listing between Revolve and FWRD and then that -- just that expanding more categories and going deeper on own brands.

Okay. Sounds pretty exciting.

It is. Yes, we're super excited.

All right. Now maybe I don't see any questions on the iPad, so we can just show your hands if you want to ask a question. And if anybody shy, I'll ask one more and then hopefully, everybody can start raising your hand.

But one thing that I find interesting about the company, you put the slide up about the consistency in the growth rate, high growth over 16 years it was -- 16% over this -- historically, Revolve is a company that really focused on women's dresses. That was like the main category. And that's sort of thought of as a very fashion-sensitive category, a volatile category, a category depending on trend and getting trend right, which is not easy to do.

And I guess if you didn't know that about Revolve, if you didn't know what Revolve does and you just look at the consistency of the growth, you would never guess it was in such a fashion forward, fashion-sensitive category prone to volatility. So the question is like how is it that the growth has been so consistent yet you play in such a volatile category, right? Because that's sort of a -- it's a pretty good trick, right? Like to be able to grow consistently and be profitable and generate cash flow, but yet play in such a fashion-sensitive space?

Yes, yes. It's a great question. So I think it comes down to maybe two things. One, again, is Mike and Michael still owning 43% of the business, very founder-led, owner mindset and growing at the right pace. So I think that's really important. Investing in brand has been important. So about 25% of our marketing goes to brand marketing. You can't see a direct like day-1 ROI like you can on digital performance marketing. But over the years, you really build a strong brand and that loyalty with the customer.

So I think that's number one. It's that founder-led mindset, investing in the brand, really building the brand and growing at the right pace, and not kind of CAC at all costs or acquiring customers at all costs, but staying profitable and building a strong balance sheet.

And then number two is the data and technology component. So again, from day 1, Mike and Michael, again, they were not fashion guys when they started the business, they had to rely on data to make their decisions. So everything from day 1 was homegrown, internally built data-driven merchandising. So to your point, it's a very volatile category, styles come and go, trends come and go. So to be able to manage inventory and cash flow so well and grow so consistently is really remarkable. And it really comes down to that data-driven merchandising.

So we will buy very shallow initially, and then we can read how those products are working, how those styles are working and then reorder into those products really quickly. And not only from a reorder perspective, but even the new styles are not necessarily new because we have up to 60 data points on each piece of clothing. So we know from our 100,000 styles on the site and 60 attributes on each piece of -- each one of those styles, what style and what attribute is working.

So we can kind of piece together different attributes across different -- not even dresses, from dresses, pants, tops, figure out what trend is working and then buy into that for the new inventory. And of course, the better the new inventory is, the better the reorders will be. And about 2/3 of our inbound incoming new inventory is reorder. So that kind of tells you that ratio between that shallow initial buy versus the kind of the overall...

So let me ask you one follow-up, and then I'll put it to the audience. But how much does the success over the last whatever many years, inform us about the potential to maintain consistent stronger, not necessarily the same growth rate every year, obviously, but I mean, just a good growth rate because it sounds very clear, 60 attributes, identify trends, reorder quickly. Have you -- has the business model had to evolve over time, like just change based on the consumers going here and going there?

In other words, what the company has done over the last 15 years, is that -- do you see that like just the process and the way you analyze the business and the way you follow the customer, is that durable? Is that consistent? I mean does the -- do you deem to rebuild the operating model every year just based on the way the world is changing? Or is it pretty there's some fundamental first principles that are just applied all the time, which is going to help drive growth?

Yes. Yes, I think both. I think you have those first principles that will always be there. And then you have things like AI that comes about that really accelerates those first principles. And I'll use maybe our markdown algorithm as an example. We made huge gains on gross margin this year using AI to influence our markdown algorithm. So as I mentioned, over 80% of our sales are at full price, but for that 20% that is on markdown, the markdowns have been algorithm-driven, both from a kind of a velocity and how fast you markdown and then how deep the markdowns are.

This has been data-driven using machine learning. And now with AI, we're able to really just supercharge that process, which resulted in, again, significant gains on gross margin. So that's one where first principles, the core is there, but using new technology to really emphasize and supercharge. So I think that will be the case going forward. The core will be there, and then we'll leverage new technologies to really stay ahead of the others.

Okay. Now I don't want to just take advantage of all Jesse's time. Anybody -- Joe, any questions anybody wants to ask? I know it's early in the morning here. Maybe I'll just...

Yes. If we accelerate stores, it will be margin accretive and top line accretive. So that is our goal, and that's our baseline is it has to be top line accretive and bottom line 4-wall EBITDA margin accretive. Now there is some overhead that needs to be built, and we've made those -- some of those investments in 2025, and that's some of the investments that went into G&A where you don't see the G&A leverage in 2025. So hired a head of retail and now kind of supplementing that head of retail with dedicated buyer, dedicated planner, visual merchants and things like that.

There is incremental CapEx. So you saw an uptick in CapEx this past year. A large part of that was the Grove. The Grove, we really wanted to make a splash with the Grove to really set the stage and build those kind of set the precedent with landlords across the country and the world. I wouldn't expect CapEx for future stores to be to the magnitude of the Grove store, but there will be more CapEx than there has been in the past with the stores.

Yes, still very small. We haven't quantified it yet. Again, we want to get some experience under our belt with the Grove and get a couple of seasons under our belt before we get too granular on the specifics around the stores, but still small today, but very productive on a store-by-store basis thus far.

Maybe, I'll throw in next about FWRD, just because I think you mentioned gross margin, a lot of improvement in gross margin with last year. A lot of improvement in gross margin. And I think a question that I think comes up how do you do that to maintain that growth rate -- that gross margin going forward?

Yes. Yes. A large piece of that FWRD gain was the markdown algorithm improvement. So really improved both the full price mix and then the markdown margin within FWRD. That said, there was also other inventory improvements that we really got FWRD inventory rightsized this past year after a lot of volatility from COVID and then coming out of COVID and then a hangover after COVID. So we're kind of now normalized.

So we're about 42.5% margin on the FWRD business. We think that's a good place to be. We've been higher. We've been lower, but kind of in that low to mid-40s is a good, healthy place for the FWRD business to be. That is lower than the Revolve's business, largely due to the product mix where FWRD does SKU more handbags, shoes, accessories versus that higher-margin dress category. But those categories also have a lower return rate and FWRD carries a much higher average order value. So by the time you get down to contribution margin, it's plus or minus neutral to the -- kind of relative to Revolve.

Got it.

Yes. Yes. So number one is invest back into the business. Mike and Michael being founders, still owning 43% of the business, very long-term mindset, very aligned with shareholder interest and building that long-term value. So that's number one. You saw that in 2025 with a lot of investments in G&A, which -- on the physical stores and then also really building behind the scenes, the own brand team and process ahead of this launch that we had this past week.

So a lot of investments in kind of back office and support in 2025. And then in 2026, a lot of investment in marketing, both for the specific owned brand launch, Revolve Los Angeles, but then overall halo and then also Beauty and Men's, a much smaller portion of that marketing spend, but more emphasis on Beauty and Men's in this coming year. So that's number one.

And number two is thoughtfully evaluate M&A. We look at a lot of things. We think there's a lot of opportunity out there, but we are very disciplined when it comes to that. We made a minority investment in a small apparel brand earlier this year that really emphasizes our category diversification. Also a partnership with Cardi B to launch a beauty brand that is launching shortly. So more of that to come, but again, very disciplined and opportunistic, I'd say. And then number three is return of capital via our share buyback plan. So we have $100 million authorization. We've deployed $44 million of that at very attractive prices. So that's kind of number three and a backstop to the first two.

Yes. Yes, we think Agentic commerce is an opportunity for us. We are seeing a significant increase in traffic from LLMs and other players out there, very small piece of the overall pie today, but growing very rapidly. We're also experimenting and testing with more Agentic features on the site. So surfacing more -- the most relevant Q&A and also testing more, call it, chatbot technology where she can really engage with the site. So we think it's an opportunity.

And again, given our technology DNA, our innovative culture, we will fully embrace it. And I think if you look back in time and all the other kind of innovations and disruptions that have taken place over our 20 years, we've been able to capitalize on these and take advantage, I think, faster and better than others.

Yes, yes. So about -- on average, because it is -- it does fluctuate quarter-to-quarter and month-to-month, but on average, over the course of the year, about 25% of our marketing goes to, I'll put it in brand marketing. So that's both events and influencers, events being things like Revolve's Festival that's coming up in another, I guess, only a month away now. And then more events coming and kind of influencer type marketing around this Revolve Los Angeles brand in this coming year.

So if you look at the marketing guidance that we gave for this year, a pretty meaningful step-up from last year. The vast majority of that is in the brand marketing bucket. And that actually brings us back to our historical average. The last 2 years have been very efficient on the marketing side, specifically brand marketing.

So 2 years ago, Michael challenged the team -- the brand marketing team with getting more efficient on Festival. So this is a great example, where we cut the Festival from 2 days to 1 day, the budget was half of what it was the year prior. And we generated more press and social media impressions as a result. That was in 2024. 2025, challenged them with getting even better, and they did the same, cut the budget again, delivered more press and social media impressions.

So the core of the brand marketing has gotten really efficient, which now gives the opportunity with that strong foundation to invest this coming year, both again, specifically for the Revolve Los Angeles brand, but again, overall halo effect for the brand, we think it's going to be very meaningful.

And then Beauty and Men's, why now? It's actually been building for quite some time. I think we launched Beauty in 2016. So it's been a slow build. During COVID, it spiked, I think, over 6%, maybe higher percentage of the business given the shift in kind of what she was looking for during that COVID time. But a great example of how we're able to pivot given that time in our history from dresses and event wear into beauty and other categories and really serve her needs.

And now for 2025, it's about 5%. We think now is the right time. We've invested in leadership there and really building out the assortment, and that's Phase 1. Now we'll start to market. I think another reason is there's some, I would call it, fatigue out there with the existing multi-brand beauty players. So we think having a very curated kind of that Revolve discovery emerging brand offering for the customer is really important.

And then also in-store, it works really well in store. So it's all kind of coming together. Men's, again, we've had Men's over time, just more recently in the last couple of years, invested in leadership there, really getting the brand assortment right. And I think also having the brand power that we've built over the last 20 years, also just having more scale really helps, enable that investment. And again, I think that male customer -- that next-generation male customer is largely underserved from a multi-brand perspective for this aesthetic.

I think that's a great place to stop. Jesse, thank you so much for your time. Everybody, thank you. Revolve, thanks everybody.

Thank you.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve Group's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Erik Randerson, SVP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's fourth quarter and full year 2025 results. Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 2025 financial highlights to our Investor Relations website, located at investors.revolve.com.

I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, the impact of tariffs and our mitigation efforts, our marketing events and their expected impact, our physical retail stores, and our outlook for net sales, gross margin, operating expenses, and effective tax rate.

These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release, as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our quarterly report on Form 10-Q for the quarter ended September 30, 2025, and our annual report on Form 10-K for the year ended December 31, 2025, which we expect to file with the SEC on February 24, 2026, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law.

During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented and prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures, as well as the definitions of each measure, their limitations, and our rationale for using them, can be found in this afternoon's press release and in our SEC filings.

Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions.

With that, I'll turn it over to Mike.

Hello, everyone, and thanks for joining us today. We finished the year with an outstanding fourth quarter, highlighted by double-digit top line growth year-over-year that was outpaced by a 44% increase in adjusted EBITDA, resulting in a nearly 190 basis point increase in our adjusted EBITDA margin.

We achieved these strong financial results while continuing to invest in many initiatives that we are very excited about and which we believe set us up well for profitable growth and market share gains in 2026 and beyond. I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2025 accomplishments and closing out with our key priorities for 2026.

Starting with the fourth quarter recap. Net sales were $324 million, an increase of 10% year-over-year, driven by meaningfully improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2025. In fact, our net sales increased by a double-digit rate year-over-year across REVOLVE, FWRD, domestic, and international, and this is despite facing the most difficult comparisons of the year by far in the fourth quarter. Notably, our revenue growth rate on a 2-year stacked basis in Q4 improved to 26%, an increase of 11 points compared to the third quarter of 2025.

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 powerful margin gains from data-driven recalibration of our markdown algorithm, as well as an increased mix of owned brands.

Our ability to overcome macro pressures to expand our gross margin and operating margin year-over-year is notable in comparison to the margin declines experienced by many retailers due to tariff pressures, further illustrating our agility, operational execution, and data-driven competitive advantages.

Shifting to our bottom line results. Our operating discipline enabled us to achieve a 58% increase in net income year-over-year, handily outpacing our sales growth. Diluted earnings per share was $0.26, an increase of 53% from the prior year quarter. Adjusted EBITDA was $26 million, an increase of 44% year-over-year, driving a roughly 190 basis point expansion of our adjusted EBITDA margin. Beyond the numbers, I am excited by our team's execution that has led to continued great progress on the strategic priorities we outlined on prior calls.

I will now shift to a review of our performance and accomplishments for the full year 2025 before touching on our key areas of focus for the coming year. Overall, Michael and I are very encouraged by our meaningful financial gains on the top and bottom line, particularly considering the macro pressures from tariffs.

Net sales increased 8% year-over-year, a nearly 3-point improvement from the prior year. Importantly, we exited 2025 on a high note with double-digit growth in the fourth quarter that has continued strong in early 2026. Contributing to the top line gains were improved growth in active customers, with particular strength in the fourth quarter, and increased revenue per active customer year-over-year. We delivered strength across geographies in 2025. Net sales growth in the U.S. accelerated by 4 points year-over-year, and international net sales continued to outperform with 12% growth year-over-year.

Sales of beauty and men's products each increased by a healthy double-digit percentage year-over-year, more than doubling our consolidated growth rate on a combined basis and further validating our opportunity to expand our share of wallet. Revenue retention of our prior year customer cohorts also further strengthened in 2025, benefiting from an increasing mix of tenured customers who, on average, generate much more revenue and have higher retention rates. Gross margin increased 100 basis points year-over-year and continues to benefit from our full-price selling model. In 2025, we generated 81% of our net sales at full price, substantially higher than industry benchmarks.

Expansion of our higher-margin and exclusive owned brand collections also contributed to our gross margin gains. Owned brands contributed 20% of REVOLVE segment net sales in 2025, an increase of nearly 2 points year-over-year, with momentum building throughout the year.

Fueled by gross margin expansion and operating efficiencies, our profitability increased at a much faster rate than sales for the second straight year. Net income in 2025 was $61 million, and adjusted EBITDA was $94 million, an increase of 25% and 35% year-over-year, respectively.

Most importantly, we continue to generate significant cash flow. In 2025, we generated $59 million in operating cash flow and $46 million in free cash flow, an increase of 123% and 157%, respectively. This fueled a $47 million increase in total cash and equivalents on our balance sheet, surpassing $300 million at year-end.

Our strong cash flow and balance sheet are a key competitive advantage that gives us the capacity to invest in market share capture at a time when many industry peers have significantly reduced investment.

Finally, we meaningfully advanced our AI technology and personalization capabilities, further elevating the customer experience and contributing to our strong financial results. Here are a few highlights. On our e-commerce websites, we drove several million dollars in annualized revenue gains by launching AI-driven personalization enhancements and meaningfully enhancing our proprietary AI search algorithm for improved product discoverability.

In product merchandising on our sites, we drove increased consumer engagement and conversion through AI enhancements to our product recommendations and launched an AI styling feature, enabling shoppers to virtually style recommended items.

In marketing, we are increasingly leveraging generative AI in our processes to drive efficiency and effectiveness with great results.

In operations, our internally developed AI algorithms now automatically transcribe customer service phone calls, automate the back-end processing of invoices, and reduce the incidence of fraudulent transactions.

Most exciting, we recently rolled out and began testing an internally developed generative AI feature on our REVOLVE site that we believe will enhance the customer shopping experience by surfacing contextually relevant Q&A about each product. The test is a foundational step towards launching agentic AI conversational chat on our sites in the future.

I will wrap up with a discussion of our key priorities for 2026. As co-founders and the company's largest shareholders collectively owning 43% of total REVOLVE common shares outstanding, Michael and I are very focused on maximizing value over the long-term. Our strategic priorities for 2026 are guided by this long-term owner mindset.

We are clearly focused on extending our momentum in driving attractive top line and bottom line performance in the year ahead, while at the same time, continuing to prudently invest in exciting multiyear growth opportunities important to the long-term, such as owned brand expansion, deploying AI technology, brand building, and expansion into physical retail.

As we look ahead, we see multiple levers for growth that we believe will enable us to gain market share for years to come. First and foremost, we will continue to invest in expanding our brand awareness, acquiring new customers, and strengthening our connection with the next-generation consumer.

With our solid financial footing and the positive momentum in the business entering 2026, we believe this is an opportune time to invest in further building our brands with the goal of accelerating our market share gains and fueling our next phase of growth.

To further supplement our brand-building efforts, we will be investing to support several exciting product initiatives on tap for the coming months.

Second, we will continue to build on the successful expansion of our assortment to gain a greater share of our customers' spending on apparel, beauty, footwear, and accessories, including for the men's demographic, which is showing great promise and is growing much faster than the core.

We have earned our customers' trust and proven that with the right merchandising, they are eager to expand their purchases with us. This is especially true considering that we are investing to raise the bar even further on our incredible service offering, in contrast to what appears to be deteriorating service levels from key competitors.

Third, we will continue to thoughtfully invest in physical retail expansion, including further investments in our team and retail technology platform, as well as evaluation of potential new retail sites that are a great fit with our incredible brand. While still very early in our journey, we see physical retail as an exciting lever for future share growth over the long term.

Fourth, we will further expand our international presence, where we are investing in a market opportunity that is several times larger than the U.S. Over the past 4 years, international has increased from 17% to 21% of our total net sales, and we are just getting started. With emerging markets such as China and the Middle East offering a compelling expansion opportunity for our offerings, we see international as a key growth driver for many years to come.

Finally, we will further enhance our technology stack and leverage AI and other technologies across our platform to drive growth and efficiency. Since our founding, our teams have operated with a data-driven mindset and culture of technology innovation, leveraging our proprietary technology stack that is the operating foundation for nearly all aspects of our business. Our many AI technology wins in 2025 further validate our data-driven competitive advantages and give me even more conviction to invest as we expand the use of AI throughout the organization.

To wrap up, I want to take a moment to thank my Revolve colleagues for your incredible efforts that enabled us to achieve strong results in the fourth quarter, while also delivering great progress on our exciting longer-term initiatives. Our entire team is fired up by the many opportunities ahead that we believe will accelerate our market share gains. Our current momentum gives me a lot of confidence and optimism about the opportunities ahead in 2026 and beyond.

Now over to Michael.

Hello, everyone. I am very proud of our team's great execution across the business that contributed to double-digit top line growth and an incredible 58% growth in net income year-over-year in the fourth quarter. Anchored by our pristine financial foundation that continues to get stronger, we are investing in growth initiatives that we believe will be impactful drivers in further strengthening our brands and expanding our overall growth potential.

With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and where we see a great deal of opportunity: brand investments; opportunities in the dynamic luxury industry; expansion of owned brands; and physical retail development.

First, brand building. We had an impactful quarter for brand-building activities that helped to drive an acceleration in active customer growth while delivering increased marketing efficiency year-over-year that contributed to our strong bottom line performance. One of the most innovative brand-building moments occurred in early December with the unveiling of our reimagined brand identity in a global campaign that integrated the use of physical events and AI imagery for maximum impact and efficiency.

Those following REVOLVE on social channels witnessed our imaginative campaign, featuring the refreshed REVOLVE logo on historical landmarks from around the world, including Los Angeles, New York, Shanghai, Tokyo, Hong Kong, and Dubai. The new REVOLVE logo was also prominently displayed throughout the Crypto.com arena in Los Angeles, courtesy of our Lakers partnership.

Most importantly, consumers have embraced the new brand identity, validated by very favorable A/B testing on our e-commerce sites and our strong close to the fourth quarter. Entering 2026 with a strong financial foundation, increased momentum in the business, and plans to launch exciting new growth initiatives in the coming months, we believe the timing is right to increase investment in our brands to accelerate market share gains and support our long-term growth ambitions.

Second, FWRD and the competitive environment in luxury. We believe we are well positioned in what is a very interesting time in the luxury environment. A recent article from Business of Fashion highlighted a rare opportunity for financially stronger players, such as our FWRD business, to gain market share at the expense of struggling luxury competitors that have strained relationships with luxury brands. We couldn't agree more, and our Q4 results demonstrate that we are capitalizing on the opportunity in front of us.

Our FWRD net sales grew 14% year-over-year, and FWRD gross profit dollars increased 33% year-over-year in the fourth quarter, representing roughly 6.5 points of margin expansion and our highest ever FWRD margin for a fourth quarter. Our customer metrics are also very exciting. In Q4, our FWRD segment acquired the highest number of new customers for any quarter in our history, and the important high-value customer segment is also becoming more loyal to FWRD.

In recent quarters, our top tier of FWRD customers have measurably increased their spending with us. One investment that has been critical to this success is our FWRD personal shopping program, which delivered approximately 100% sales growth in 2025, enabling us to drive deeper engagement among our most valued customers and attract many more high-net-worth clients. Clearly, we are gaining market share on the strength of our FWRD investments.

We are capitalizing on financially challenged competitors that have slashed spending out of necessity. In fact, last month, the world's largest multi-brand luxury retailer declared bankruptcy, which creates an exciting opportunity for stronger players like REVOLVE and FWRD to pursue the millions of luxury customers that have been impacted. And some of the world's most revered luxury brands have partnered with us as they increasingly recognize FWRD as a clear winner in the space for the long term. In just the past few months, we have co-hosted private client and shop-in-shop events with Fendi, Ralph Lauren, Miu Miu, and Acne Studios, among others.

Third, owned brands, where our momentum continues to build. Our owned brand penetration of REVOLVE segment net sales increased year-over-year for the fourth consecutive quarter, elevating our owned brand penetration for the full year 2025 to 20%, nearly 2 points higher year-over-year. On the heels of brand launches from SRG and Haelo, and continued strength from existing brands, these gains contributed to our gross margin expansion year-over-year, since our exclusive owned brands generate meaningfully higher gross margins than third-party brands.

Also very exciting, in Q4, we doubled down on our successful owned brand collection discussed last quarter that we specifically designed for the China market. We took it to a whole new level by hosting a livestream event to showcase our China owned brand products that was our most successful livestream ever. This underscores the strong consumer demand for localized owned brand products that we believe is scalable at very attractive economics, not only in China, but potentially in other regions over time. Also notable is that we are able to deliver increased service levels at reduced logistics costs, resulting from the launch of a Hong Kong fulfillment hub through our logistics partners.

We intend to scale these China-specific owned brand initiatives in 2026 and beyond. We believe the owned brand penetration of REVOLVE segment net sales can move considerably higher over time as we further expand our product categories, continue to drive outsized owned brand penetration in physical stores, and introduce exciting new owned brands in the coming quarters. In fact, we are gearing up to introduce an entirely new chapter for our owned brands assortment that could be the most impactful yet. We believe the best is yet to come.

Finally, physical retail. After more than 20 years of building our powerful global brand to a meaningful scale online, we are excited to leverage our brand strength into a physical environment that reflects the discovery, connection, and elevated experience at the core of the REVOLVE brand. We view thoughtful and prudent expansion of our physical footprint at this juncture as both a strategic and natural progression, allowing us to engage with the consumer in a more meaningful, multidimensional way.

As a result, we are thrilled to have opened the doors to our second permanent retail store at The Grove in Los Angeles. We are pleased by the enthusiastic early response to our elevated retail destination, including frequent occurrences of consumers lined up outside our door during busy periods. In fact, customers waited for hours to meet Dwyane Wade and experience the U.S. debut of new apparel and footwear from the Li-Ning Way of Wade collection, celebrating our strategic partnership as the first omnichannel distribution for the brand in the U.S.

We believe our central location is ideally positioned to leverage the high foot traffic and visibility of The Grove to engage new and existing customers, bringing together fashion, culture, and experiential design. This aligns with our focus on physical retail as a key growth strategy for increasing brand awareness and market share gain over the long term.

We are particularly excited by the opportunity to acquire new customers, establish deeper connections with our customers, increase our own brand penetration, and target a much larger addressable market opportunity since physical stores generate more than 60% of global retail spend on apparel and footwear, and landlords across the country are taking notice.

Since opening our incredible store at The Grove, there has been a meaningful uptick in interest in REVOLVE and FWRD from tier 1 landlords in key markets that are in attractive locations. While the ongoing performance wins from our Aspen store and the encouraging early results from our Grove store increase our confidence, we acknowledge that physical retail is a completely different business model than e-commerce. As a result, guided by the experienced team we have recruited to lead our retail journey, we will remain thoughtful in pacing our investments as we continue to iterate and measure our results over time.

To wrap up, we are thrilled with our momentum in delivering strong growth and profitability and are even more excited about what lies ahead. For the past few years, we have been investing in very meaningful multiyear growth opportunities that are beginning to deliver exciting results, and we feel incredibly confident with our positioning in the shifting technology landscape and our ability to continue to drive conversion and efficiency through the use of AI. We are in a very unique and opportunistic time, and we intend to invest significantly and thoughtfully to take our brands to new heights.

Now I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. I'm extremely pleased with our fourth quarter results and the strong close to 2025, highlighted by double-digit net sales growth across segments and geographies, and a more than 50% increase in earnings per share year-over-year. I'll start by recapping our fourth quarter results and then close with updates on recent trends in the business and commentary on our outlook for 2026.

Starting with the fourth quarter results. Net sales were $324 million, a year-over-year increase of 10% and a 6-point improvement from our net sales growth in the third quarter of 2025. We achieved this growth acceleration despite facing a much more difficult prior year comparison in the fourth quarter as reflected by the 26% 2-year growth rate in the fourth quarter, our highest 2-year growth in more than 2 years, and a significant expansion from the 15% 2-year growth in the third quarter of 2025.

REVOLVE segment net sales increased 10% and FWRD segment net sales increased 14% year-over-year in the fourth quarter. By territory, domestic net sales increased 10% and international net sales increased 13% year-over-year. Active customers, which is a trailing 12-month measure, grew to 2.8 million, an increase of 6% year-over-year. Total orders placed were 2.4 million, an increase of 13% year-over-year, and our highest growth rate in 3 years.

Average order value was $296, a decrease of 2% year-over-year, primarily due to product mix, highlighted by an exceptional 43% increase in beauty sales year-over-year. Consolidated gross margin was 53.3%, an increase of 78 basis points year-over-year, that primarily reflects meaningful margin expansion in our FWRD segment.

Moving on to operating expenses, where we have continued to drive efficiencies year-over-year. Fulfillment costs were 3.2% of net sales, more efficient than our guidance and unchanged year-over-year. Selling and distribution costs were 16.7% of net sales, outperforming our guidance by 90 basis points, and an increase of 24 basis points year-over-year.

Our marketing investment also came in much more favorable than expected, representing 14.0% of net sales, a decrease of 74 basis points year-over-year. General and administrative was the one expense line item higher than our guidance, coming in at $42 million.

Most of the overage, however, reflects costs that are excluded from adjusted EBITDA, including $1.3 million in nonroutine transaction costs that were not factored in our outlook and higher-than-anticipated stock-based compensation triggered by our full year results handily exceeding our performance targets.

Importantly, we achieved leverage on general and administrative costs in the fourth quarter for the first time in more than 3 years, even when adjusting for nonroutine costs. Our tax rate was 20% in the fourth quarter, an increase of approximately 1 percentage point from the prior year. The meaningfully increased net sales and gross profit year-over-year, coupled with improved operating efficiency, resulted in very strong growth on the bottom line that significantly outpaced our sales growth.

Net income was $19 million, or $0.26 per diluted share, an increase of 58% and 53%, respectively, year-over-year. Adjusted EBITDA was $26 million, an increase of 44% year-over-year. Our adjusted EBITDA margin expanded by 188 basis points to 8.1% from 6.2% a year ago. For the full year 2025, adjusted EBITDA was $94 million, an increase of 35% year-over-year that drove a 150 basis point expansion of our adjusted EBITDA margin.

Moving on to the balance sheet and cash flow statement. Our Q4 cash flow comparisons were unfavorable in what is our seasonally weakest quarter for cash flow generation, yet remained significantly stronger for the full year. In 2025, we generated $59 million in net cash provided by operating activities and $46 million in free cash flow, an increase of 123% and 157% year-over-year, respectively. Inventory at December 31, 2025, was $252 million, an increase of 10% year-over-year, consistent with our net sales growth for the fourth quarter.

As of December 31, 2025, total cash and cash equivalents were $303 million, including $11 million in restricted cash for an increase of $47 million, or 18% year-over-year, and we continue to have no debt.

Now let me update you on some recent trends in the business since the fourth quarter ended and provide some direction on our outlook to help in your modeling of the business for 2026. Starting from the top, we're off to a great start with net sales through the first 7 weeks of the first quarter of 2026 increasing by approximately 16%, with strength across the REVOLVE and FWRD segments, domestic and international.

For modeling purposes, I want to point out that we face more difficult prior-year comparisons for the rest of the first quarter, as net sales in January of 2025 were softer than normal when the Los Angeles wildfires temporarily impacted demand in our largest region of California, and during which time we paused social media activity.

Now before we get into guidance, let me caveat that our outlook is based on the current status of tariffs as of today, February 24, 2026, including the recent decision by the Supreme Court of the United States and our estimate of the impact of potential mitigating activities. Our outlook does not include the impact of any potential refunds as a result of the Supreme Court's decision. Our outlook for gross margin is especially susceptible to variability, given the uncertainty surrounding the timing and level of tariffs that will ultimately be in effect, as well as the timing and magnitude of the potential impact resulting from our mitigation efforts.

Shifting to gross margin. We expect gross margin in the first quarter of 2026 of between 52.8% and 53.3%, which implies an increase of 105 basis points year-over-year at the midpoint of the range. For the full year 2026, we expect gross margin of between 53.7% and 54.2%, which implies a year-over-year increase of around 45 basis points at the midpoint of the range. As our guidance implies, we expect more meaningful gross margin expansion year-over-year in the first half of the year, since we will lap the big gains resulting from optimization of our markdown algorithms in the second half of 2025.

Fulfillment; we expect fulfillment as a percentage of net sales of approximately 3.2% for the first quarter of 2026, consistent with the first quarter of 2025. For the full year 2026, we expect fulfillment costs of between 3.2% and 3.4% of net sales, an increase of approximately 10 basis points year-over-year at the midpoint of the range.

Selling and distribution; we expect selling and distribution costs as a percentage of net sales of approximately 17.1% for the first quarter of 2026, an increase of approximately 30 basis points year-over-year, and between 17.1% and 17.3% of net sales for the full year, an increase of approximately 10 basis points year-over-year at the midpoint.

Marketing; we expect our marketing investment to be approximately 15.7% of net sales in the first quarter and between 15.3% and 15.8% for the full year 2026, implying a year-over-year increase of around 140 basis points and 125 basis points, respectively, at the midpoint of the range. The expected increase will primarily be driven by increased brand marketing investments related to exciting growth and brand-building initiatives planned for this year.

General and administrative; we expect G&A expense of approximately $40.5 million in the first quarter of 2026 and between $161 million and $164 million for the full year 2026. At the midpoint of the full year range, our outlook represents a modest 4% increase year-over-year in G&A costs for the full year 2026. And lastly, we expect our effective tax rate to be around 24% to 26% for the full year 2026.

To recap, I am truly encouraged by the very strong momentum in the business as we closed out 2025 and into early 2026. And I'm particularly excited by the slate of promising initiatives ahead in 2026 that we are investing behind and that we believe position us well to continue to gain market share in 2026 and for years to come.

Now we'll open it up for your questions.

[Operator Instructions] Your first question comes from the line of Janine Stichter with BTIG.

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?

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.

Great. And then maybe just as you think about gross margin progression through the year, you mentioned first half stronger, just due to the comparisons. But then the offset, I guess, would be the owned brand's penetration. How should we think about that offsetting the tougher comparisons in the back half of the year? Should we expect owned brands to continue to build sequentially as the year goes on?

Yes. Yes, we would expect owned brands to build sequentially as the year goes. But then we did have the huge gains last year from the markdown algorithm that kicked in around midpoint of the year. And those were meaningful gains. So that will offset some of those owned brand gains that we will achieve. So that's reflected in the guidance where you see that 100 basis points in Q1 and then 45 for the full year.

Your next question comes from the line of Michael Binetti with Evercore.

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?

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.

Our next question comes from the line of Anna Andreeva with Piper Sandler.

Congrats. Wanted to follow up on gross margin. What drove that slight decline at REVOLVE brand in 4Q? Assuming some of that was tariffs, but just wanted to follow up. Should we expect REVOLVE gross margins to be up in 1Q and also for the year?

And then secondly, I guess to you, Jesse, on EBITDA margins, so your guidance for '26 implies flattish at 7.5%. Can you just remind us how we should think about the longer-term profitability goals for the business? Is that still a mid-teens margin that you used to talk about? And how should we think about gross margin versus SG&A within that, just given the markdown, optimization algo still in pretty early days?

Yes. Thanks, Anna. So let me start with the REVOLVE margin. There was a slight decrease in Q4. And to your point, there was some tariff impact there. The tariff impact built over the course of the year as inventory receipts flowed into COGS. And then there was also some mix shift element there with some of the category diversification, beauty growing 43%, apparel growing 11%, and outpacing the REVOLVE. And then the FWRD outpacing REVOLVE as well.

So some of those were the negatives on the REVOLVE gross margin, offset by the owned brand expansion, which did help there. And then as we look ahead into 2026, I think we'd expect some slight increase. Overall, that 45 basis points -- FWRD is in a really healthy position at that 42.7%, I think. And that's a good place for FWRD to be. So maybe there's some small incremental gains there. And then on the REVOLVE side, with owned brand penetration increasing, that's where we'd see some benefit.

And then if we look at adjusted EBITDA margin, I'll speak to our more near-term goal, and that is to get EBITDA margin into the high-single digits on a consistent basis. And we did great in Q4, made great progress for the full year. Much of the -- if you look at a little bit longer term, much of the increase will come from gross margin as we expand the owned brands. That's the biggest driver there. And then some leverage on the G&A side of the equation. We made a lot of investments in 2025, gearing up for a big 2026. So we should start to see more leverage out of that G&A line item over the course of the coming years.

Our next question comes from the line of Oliver Chen with TD Cowen.

This is Gabriella Garr on for Oliver. I'd like to ask a little bit more on inventory positioning going into 2026. I see inventories grew roughly in line with sales this quarter. But if you could tell us how you're feeling about your inventory positioning going into '26, particularly as we're seeing some faster-growing categories and some shifting in mix with beauty, for example, growing so quickly.

Yes. Thanks, Gabriella. We feel good about the inventory position, to your point, growing about 10% in line with sales, which is a good place to be. It was a little bit higher in Q4, kind of a lag from some of the supply chain difficulties that we faced in Q3 that impacted the top line. So we saw some of that inventory come in, in Q4. But overall, we feel very good about the inventory position, the health of the inventory.

And particularly on FWRD, as you probably know, that inventory can take longer to work through. So to have FWRD inventory in a really healthy position is really positive. And we feel good about the positioning in those other categories as well and geared up to continue to expand in those other categories.

Your next question comes from the line of Dylan Carden with William Blair.

You've gotten the flow-through question a couple of times. I mean, I'm curious, you also mentioned that you're thinking about balancing growth here and investment in the business. Is part of the posturing here switching to maybe more offense -- more offensive stance to drive faster top line while keeping things like marketing -- I mean albeit within historical ranges, but deleveraging to last year. Are you seeing those opportunities, seeing efficiencies out there to go after a faster top line profile? Is that one way to read the guide?

Yes. I mean, the most important flow-through to us is EBITDA growth. And so, yes, we've been making investments into G&A and overhead, and we've been producing great results. We're really pleased with the revenue growth, the revenue trajectory, the earnings and EBITDA growth. And yes, a lot of our investments in the AI, technology, brand are really paying big dividends. We're also investing a lot ahead of some big launches in the coming year.

So yes, certainly very mindful, and we do expect to get leverage on G&A over time. But right now, we're seeing really good opportunities to invest. And so that's what you're seeing in the current year results. And again, we've been driving the most important number, the EBITDA and earnings in the right direction. So we're very pleased with that.

And then, Jesse, if you want to comment on projections for the upcoming year and guidance around the flow-through in '26.

Yes. No, I think you covered it for the most part. But maybe to highlight what you said, Dylan, is that, yes, on the marketing side, it is a meaningful increase as a percentage of sales versus 2025. But if you go back in time, it's more in line with our historical rate. So it's bringing it back plus investing in these exciting launches and initiatives that we have coming up.

And so reading that with the body language around efficiencies via AI engagement, however you want to think about it, would one be forgiven for thinking that you see opportunities to accelerate top line or see an accelerated top line profile versus what you've done in recent years? Again, I know you don't guide to sales, but just trying to figure out maybe some of the philosophy here on higher spend.

Yes. We certainly expect investments on the G&A side to flow through to both top line and also bottom line. And so, certainly, increased revenue growth trajectory is one thing that we're targeting, and I think we've already seen in recent quarters. And then -- but it's also important to note that it's not just on the top line side that we get increased efficiency on the marketing side from investments that we make. We get increased efficiency on logistics and operations and things of that nature that allow us to essentially do more and invest ahead of expansion of the business and other things that we're targeting in '26.

And then just to confirm, I know, again, you don't guide sales, but no store costs or any sort of store expansion is embedded in the guide as it stands now for '26. Is that correct?

There is both the Aspen store and The Grove store included in the model, but not incremental stores.

Your next question comes from the line of Mark Altschwager with Baird.

Just starting with maybe the Q1 commentary, if we could, quarter-to-date up 16%. I understand the comparison gets tougher from here. But I guess even if we hold the 2-year, that would suggest getting close to low double for the full quarter, I guess. is that the right way to think about it? Or anything you'd caution us on there?

Yes. No, I think that's fair, just as you said, looking at the comps for January and the balance of the quarter.

And then on gross margin, understanding you're at 81% full price realization, which is a fantastic number. But maybe speak to the opportunity for further markdown optimization moving forward, even after you've lapped some of the changes in the back half of this year.

Yes. We're not guiding anything specific there. We're certainly optimistic that over time, we can continue to drive enhancement on that side that should result in improved margins, and of course, continued owned brand expansion.

But with regards to the algorithmic investments, the nature of R&D is that it's hard to predict exactly when you're going to have those breakthrough enhancements. But I think we've demonstrated over a long period of time, including since we've gone public multiple times, our ability to drive those continued enhancements through R&D, and we're going to continue to invest there.

Your next question comes from the line of Jay Sole with UBS.

Mike, I have a question about just AI. Can you just talk about -- you've been talking about investments, but can you give us an idea of where the investment is showing up? Is it in SG&A? Is it CapEx? And is implementing AI a question of just money? Is it people in terms of do you need to bring in talent? Is it just capabilities of the AI systems?

And then maybe, Michael, just can you talk about some of the different categories in a little bit more depth, talking about men's, maybe women's dresses, other categories where you're seeing outsized growth? And then maybe, Jesse, just international, can you talk about China a little bit more, how much you grew in China, what Chinese New Year was like? And that does my questions.

Sure. So with regards to AI investments, they mostly show up on the financial sheet -- financials under SG&A. There's some CapEx there, but it's mostly SG&A investments. And then in terms of the areas of the business where it's been giving us leverage, it's really across the board. Certainly, on site, a host of personalization and merchandising enhancements, whether it's better personalization for customers, whether it's the new search algos that we rolled out last year, whether it's improved product recommendations, on-site discovery, we rolled out the virtual styling tool recently. Or whether it's on the operations side, where we've talked about a number of things that we've done historically to drive efficiency, and we're continuing to make investments there.

So there's certainly customer service, contact routing, customer service call transcription, invoice, auto ingesting, and then new opportunities that we're rolling out. We're starting to do more and more on the fashion design side in terms of using AI to enhance that process, make it faster, more efficient and better.

So yes, it's really across the board, and we're seeing it make meaningful improvements to our business. On the marketing side, every aspect of the marketing chain and funnel, whether it's from a reach perspective, expanding the reach of our ads and the targeting of our ads through AI, whether it's through the content itself, using AI within the marketing content to help produce the content for the ads, or whether it's when they funnel into the site and the landing pages. We've seen a lot of success recently with using AI to enhance the landing pages when customers come in.

So it's really, I think, a transformational technology, and we're excited about our ability to continue to roll out enhancements there.

I guess last thing also on the merchandise mix, we're seeing great strength across the board. Dresses continues to grow, historically our biggest category, but fashion, apparel, and the rest of the women's ready-to-wear-type categories are going extremely great. Men's and beauty and home are doing incredibly well, of course, smaller bases, but accelerating and growing much faster than the women's business, with also potential to even accelerate growth.

The men's business particularly was hurt by missing deliveries due to all the tariff and logistics challenges, but still put up incredible numbers and incredible turns. So we're seeing broad-based success. And to me, the most exciting part is seeing success in areas that we have not been historically known for. We've been particularly known for dresses, going out clothes, and warm weather being an L.A. brand, but we're really seeing our customer really engage with us in other categories, other departments of our stores. So that really gives us a broader, stronger foundation for continued growth for many years to come.

Yes. And then I'm sorry, I realize I missed one part of your question on AI, which is, where do we need to make continued investments. Well, first, we have a great team, and we've talked about the investments we've made on the SG&A side with the team. It's really about applying AI technologies in a domain-specific way, which requires having the right team that really understands the domain that you're operating in.

And then time to put in R&D and test and see what resonates with the consumer. So it's a combination of both technology, but also fashion expertise and really understanding the domain, which I think our company is incredibly well-leveraged for going forward.

Yes. And then I'll wrap up with your international question. We're really excited about the China growth, specifically. If you look at international overall, though, to start with, 13% growth on top of 29% growth last year in the fourth quarter was phenomenal. And China was a standout. That was one of our top 2 fastest-growing regions in the quarter, almost 2x the overall international growth rate. And then mainland China grew at an even faster pace than that.

And I think, interestingly, and really excited that REVOLVE now is the majority of the mainland China sales. So it really shows the brand and our owned brands resonating with that customer. And then highlighted by the owned brand-specific collection that we did in China for that customer in the livestream event, not just the customer reaction and the sales and the demand, but also the logistics savings with our Hong Kong hub. So lots going on in China and the Middle East. I'm excited about where we can take that.

Your next question comes from the line of Nathan Feather with Morgan Stanley.

Really impressive growth for the 4Q and quarter-to-date. I guess, was there anything that was an outsized contributor? Or is it really more broad-based? You called out a lot of different things that are working here. And then just how should we think about the durability of this growth as we go forward? And then one on the agentics as well. Seeing a lot of improvement here, I guess. Just how are you thinking about what the consumer experience can look like in 2 to 3 years with the improved search and discovery and conversational tools we're seeing?

Yes. Thanks, Nathan. I'll start with the first one here. On the outliers, I think the great thing is that it was really across the board, double-digit growth across all cuts, REVOLVE, FWRD, domestic, international. You had some regions, like I mentioned, China growing at a faster rate than the overall international business, so that may be called as a standout.

Beauty was another standout at 43% growth, so speaking to our category diversification. And then even within apparel, Michael touched on this, but within the fashion apparel, which grew at a faster rate than dresses. Outerwear was a great category for us. So I think, again, speaking to addressing different aspects of our life and going after those other categories.

So I think to sum it up, it was great growth across the board. And then durability, we feel good about where we're at from an inventory position, from the merchandising, a lot gearing up in marketing over the next year and the owned brand launches that we mentioned. So we've got a lot cooking, and we're off to a good start with this first 7 weeks of the year, so optimistic.

Yes. And then with regards to what the shopping experience can look like 2 to 3 years from now. Certainly, we're already starting to see a lot of changes with the influence of AI on commerce, whether it's the generative Q&A that we launched on our website recently, where we auto-generate questions for consumers and answers for them that we're seeing nice lift on thus far with our deployments, and whether it's something like chatbots, which is certainly something that's on everyone's mind, and I know a lot of people are working on that. And certainly, we have ours in development as well.

But then I think there's going to be some really interesting developments that don't look exactly like either of those 2 things that we're working on that probably to some extent blend maybe some of those technologies with more of a traditional shopping experience and then layer on some other elements. And we have some things in R&D. I don't want to get into too many details about things that we're working on that we haven't seen elsewhere. But I think it's going to be exciting over the next 2, 3 years. We're really excited about what we can deliver to consumers to help transform the shopping experience, make it even better.

And I think as we look out 2 to 3 years, I feel very good about our ability to lead the way on the combination of fashion, tech, and retail, as far as how it relates to consumers. And I think brand is going to continue to be still an incredibly important brand and service. As much as AI technologies can transform part of the retail shopping experience, they cannot transform and replace brand and the meaning of brands with consumers and brand trust with consumers and the service levels that a company like REVOLVE offers.

So yes, we feel quite exciting. And typically, in times of change with new technologies, we've thrived, and we're certainly excited to see what the next couple of years hold.

Your next question comes from the line of Peter McGoldrick with Stifel.

I wanted to ask about the drivers of the FWRD business. Could you talk about the road map for customer acquisition on the luxury side, and then building out the brand availability and how that points to your capacity for acceleration within that landscape?

I'll jump in here a bit on the FWRD side. So yes, we're seeing tremendous growth on the FWRD side. I think it's a combination of things. Certainly, the FWRD business has been continuing to strengthen, and we're starting to fire on all cylinders. I think we've done a really great job with some of the high-end customers on FWRD, which is an area we historically have not invested in, and we've really transformed and improved our experience there.

And certainly, the general landscape within luxury has been certainly challenging in a broad macro sense, but very favorable for FWRD in the sense that it gives us a lot of opportunity to gain market share as competitors struggle with their service levels and their brand and product offerings and lose share to players like FWRD.

So we feel great about that. And then in terms of continued brand acquisition and product expansion, there's certainly continued opportunities on FWRD and the weakness of some of those larger players certainly very much works to our benefit as far as that goes.

And then on the retail side, you had some encouraging comments about opportunities for tier 1 expansion. In the past, you pointed to a vision of a mix of destination in large metro retail locations. So I was curious if you could tell us more about how your retail strategy has progressed now that you've got The Grove in place.

Yes. It's interesting. Aspen is going quite well and The Grove is very, very new. They're both definitely different locations. But we see that with both those profiles, smaller town with a lot of wealth, a lot of shopping, as well as premium shopping locations, which there are many, many, many across the nation. We're going to have strong success in both.

So we're exploring opportunistically and being patient, but ensuring that we have these perfect locations. And I'm optimistic that this year we will make continued progress, both with the performance of those stores, as well as expansion opportunities.

Your next question comes from the line of Matt Koranda with ROTH Capital.

So a lot have been asked and answered. But on the customer engagement front, it looks like it's really picking up in terms of actives or orders per active. Any commentary around repeat purchase behavior from your existing customers?

Is that just additional share of wallet in new categories? Is it core repeat growth in apparel? Maybe just a little bit more on that front. And then just on the physical retail, I know it's been asked a couple of different ways. But I guess I'm just curious, why not step on the gas a bit more on the physical retail front? What do you need to see from either existing locations or just in the general backdrop before you lean a little bit more on the physical retail expansion?

We're still building that core foundation. I think a lot of that goes back to team, technology infrastructure process. So we want to be sure that, that is as strong as our e-commerce business before rolling out super aggressively. I think at this point, slow is smooth but smooth is fast. So there will be a point in time where we feel like we're really humming, and we can expand. Not quite there yet, but we are building towards that level.

Yes. And on your customer questions, Matt, yes, we're really encouraged by the customer engagement as we progressed through 2025, both from the active customer count and then to your point on the revenue and orders per active customer. And then if you dig a layer deeper than that on the retention, so existing customers ticked up, their percentage of sales ticked up, the orders and sales from those customers ticked up. And then our retention also picked back up this year pretty meaningfully.

So really good customer engagement and not to give you a nonanswer, but it really is across the board. It's both new customers and existing customers. It's across categories, as you can see with the sales results in the quarter. Maybe standouts are beauty, again, that 43% growth rate, and that's a lot of new customers. And then they increase their AOV over time. So we really are seeing both on the new and existing and that category diversification.

Your next question comes from the line of Simeon Siegel with Guggenheim Securities.

Jesse, can you quantify how much the owned brands increased gross margin this quarter? And then just another on marketing, if I can. Just how much of that increased spend or how are you thinking about the increased spend tied to REVOLVE versus FWRD versus corporate level brand building? Or is it really all tied to the commentary around the owned brand opportunity? And if it is, is the right way that you guys are thinking about the economics of owned brands as being higher gross margin, but maybe higher OpEx with the marketing? Or is this more of a onetime lift on the spend?

Yes, I'll start with the margin impact on owned brands. We don't quantify that other than to say owned brands, of course, produce meaningfully higher gross margin. And then as mix increases, of course, it impacts that REVOLVE gross margin. So it was a contributor to the REVOLVE margin and then offset by some of those other takes like tariffs and mix and such. Maybe I'll pass it on for the marketing.

Yes. I mean, as far as we think about the marketing investments in the coming year, certainly, they are to support some exciting things that we have on the owned brand side. But we don't view the owned brands as distinct and separate from the REVOLVE brand itself. Obviously, they are their owned brands. But we think the marketing that we do is going to support the mothership as well, not just the individual owned brands.

And we've always said that on the brand marketing side, we're opportunistic, and we want to make sure we're going after the right opportunities, that we're seeing interest in the eyes of consumers. So there's always going to be some variability of timing on brand marketing investments in terms of what we do quarter-to-quarter, even year-to-year. We think we have some exciting opportunities for the upcoming year.

We want to invest strongly behind them. We think they're going to pay dividends, not just in the current year, but for many years to come, really helping build and enhance the REVOLVE brand itself and take it to another level.

Your next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So just a 2-parter for us. But with the strong growth in beauty and the rising share of the new-to-sell customers that are choosing beauty as their first purchase, just curious as to if you have any color as to what's driving that behavior and if the beauty entry point translates into higher cross-shop rates in apparel and other categories. And then with that, but how should we think about the AOV trajectory through 2026? Is stabilization likely as those beauty customers mature and cross-shop? Or does mix remain the dominant governor on AOV for the year?

Yes. Super proud of the progress on beauty. Of course, beauty is a less mature business than the apparel business. So the simple things are really expanding our selection to be really, really amazing. I think we're having a very, very unique special curation of beauty brands and also improving the site experience. The beauty shopping experience is dramatically different, even though it looks the same, dramatically different than apparel, less picture driven, a lot more information driven.

So huge progress there on both of those fronts. And there is a long runway to continue to improve both of those fronts. Beyond that, we have yet to even invest aggressively in marketing, which, of course, we are quite confident that we will be very successful there. So early stages of beauty, accelerating growth with a long road map ahead, super, super excited there.

How it integrates with the rest of the businesses makes us even more excited. We are able to attract those new customers through an awesome, big, huge lane. And also, we've been able to convert those customers into long-time apparel, full-price customers across the board.

So over the long term, we think it will be very, very, very incremental, despite some periods where beauty acceleration may lower AOV a tad. But we think overall, this is very, very healthy for the business and will ultimately be super synergistic with the mothership.

Yes. And for our AOV for 2026, Ashley, we -- in our model, we're guiding to roughly flat year-over-year in 2026, with, of course, a lot of puts and takes. And one of those is the category mix shift. If we continue to do a good job in this category, mix shift, that will put pressure on AOV. And then some offsets, as you and Michael mentioned, just those beauty customers migrating into other higher ticket items. We also have some price increases rolling through, of course, from the tariffs of 2025. And then dependent on full-price mix and the FWRD/REVOLVE mix, but guiding to roughly flat.

Your last question comes from the line of Mary Sport with Bank of America.

Is there anything you can share on the health of your consumer, particularly at the REVOLVE segment and just any trends that you've been seeing by income cohorts? I think you mentioned maybe some softness at the low end last quarter. Have you seen that persist?

Yes. Nothing significant. Again, I think some of that softness probably lightened up in Q4 with the great sales results that we saw. But nothing else really significant to call out, maybe other than the FWRD side of the business and that high-end consumer really performing with our emphasis there.

There are no further questions at this time. I will now turn the call back to management for closing remarks.

Thank you, guys, for joining us. It was an incredible quarter. We're very proud of our work of our team to deliver these results and very optimistic that we can continue to build from here. It's been a challenging year, but we've been able to jujitsu tariffs into a unique strategic competency moving forward. So we're ready for any bumps ahead there, and we're excited for that. Our AI investments are paying dividends, and our AI road map has no end in sight. Our financial profile and balance sheet is bulletproof. And many powerful strategic investments are just coming online this year. I believe we're entering a new phase of our evolution and very, very excited for the year ahead. Thanks for joining and excited to join you guys next quarter.

Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.

Great. Well, good morning, everyone. Thanks so much for coming. My name is Nathan Feather, I'm Morgan Stanley's small and mid-cap Internet analyst. I am pleased to be joined by Jesse Timmermans,evolve's CFO. Thanks so much for joining us.

Yes. Thanks for having us. Happy to be here.

So before we begin, a few quick housekeeping items. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, let's kick it off. I want to start a little bit higher level. For those in the audience who may be newer to the Revolve story, can you provide some background on Revolve's business model, the strategy and competitive differentiation?

Yes. Yes, absolutely. We were started over 20 years ago by Mike and Michael, our co-founders, who are still our co-CEOs today. and still own about 44% of the business. So I think that leads into one of the key differentiators is founder-led and founder-owned. They definitely have an owner mindset and really focusing on the long term for the business and making the right decisions for the long term and growing the business over the long term. So I think that's one. It's the founder-led business.

We are a -- we call ourselves the fashion destination for this next-generation consumer. very differentiated merchandise, really want to be where the customer is at, whether that's on Instagram, TikTok, social media, AI, which I'm sure we'll talk about very data-driven. Mike and Mike were not fashion guys when they started the business. I would say Mike probably still is not a fashion guy.

So they really had to rely on data from day 1 and data to make their decisions on merchandising, and that led to really building essentially everything within the business from inventory management to the marketing, reporting to essentially our ERP. Everything is 1P, our customer service, our inventory, which, again, being data-driven from day 1, great inventory management and then that leads into taking advantages of opportunities like AI and being at the forefront of that.

So I think maybe to wind out the differentiators is just the consistent profitable growth over the past 20 years. So kind of all those things, founder-led, data-driven, focused on this next-generation consumer and then a great financial profile.

Okay. Great. Well, I also want to touch on how the consumer landscape looks right now. I guess, can you elaborate on the latest you're seeing in consumer health and any differences by income bracket, which certainly we've seen in some other places. I interest to hear how this has evolved both through the year and kind of into the early holiday season.

Yes. Yes, I'd say surprisingly, the consumer has been, I think, what we'd call resilient given all of the challenges out there. I think we are seeing some disparity, not significantly, but some disparity between the lower end and the higher-end consumer. The higher-end consumer has been strong relative to that low-end consumer.

Also seeing some pockets of weakness, especially within the third quarter around the surrounding D.C. areas where we saw some softness likely related to the government shutdown. But again, all at the margins, I would say, overall, the consumer is resilient. I think we're encouraged by the Q4 progress thus far, supported by that October that we talked about in the Q3 earnings call where October was up mid-single digits, which on the surface doesn't sound great. But if you look at the 2-year stack there, depending on which mid-single-digit number you pick, we're in the 16% to 18% 2-year, which is getting close to where we think we should be and want to be in the near term is getting back into consistent double-digit top line growth.

Okay. Great. Well, touching on that, I guess, you have seen a little bit of revenue deceleration in the back half, partially on those tougher comps. And so can you detail what the building blocks necessary to get back to that double-digit growth goal?

Yes, Yes. Maybe I'll start with Q3 and breaking that down a little bit. Number one, we had the comps, which we talked about. So 4% 1-year growth. If you look at the 2-year, we're at 15%, which was our highest in 2 years. So kind of that's the comp dynamic.

Number two, we did make decisions on our promo cadence and cut back on promos that we had done in the prior year, which drove significant gross margin expansion, almost 350 basis points of margin expansion and an 11% gross profit dollar increase. So that's kind of what we're keying in on for the quarter is that double-digit gross profit dollars and our view of the true health of the business. And then number three in the quarter was being about 6 months out from Liberation Day, feeling the impact of kind of a pullback in production.

We saw more canceled orders, late orders, short shipments, things like that from brands. So mostly due to the fact that people were cutting back on production just following that 145% tariff coming out of China. So I think those are kind of some of the Q3 dynamics. Now what do we need to do to get to that consistent double-digit top line growth? I think, one, work through these comp dynamics, work through the promo comps.

And then we have a number of things in the works, a lot of investments that we've been making over the course of the past year that will start to pay dividends as we enter 2026. If you start with the launch of the Sofia Ritchie brand, SRG that we launched a couple of months ago, our best own brand launch to date, followed that with the launch of Halo kind of with our partner, [ Deon Lee]. We have the Lakers partnership. We just launched our new brand logo. So a lot of good things happening, a lot of investments that we've been making that will start paying dividends over the next year.

Okay. Great. And I want to touch on a lot of those exciting new things. But first, we just got past the critical Black Friday, Cyber Monday season. I guess, any early reads into how that's shaped up?

Yes. No, nothing significant. I would say, again, we're encouraged by the health of the consumer thus far in Q4. I would say promos just more broadly have seemed rational. We're not heavily promotional during the Q4 holiday period. We're mostly a self-purchase platform.

So holiday isn't as significant for us as it is for others. So I would say, I think from a kind of broad macro perspective, it's been kind of as expected or nothing significantly abnormal and encouraged by the health of the consumer so far.

Okay. Great. Well, you mentioned SRG and [ Dion Lee ]. Owned brands, I guess, just generally, if we look backwards, been pretty consistently about the 20% of revenue range over the past few years. We really excited about the own brand performance year-to-date.

What were the key unlocks that have enabled that improved performance with own brand penetration increasing year-over-year? And as we look into '26, how should we think about the potential uplift both on revenue and on gross margin?

Yes. Yes. We are very encouraged about the own brand performance. To your point, it was significantly higher back in prior years. If you look back to 2019, it was 36%. We closed 2024 at 18%. It's been ticking up year-over-year in each quarter this year. So encouraged by that. What's driving that? I think number one, a focus on quality and it's not just product quality, but quality of assortment and making sure we're assorted appropriately. I think number two is having the size and the scale to support those product production minimums.

And with the quality, we're seeing really great full price sell-through on the own brand product, which supports overall inventory health, markdown cadence, et cetera. Really good reception from the customer, especially on these new brand launches. So really encouraged by that. So we see a lot of opportunity for own brands going forward and continuing to increase that mix. So I think it comes from both, to your point, top line because these brands are unique to us. So it gives us unique marketing leverage are resonating very well with the consumer and then followed by gross margin.

Our own brands carry significantly greater margin than a third-party product. So as that mix increases, it adds to our overall margin profile. One more on the own brand side, too, which ties into international is that we for the first time, did an exclusive own brand kind of geography-specific launch in Mainland China.

So this product was developed in China for the China customer, supported by live stream and was one of our best launches to date even compared to the domestic U.S. launches. So -- and that product was designed again for that customer. We saw a really low return rate because it was designed specifically for that customer. So encouraged by that and more to come on that front.

Okay. Great. Now I do want to spend a minute on China. That has been a really strong geo for you with net sales growth north of 50% year-on-year, at least for the all segment. Can you talk to the differences in your go-to-market strategy for China versus maybe the U.S.? And what investments are required in order to scale that market?

Yes. Yes, we have been investing pretty meaningfully in the China market over the past couple of years. We have a team dedicated to the China market, which is different than other markets where we're leveraging a more centralized team that focuses on all other markets.

Maybe another difference is the partnerships that we enter into in the China market. So partners like Tmall, Duyan, Red. The marketing tactics are a little bit different, more focused on live stream, which I talked about with this own brand launch. And then just a little bit more kind of curated product assortment.

So I think a lot of opportunity there. And to your point, the REVOLVE business in Mainland China increased 50% year-on-year, which is really encouraging given that, that product is more kind of more unique and more curated than maybe a comparable FWRD brand.

Okay. Great. Now looking into 2026, the new own brand launch we certainly hear about the most from investors is the upcoming Cardi B joint venture. What's the latest on time line there? And how are you thinking about the opportunity and idiosyncrasies that come with this launch?

Yes. Yes, really excited about that. As far as timing, probably in the first half of 2026 and likely led with beauty, followed by apparel in the back half of 2026. So making good progress, really excited about that and the partnership and how that can expand both our customer base and our product assortment, again, with an initial focus on beauty.

Okay. Great. Now I'd be remiss as a tech analyst not to ask about AI. And so you've been certainly at the forefront of integrating tech and fashion together. I guess can you talk about the work you've done doing in Gen AI features? What are the biggest opportunities you see from this technology, whether it be more on the revenue side or on the cost side?

Yes. Yes. Great question and really excited about this. And I think it goes back to our initial discussion on the differentiators of REVOLVE and being data-driven from day 1. We've been leveraging data, which led to machine learning, which led to AI.

We have a phenomenal BI and data science team that is focused on this. So we do see tremendous opportunity and have made a lot of great progress on AI thus far. And it's across the business. It's from the website and revenue-generating initiatives to all the way to the back end to, for example, AP and invoice processing. So maybe to start with the front end and website, more personalization on the site, product curation.

We are testing kind of a virtual kind of styling feature on the site that gives a customer the opportunity to style products differently with different products. And again, with such a vast assortment, this is really critical and a really key kind of opportunity for us is to get more curated and personalized for her shopping desires. We developed our own internal search algorithm.

This is about a year ago that we launched this. Historically, that was hosted by a third-party kind of a leader in search technology. We brought that in-house. So not only do we save on paying a third party, but then we own that technology, we can continue to modify and it outperforms the third party. And this is kind of a consistent theme across the board. We are kind of agnostic to whether we develop the technology or we leverage a third party to partner with on the technology.

But a lot of times, our product outperforms third party. So continue to both partner and develop on our own. maybe on the kind of getting more to the back-office functions, leveraging AI on the own brand design where we can speed up the design process by doing kind of faster iterations on products in different color permutations, pattern permutations, et cetera, using AI to route customer service calls intelligently, converting voice to text so we can better mine the data on customer service calls, using AI to intelligently place inventory across the world in our different fulfillment centers so we can speed the delivery time to the customer and better manage inventory, leveraging AI into the markdown algorithm that drove the significant margin gains in this past quarter.

And then I mentioned using AI to read invoices and automatically process the kind of the payment within the system. So it's across the board. We're doing a lot. Most excited probably about the revenue-generating customer experience initiatives on the website and beyond.

Okay. Great. Well, certainly, a lot there. And I think within Gen AI more broadly, we're starting to see a lot more noise on Agentic commerce. A lot of feature launches, a lot of development just even over the past few months. Interested to hear how you think Revolve is positioned for this evolution?

Yes. I think we are positioned very well. We tend to thrive in times of disruption, whether that's from day 1 of founding to adoption of mobile to adoption of social commerce to leveraging TikTok Shop or Instagram shop.

So having the data-driven mindset, the culture of innovation and the kind of the technical capability to do these things, we think we are very well positioned. We're working on our own kind of Agentic features on the website now. Very early still testing, but excited about that. We're also seeing Agentic AI referrals to the REVOLVE site increased almost 2,000% year-over-year.

Now on a very small base, but on a really good trajectory. And even if you look at kind of more recent months, just good sequential month-over-month increases in that Agentic flow. So we think it's a huge opportunity. I think TBD on how much is incremental versus cannibalistic. We think there's a huge incremental opportunity here. And at the end of the day, it's good for the customer.

And if it's good for the customer, it's good for us, and we're going to be where she is at. And that at the end of the day is the key, and you did a great report on all of this. So I stole some of that from you, but good job. And I think a lot of that is very relevant and key to us. I probably would have given us a better score on a couple of your eyes on the 5 eyes, but I'm biased.

Had you as one of the best positions. I certainly agree. Okay. Great. Well, shifting into another growth area here, your first permanent store now open for a little over a year in Aspen, Grove in L.A. coming hopefully soon.

How are you thinking about the broader opportunity in physical retail? You've been measured with just 2 locations to date. So what would you need to see to really accelerate the physical expansion?

Yes. Yes, we are super excited about physical. Still over 60% of the dollars are flowing out there globally are flowing through physical doors. So that presents a massive opportunity for us. Kind of why now we get that question a lot. We think we're at the size and scale, and we have the brand power that it makes sense to pursue this now.

We're also seeing this younger consumer really interested in getting out there and touching and feeling the product and experiencing the brand. We think it's a great new customer acquisition tool and own brands are outperforming in store relative to online for us. So we think there's a massive opportunity for our own brands and margin accretion in the stores. So we have one store now, Aspen.

Aspen has been performing really well, and that's part of what led us down this path to pursue physical retail as we did see things like outsized new customer additions, owned brands outperforming, very low return rates. So a lot of good metrics that led us down this path. Now that said, we also acknowledge that Aspen is a unique market. It's a destination, lower traffic, higher conversion, very affluent customer.

Nobody is from Aspen. So you can't really get a good feel for the halo effect and what that would do to e-com. So we did a pop-up at the Grove in L.A. for about 4, maybe 5 months last year to test the L.A. market. And we saw a small halo effect in the L.A. market, which is in our backyard. So that gave us increased confidence. We also continue to see new customers outpace in that Grove store. So we executed the lease on the Grove store. That should be opening here in a few weeks, just kind of down to the final strokes of permitting and occupancy permits, things like that. but excited about that.

And having those 2 data points will really give us a good read on the opportunity. And after we get kind of a few months under our belt at the Grove, then we can better kind of determine at the pace at which we'll expand physical retail. But really excited about having those 2 data points, again, Aspen, low conversion -- or sorry, low traffic, high conversion, you have the Grove, very high traffic, lower conversion, more square footage. So we'll have, again, a couple of really good data points to read to tell us how fast we'll go on the physical retail expansion. And we're already looking at new markets.

We have our stack rank list of markets we want to be in. We're very specific about location, starting to build relationships with landlords and getting the name out there. The other piece of this is building the physical retail muscle. We've been doing online, and we think we're really good at it.

We've been doing that for 20 years. We don't have the physical retail muscle yet. So really building the team and the infrastructure behind that to support the potential future store rollout.

Okay. Great. Well, a lot of exciting things on the top line. Let's move to bottom line. So if you look at REVOLVE's EBITDA margin, it's averaged about 10% over the past 5 years or from '18 to '22. Certainly, some post-COVID pressure there. You've seen a lot of recovery, 3DA margin, the highest in 3 years. I guess long term, what EBITDA margin do you believe the business can return to? And how should we think about the path there?

Yes, yes. So we think we should be can be and are targeting to be a double-digit EBITDA margin business. And we think that's very achievable. How do we get there? I think a couple of key drivers. Number one is gross margin. If you use 53.5% as the baseline, which is our guidance for this fiscal year, our goal is to be at 55%. How do we get there?

I think we're -- we've got a good foundation right now with healthy inventory, good full price mix, a good owned brand base. Expanding that own brand mix is the key driver to get from 53.5% to 55%, and we think that's very achievable.

There's also some benefits from the tariff mitigation strategies that we put into place that give us a longer-term margin impact or margin benefit. So I think we're in a good position there to get margin up to 55%. So that adds 1.5 points and goes straight to the bottom line. The other piece, the big driver is G&A leverage. We've been investing a lot in G&A over the past year to 18 months from physical stores to AI to own brands.

A lot of this design and development takes place 6 months to 2 years in advance of launch. So things like the SRG and Halo launches and a couple of things we have coming up. Those investments are taking place now. and the revenue is yet to come. So getting leverage on G&A is the other kind of building block to getting to that double-digit EBITDA margin.

And then, of course, top line. Our goal, and again, we think we should be -- can be -- will be at a double-digit consistent top line grower. So that gives us more leverage on some of those other line items as well. Not factoring in any significant leverage on marketing. We have some really big investments coming up in 2026 that we've been kind of hinting at for the past couple of quarters.

So that's definitely not a line item that we intend to get leverage on. We still have very small penetration in the domestic market, let alone the international market. So I want to keep the pedal down there and continue to acquire customers.

Okay. Great. Well, talking a little bit more about gross margin, 350 basis points of expansion in 3Q, big surprise from last quarter. The new markdown algorithm has been a key part of that. Can you help us understand what changed on the tech side?

How that impacts the breadth versus depth of markdowns and opportunities to further refine that promotional strategy from here?

Yes, absolutely. Yes. really pleased, obviously, with that gross margin expansion this quarter. And it came from what you mentioned, the markdown algorithm, optimizing markdowns, and I'll get more in detail on that in a second. Also saw an increase in full price mix, also saw an increase in own brand mix.

And then we also did pull back on our promotional strategy, some of the promotions that we've done in prior years, which did cost us some on the top line but gave us some meaningful margin expansion in the quarter. On the markdown algorithm, this has always been data-driven based on inventory levels, demand levels and a various number of other factors.

But with AI and greater kind of more data, more technology, kind of more kind of refined algorithms there gave us the opportunity to just more refine that markdown algorithm. And it applies both to breadth and depth. I'd say probably the biggest impact on the algorithm comes from that depth component and how deep we're marking things down and balancing turns, inventory levels and the flow-through revenue.

On the breadth side, I would say the benefit there has come from just healthier inventory this year as we work through some over inventory from last year. Again, that's very data-driven as well, but not necessarily specific to the markdown algorithm itself.

Okay. Great. And just on gross margin more generally, I guess, how should we think about the forward-looking puts and takes as you work towards that 55% goal?

Yes. Yes. I think the opportunity, again, is in the own brand mix, and we feel really good about where we are at in terms of own brand assortment, how the underlying metrics are performing within that own brand product, the full price mix, the full price sell-through and even the markdown margin within own brands. So in a really good kind of place there and sets a foundation for expansion.

FWRD if you break it down by segment, FWRD has increased significantly over the past year and kind of at or near the target for FWRD in that kind of low to mid-40% zone. So feel good about that. Inventory on both segments is in a good place. Net sales has been -- net sales growth has been outpacing inventory growth for the past several quarters. So we feel like we're in a good place there. So I think set up very well for continued margin expansion.

And then the tariff mitigation strategies that I mentioned gave us kind of longer-term opportunities on margins. So those are all the positives. We feel great about it. I think on the flip side, the biggest risk out there is just what happens with macro. And if we see some compression in demand that puts pressure on inventory that will lead to more markdowns. But that's more unknown and more out of our control, and we can manage through that.

Okay. Great. Well, you mentioned tariffs a little bit here. We've gone through most of the conversation without touching on them. So remind us the unmitigated impact from tariffs on the business to date.

How much do you have conviction in your ability to mitigate those, certainly some success so far? And then as we head into 4Q and 2026, how do you expect the tariff impact to change on the balance of both rates and mitigation tactics?

Yes. Yes. No specific numbers on the unmitigated impact other than to say that we mitigated a significant majority of the tariff impact. And really proud of the team, the cross-functional team for their effort there and being able to manage through even when it was at 145% there for a period of time in Q2. So feel much better about where we're at in kind of overall tariffs recently.

There's still -- still very uncertain. We don't know what's going to happen with the actual tariff rates, but controlling it very well and mitigating, again, the vast majority of that tariff impact. Some of that does come from price increases. We have seen prices increase in the mid-single digits in Q3 and then approaching double digits into Q4.

And then some of the strategies, as I mentioned, will give us depending on where tariff rates shake out, but if they're at kind of where we're at now, give us benefit to margin over the long term.

Okay. Great. Well, I also want to touch on marketing. We've seen a lot of changes in the digital ad space over the past year as the funnel just continues to evolve. I guess, first, how are you navigating that evolving funnel? And then you touched on some of the differences between '26 and '25 on the marketing side. Can you dig a little bit more in there?

Yes. Yes. I think continuing to manage -- maybe first breaking it out between digital performance and the brand marketing, which blended over the course of the year, about 75% of our marketing dollars go towards that digital performance marketing and about 25% go to the brand marketing. We have been efficient on both sides this past year.

Brand marketing has been very efficient. If you look at festival, REVOLVE Festival, which takes place in Q2, which is our biggest event of the year, typically, we reduced the budget. We got more press impressions, more social media impressions, and that was on an already reduced budget and efficiency from the prior year. So continue to make great gains. It's not just cutting back on marketing. It's getting more efficient in the marketing.

So the team has been doing a really great job on the brand marketing front. On the performance marketing front, continuing to manage, this is more day-to-day, real as managed but also experimenting in new channels like Snap, Pinterest, YouTube, podcast. So continuing to push on other channels and ways to acquire customers there.

How that evolves into 2026, again, expect more kind of absolute dollar investment into the brand marketing side with the initiatives that we have coming. Part of that is the launch of the store, a couple of own brand launches coming up and kind of just more support for some of the other kind of more exciting initiatives that we have planned for 2026.

Okay. That's great. Reduced return rate was a key driver of net revenue growth and operating efficiency in 2024, started to increase again last quarter a little bit. I guess what were the key drivers of the increase? And do you see opportunities to improve the return rate further from here?

Yes. Yes, we had guided flat for the back half of the year in our Q2 earnings call. It did come up 50, 60 basis points in Q3. That's within our expectations given that full price mix increased and we cut back on the promotional cadence. So that was the driver of the year-over-year increase there relative to our expectations. But again, kind of at the margins and within expectations. That said, we do have more opportunity to reduce return rate.

We have a couple of big initiatives in play that will probably start to have an impact in mid-2026 if everything works, and that's just on the core business. And then if you look at potential benefits due to structural shifts in the business over time, as we expand physical stores, the return rate in-store, of course, is much lower than online, if you compare our kind of mid-50s return rate online versus a store that we've been experiencing in the low to mid-single digits.

Then also category mix shift, both in-store and online as we expand into categories like beauty, men's, home and then even within that female apparel subset with more kind of foundational items, athletic, athleisure, lounge, all of these categories have a lower return rate than that dress category that represents about 30% of our business today.

Okay. Great. Now on pricing, certainly been a volatile year-to-date. I guess, one, how have prices changed over the course of the year? And where do you see that going into '26 as the tariff impact is more broadly felt through the supply chain? And then when you have raised prices to date, what has been the demand elasticity?

Yes. So in Q3, we saw price increases on new product. So it didn't have kind of an impact on the overall inventory or overall pricing. But on the new product, we saw mid-single digits and then pushed into double digits in Q4. So it is increasing. And the amount of inventory that we're carrying that does have that price increase is a greater percentage as we went from Q3 to Q4 and then further into Q1 '26.

So I think we will continue to see overall prices increase into 2026 and probably caps out, again, depending on what happens with tariffs, it's uncertain. But at current state, probably caps out in the Q1 to Q2 2026 zone. So far, we have not seen significant pullback from our customer as a result of the price increases.

I think it's still early, and we'll see what happens when more of those price increases roll through and they're more broad and it impacts more per wallet versus that specific purchase. That said, I think we're unique in that we have that unique assortment. She's coming to us for the unique product. She's buying at full price. So by nature, she's more inelastic or our purchases are more inelastic than maybe that other more commoditized comparable product at other retailers. So I think TBD, but so far, I haven't seen anything significant to the downside.

Okay. Great. I have one more on pricing here, and then we'll open up to the audience. But AOV has returned to slight year-on-year growth. I guess what's driving this improvement? How should we think about the underlying unit versus price mix?

Yes. Yes. It's mostly on the ASP. The units per order has stayed pretty consistent. On the ASP, primarily driven by, again, increase in full price mix. That's been very healthy. Also the optimization of the markdown algorithm and the promos that we cut back on have an impact there with shallower markdowns and then less promotions this year. So those are all the kind of drivers of the increase in AOV.

On the flip side, there is some offset with the product and category diversification, beauty, kind of men's, home, all of these other categories that we're expanding into have a slightly lower AOV than that of that core event-based apparel category. Similar contribution margin because those categories, again, have lower return rate, but some puts and takes on the AOV.

As we look ahead, probably a slight increase in AOV over time with price increases as a result of tariffs, plus solid full price, bouncing the promos, the markdown algorithm, all those things I mentioned, offset by the product category diversification.

Okay. Great. Do we have any questions from the audience? Well, we will keep on rolling. So capital allocation. You've been consistently profitable, more than $300 million of cash on the balance sheet, no debt. I guess how are you thinking about the capital allocation framework? And share buybacks have been relatively muted over the past year. I guess what would lead you to increase that cadence?

Yes. Yes. I feel really great about the balance sheet. And I think on capital allocation, number one, having the fortress balance sheet gives us the confidence to invest in times like this when others are pulling back and seeing, especially on the luxury side of the business, more challenges there with several kind of reorganizations taking place, kind of brands or kind of retailers not paying bills, losing supply, et cetera. So the ability to pay vendors on time, invest in the business, invest in AI, invest in people, all of these things leading to taking market share during these more challenging times.

So that's number one is invest back into the core of the business, make these investments to acquire customers and really kind of build in some of these initiatives. Number two, we do think there's an opportunity for M&A. We look at a lot of things. We haven't pulled the trigger on anything significant, but we do see opportunity there to supplement kind of tuck-ins to our own brand and kind of accelerate that category diversification.

And then third is buybacks. We do have a buyback in place. We have a plan in place. We're very, call it, opportunistic there and kind of looking for significant value, but not super aggressive. So I think the good thing is that we can do all 3 of these things at once and maintain a really strong balance sheet.

Okay. Now Gun through, most of the conversation, I don't know that we've actually said forward actively yet. So I'd love to touch on kind of the state of the state of the FWRD segment. And then obviously, there's been a lot of easing competitive pressures within the luxury industry kind of year-to-date. So how are you thinking about capitalizing on maybe a slightly easier competitive environment?

Yes. Yes. Really excited about where FWRD sits in the competitive landscape. As you mentioned, we've seen an increasing number of reorganization/bankruptcies taking place, late payments, short payments, et cetera, from others, which all accrues to us and the remaining strong players.

So getting good product, good brands, not just new brands where we've recently added Joyce Van Nauten, Phoebe Philo, Victoria Back in Beauty. So some of these brands that we've been chasing for a long time, starting to add to the FWRD roster, but also great allocations from existing brands because, again, we're great partners. We have this great engaged customer basics like paying our bills on time.

And when there's good product, the customer comes. So related to that, investing in this kind of high net worth preferred customer clienteling a lot more than we have in the past. That's been a meaningful investment and a big driver in the growth on the FWRD side.

So really excited about, again, where Ford is positioned, both competitively in the landscape, the brand assortment, the product assortment, I think having that curated product, the great editorial, that young luxury that is really hard to find anywhere else.

Okay. Great. Now I just have a few minutes left. So one more question to wrap up. What are the 1 or 2 things you think investors most underappreciate about the REVOLVE story?

Yes. Yes. This is always a great one. I think, number one, the element of being founder-led and Mike and Michael still owning a significant portion of the business. So thinking like owners, like investors, being in the office every day grinding and making decisions for the long term and balancing top line with profitability, which I think maybe not underappreciated, but definitely a differentiator is just that combination of growth and profitability consistently over time.

And that founder-led element kind of plays into the culture and that culture of being data-driven and leveraging new technologies and taking advantage of disruption, whether it's agentic AI shopping or just kind of AI in general or being data-driven. It's very unique to have that culture, and we have people that leave and come back because it's so different. So yes, I think those are probably the key kind of underappreciated items. And then there's other things just having great product, unique assortment, data-driven merchandising, all the things that we talk about when it comes to differentiators.

Okay. Well, thanks so much for being here, Jesse. It was great chatting.

Yes. Thanks, Nat.

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Revolve Group Third Quarter 2025 Earnings Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Erik Randerson, Senior Vice President of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's third quarter 2025 results. Before we begin, I'd like to mention that we have posted a presentation containing Q3 2025 financial highlights to our Investor Relations website located at investors.revolve.com.

I'd also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, the impact of tariffs and our mitigation efforts, our marketing events and their expected impact, our physical retail stores and our outlook for net sales, gross margin, operating expenses and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our annual report on Form 10-K for the year ended December 31, 2024, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law.

During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented and prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures as well as the definitions of each measure, their limitations and our rationale for using them can be found in this afternoon's press release and in our SEC filings.

Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

Hello, everyone, and thanks for joining us today. We had a very solid third quarter, highlighted by exceptional gross margin performance that led to a 45% increase year-over-year in adjusted EBITDA to $25 million, our highest ever for a third quarter. Particularly in the current tariff environment, I am extremely pleased by our nearly 350 basis point increase in gross margin in Q3 that puts us on track to expand our gross margin and adjusted EBITDA margin in the full year 2025 for the second straight year. On the other hand, we delivered net sales growth of only 4% in the third quarter, which is lower than the recent trend line and certainly lower than the growth rate we believe we are capable of achieving on an ongoing basis.

It's important to note that in comparison to the third quarter of 2024, this year, we pulled back meaningfully on certain promotions. While the shift in our approach added to an already tough net sales comparison in Q3, it also contributed to our gross profit dollars increasing by nearly 3x the rate of net sales growth in the third quarter.

Beyond the numbers, I'm thrilled by our progress in developing our longer-term investments that we believe create a strong foundation for profitable growth for years to come, including owned brand expansion that was a key contributor to our Q3 results.

With that as an introduction, I will step back and provide a brief recap of our Q3 results before reviewing the progress on our longer-term initiatives.

Starting with Q3 results. Net sales increased 4% year-over-year, driven by domestic and international net sales increases of 4% and 6% year-over-year, respectively. By segment, REVOLVE net sales increased 5% and FWRD net sales increased 3% year-over-year.

To illustrate the tougher comparison we faced in the third quarter, our revenue growth rate on a 2-year stacked basis in Q3 was the highest we have achieved in more than 2 years. Outstanding gross margin performance was the most powerful driver of upside in the third quarter and mostly flowed through to the bottom line. Despite meaningful tariff pressures, we delivered a consolidated gross margin of 54.6%, an increase of nearly 3.5 points year-over-year, significantly outperforming our guidance. Our ability to meaningfully expand our gross margin and operating margin year-over-year in the face of these tariff headwinds and broad-based input cost pressures demonstrates our team's agility, execution and operating excellence.

Shifting to our bottom line results. Our operating discipline enabled us to achieve a 45% increase in adjusted EBITDA year-over-year, handily outpacing our net sales growth. Importantly, we have now delivered strong bottom line performance for nearly 2 years, making great progress improving our margins. For the first 9 months of 2025, our adjusted EBITDA has increased 32% year-over-year, building on our huge gains in the full year 2024 when our adjusted EBITDA increased 60% year-over-year. And our business continues to generate meaningful cash flow, reinforcing our track record of delivering consistent profitability and cash flow.

During the first 9 months of 2025, our free cash flows have more than tripled, increasing our cash position by $63 million or 25% year-over-year. Our strong balance sheet and cash flow create a key competitive advantage within a fashion e-commerce landscape marked by frequent bankruptcies and other failures in recent years.

Now I'll conclude by recapping our progress on key priorities and growth drivers that we are very excited about. We continue to invest in and build on several promising initiatives that we believe will play a key role in shareholder value creation over the long term.

First, we continue to invest in marketing efforts to expand our brand awareness, grow our customer base and strengthen our connection with the next-generation consumer. We had an active and impactful third quarter for our brand building, featuring marketing activations at Fashion Weeks in Paris, New York and Aspen; the experiential pop-up experiences we hosted in Nashville and SoHo; and more that Michael will talk about in his remarks. Longer term, we are also excited about the potential for physical retail to meaningfully expand our brand awareness and serve as an efficient new channel for customer acquisition.

Second, we continue to successfully expand our international penetration. The Middle East and Europe were standouts in the third quarter, partially offset by continued challenges in certain Asian regions. The momentum of our REVOLVE segment business in Mainland China remains very strong, however, with net sales increasing more than 50% year-over-year. We are particularly excited about the launch of our first-ever owned brand collaboration made specifically for customers in the China market. The launch was supported by a live stream event attended by over 40,000 viewers, creating local demand for the collection that outperformed some of our most successful owned brand collaborations from the U.S. This innovation further illustrates our exciting potential for international growth over the long term.

Third, we have continued to expand our assortment to attract new customers and gain a greater share of consumer spending among our loyal existing customers. On a combined basis, sales of beauty, men's and home products increased by a healthy double-digit percentage year-over-year in the third quarter. Notable brand additions in recent quarters have elevated our merchandise assortments in key areas outside of our historical core, further broadening consumer awareness and interest.

As just one example, we expect net sales of our highly sought-after beauty advent calendar to increase approximately 40% year-over-year in the 2025 holiday season as our incredible offering and powerful marketing engine have created viral excitement on social media and in press outlets, including Vogue, ELLE, Cosmopolitan, Marie Claire, Allure and more.

Finally, we are continuing to leverage AI technology to drive growth and efficiency initiatives across the company, touching nearly every facet of our operations. One innovative use case that is already driving results is deploying AI technology within our owned brands design process to deliver cost efficiencies and shortened development cycles. We are increasingly leveraging AI in the creative design process to produce renderings of owned brand products with a variety of different materials, finishes, colors and silhouettes. This is a huge advance because the AI imagery instantly allows our design and buying teams to visualize how products will look in different configurations before they commit to building the product without having to produce multiple physical samples, thereby accelerating the time frame between the initial design concept and ultimately going live on the site.

We are also leveraging AI to automate back-office functions to drive efficiency. For instance, we are in the process of transitioning our accounts payable workflow from a historically manual and cumbersome process to an intelligent and primarily automated AI-driven system. Developed internally by our data science team, our AI technology now automatically ingests payment invoices for routine bill processing, significantly increasing efficiency and elevating the productivity of our team members.

To wrap up, I want to take a moment to thank my Revolve colleagues for your focus and execution that enabled us to deliver very solid results in the third quarter while simultaneously moving the ball forward on exciting longer-term initiatives. Our leadership team is energized by the many opportunities ahead that we believe will accelerate our market share gains. We are successfully navigating ongoing macro uncertainty from a position of strength, bolstered by our data-driven mindset and culture, operational excellence, powerful brands and very strong financial foundation. The building momentum in our key growth and efficiency initiatives reinforces my confidence in our ability to drive profitable growth in the years ahead.

Now over to Michael.

Hello, everyone. I am very pleased with our financial performance this quarter, particularly our strong bottom line performance. Despite delivering only 4% top line growth, we were able to deliver record adjusted EBITDA for any third quarter. Through the first 9 months of 2025, adjusted EBITDA increased 32%, and our free cash flow has more than tripled year-over-year.

Most impressive are the drivers of our gross margin expansion. Despite facing significant tariff exposure, gross margin has meaningfully outperformed our expectations, validating the competitive advantages of our data-driven merchandising that is at the center of everything we do. Even more exciting is that with our strong financial foundation, we are investing in growth initiatives that we believe will be impactful drivers in further strengthening our brands and accelerating our overall growth potential.

With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and where we see a great deal of opportunity: Brand investments; opportunities in the dynamic luxury industry; expansion of owned brands; and physical retail development.

First, brand building. The quarter got off to an exciting start with REVOLVE Summer in the Hamptons, followed by an incredible experience in Ibiza that inspired our engaged community on social media. In September, we turned up the brand heat with trips to Nashville to launch a limited time pop-up retail experience in partnership with Cotton Inc. and to New York, Paris and Aspen for experiential Fashion Week events that excited and delighted our high-value clients with preferred access.

Our engagement metrics in the third quarter illustrate the impact of our brand-building investments. We generated a triple-digit increase year-over-year in consumer views on our TikTok and YouTube channels while delivering increased marketing efficiency year-over-year in the third quarter.

As a company with deep Los Angeles roots, I couldn't be more excited about the multiyear partnership we recently announced with the Los Angeles Lakers. The cultural intersection of professional sports and fashion influence is more powerful than ever, creating authentic opportunities for us to engage with the huge audience following the storied Lakers franchise in real life and on social channels. As a pioneer in embracing social media to drive favorable brand awareness, it is exciting to consider that the Los Angeles Lakers have one of the largest social media following and the highest social media engagement per post in all of U.S. professional sports teams. With the NBA tipping off its season recently, our collaboration has already come to life through immersive experiences in arena signage, engagement with VIPs and influencers and co-branded content across the Lakers social media channels.

Second, FWRD and the competitive environment in luxury. The operating environment in luxury continues to be extremely dynamic, creating opportunity for our FWRD business. In fact, the challenges facing our competitors accelerated in the third quarter, highlighted by 2 large luxury e-commerce retailers filing for bankruptcy protection or the international equivalent in August.

Adding to the industry malaise, luxury brands, large and small, have been frustrated by extended payment terms from a prominent luxury department store chain in the U.S., which has been reducing investment amidst declining sales and significant debt obligations. We continue to view these challenges within the luxury sector as an exciting opportunity for REVOLVE and FWRD to remain on offense and invest in market share capture, supported by our consistent profitability and cash flow generation that sets us apart.

Not only are we excited about the opportunity, our FWRD segment results demonstrate that our investments are working as evidenced by continued top line growth and a 37% year-over-year increase in gross profit dollars in the third quarter, an expansion of more than 11 points of gross margin. It was our best FWRD segment gross margin since the post-COVID boom more than 3 years ago.

And luxury brands are increasingly recognizing FWRD as a clear winner in the space for the long term. On the heels of the impactful brand wins discussed last quarter, we were thrilled to launch the iconic luxury brand, Dries Van Noten, on FWRD in late September. The Dries Fall collection has performed incredibly well in the early going. The FWRD team is having many productive discussions with brands, including receiving initial inventory commitments from a coveted brand that we have been courting for over a decade.

Third, owned brands, where our momentum has continued to build. In fact, our owned brand penetration of REVOLVE segment net sales increased year-over-year for the third consecutive quarter in Q3. These gains contributed to our much higher-than-expected gross margin as our owned brands generate considerably higher gross margins than third-party brands. Even while navigating the highly uncertain tariff landscape with agility, our team has done an amazing job in delivering owned brand styles that resonate with our customers, resulting in continued improvement in underlying performance metrics year-over-year. Building on our future opportunities, we are very excited to launch the SRG brand with fashion icon Sofia Richie Grainge exclusively on REVOLVE and FWRD. Sofia's timeless and sophisticated signature style creates a strategic expansion of our owned brand portfolio that has driven a ton of favorable awareness in press and social channels, truly resonating with her vast audience of 11 million Instagram followers. In fact, in its first week, the SRG collection achieved the highest sales volume for any owned brand collaboration launch in our history. Sofia shared that REVOLVE was the perfect partner to fulfill her lifelong dream of launching her owned brand, citing the strength of our platform, our community engagement and expertise in helping bring her product vision to life, reaching a wide audience of engaged consumers.

And there is more to come. We have been investing in an incredible pipeline of new owned brand initiatives on tap to launch in the months ahead. Our strong owned brand metrics in recent quarters gives us increased confidence in these investments.

Finally, physical retail. We continue to be very excited about the opportunity in physical retail. Over the last 20 years, we have built a very powerful brand with meaningful scale that we can now leverage into the very significant physical retail market that is largely untapped by our brands. The physical retail market is not only significant in size, representing more than 60% of global retail spend on apparel and footwear, but is also very synergistic with our owned brands and has the ingredients to be even more profitable than our core online business.

One of the key drivers of Revolve's growth opportunity is the expansion of our active customer base. Our strong brand, differentiated merchandising and incredible service proposition have created attractive customer loyalty online that we believe can translate to physical retail. We believe giving consumers the opportunity to engage with us online and in-store further enhances our value proposition, particularly among the younger demographic of customers who embrace the opportunity to touch and feel products during in-person shopping experiences as well as shopping through online channels.

Finally, we are very excited about the opportunity for our owned brands within physical retail over the long term. In our Aspen store, great work by our store merchandising team has increased the owned brand mix of REVOLVE segment net sales to levels that are now significantly higher than our owned brand penetration for e-commerce sales. The physical retail opportunity, our powerful brands and our entrepreneurial culture have enabled us to attract talent with deep industry experience in recent months to further strengthen our retail muscle and go-to-market strategy. Our team is guiding our investments in systems and processes to ensure that we are positioned for success, particularly headed into the upcoming opening of our Los Angeles store at The Grove.

Concurrent with putting the finishing touches on our magnificent retail destination in Los Angeles, we are engaging in opportunistic discussions with Tier 1 landlords in key markets on our short list. We are laying the groundwork now to ensure we will be in a position to move quickly if and when a compelling opportunity should arise in the geographic areas we are most focused on pursuing for the next phase.

Wrapping up, at a time when the dynamic operating environment has forced key competitors to dial back investment, our strong financial foundation gives us an opportunity to aggressively invest in the many exciting initiatives that we believe will continue to drive profitable growth for many years to come.

Now I will turn it over to Jesse for a discussion of the financials.

Thanks, Michael, and hello, everyone. I am pleased with our third quarter results, particularly on the bottom line, highlighted by the record adjusted EBITDA for any third quarter that drove more than 2 points of expansion in our adjusted EBITDA margin year-over-year.

I'll start by recapping our third quarter results and then close with updates on recent trends in the business and guidance for the balance of the year.

Starting with the third quarter results. Net sales were $296 million, a year-over-year increase of 4%. REVOLVE segment net sales increased 5% and FWRD segment net sales increased 3% year-over-year in the third quarter. By territory, domestic net sales increased 4%, and international net sales increased 6% year-over-year. Active customers, a trailing 12-month measure, increased 5% year-over-year. Total orders placed were $2.3 million, an increase of 5% year-over-year. Average order value was $306, an increase of 1% year-over-year, an improvement from the modest decline reported in the first half of 2025. Partially offsetting the increase in orders placed and AOV was a slight increase in our return rate year-over-year.

Consolidated gross margin was 54.6%, an increase of 347 basis points year-over-year, an exceptional result that materially exceeded our guidance range. Key contributors to our margin upside were much shallower markdowns on our markdown product that benefited from our data-driven innovations within our markdown algorithms, a higher percentage of full price sales and higher margins on these sales and continuing growth in the mix of our owned brands as a percentage of REVOLVE segment net sales.

We are also very pleased with our tariff mitigation thus far, which illustrates our team's agility, execution and operating excellence.

Now moving on to operating expenses. Fulfillment costs were 3.3% of net sales, an increase of 5 basis points year-over-year that primarily reflects the slight increase in our return rate. Selling and distribution cost efficiency was 17.5% of net sales, in line with our guidance. The increase of 56 basis points year-over-year was driven by higher shipping costs and the higher return rate. Our marketing investment represented 13.7% of net sales, a decrease of 28 basis points year-over-year, driven by efficiency in our marketing investments across both digital performance and brand marketing. General and administrative costs were $38.6 million, an increase of 107 basis points year-over-year as a percentage of net sales. The decreased efficiency year-over-year as a percentage of net sales primarily reflects our increased investment in strategic growth initiatives and a $1 million increase in nonroutine costs year-over-year. The increase in net sales, combined with the significant expansion of our gross margin, helped us to achieve outstanding growth in operating profitability.

Our GAAP income from operations increased 47% year-over-year in the third quarter. Adjusted EBITDA was $25 million, a year-over-year increase of 45% and our highest ever adjusted EBITDA result for a third quarter. Adjusted EBITDA margin was 8.6%, an increase of 239 basis points year-over-year and our highest quarterly margin in more than 3 years. Net income also increased meaningfully to $21 million or $0.29 per diluted share compared to $0.15 per diluted share in the third quarter of 2024. The third quarter of 2025 included a gain equivalent to $0.05 per share from an insurance recovery related to a previously disclosed shipment vest that occurred in 2024.

Moving on to the balance sheet and cash flow statement. We again delivered increased cash flows that further strengthened our balance sheet. In the third quarter, our operating cash flow and free cash flow increased 31% and 7% year-over-year, respectively. For the 9 months ended September 30, free cash flow was $59 million, a year-over-year increase of $43 million or 265% compared to the 9-month year-to-date period in 2024.

Inventory dynamics remain healthy as net sales growth year-over-year outpaced inventory growth by 5 points. Inventory at September 30, 2025, was $239 million, a decrease of 1% year-over-year. As of September 30, 2025, cash and cash equivalents were $315 million, an increase of $5 million during the quarter and growth of $63 million or 25% year-over-year, and we continue to have no debt.

Now a brief update on tariffs. The tariff landscape continues to be very fluid and unpredictable. Nonetheless, our cross-functional team continues to make excellent progress on tariff mitigation. Through a variety of strategies discussed on previous calls, we mitigated the significant majority of our tariff exposure in the third quarter. At a time when many companies in our industry are facing significant gross margin pressure, our ability to expand gross margins year-over-year in 2025 further illustrates our competitive advantages of data-driven merchandising and inventory management.

Now let me update you on some recent trends in the business since the third quarter ended and provide some direction on our cost structure to help in your modeling of the business. Starting from the top, our net sales in the month of October increased by a mid-single-digit percentage year-over-year against a more challenging prior year comparison than we faced in the third quarter.

Now before we get into guidance, let me caveat that our outlook is based on the current status of tariffs as of today, November 4, 2025, and our estimate of the impact of potential mitigating activities that are currently underway. Our outlook for gross margin is especially susceptible to variability given the uncertainty surrounding the timing and level of tariffs in effect as well as the timing and magnitude of our mitigation efforts.

With that, let's discuss our updated guidance for gross margin, which includes our best estimate for the impact of tariffs, net of our mitigation efforts. We expect gross margin in the fourth quarter of 2025 of between 53.1% and 53.6%, which at the midpoint implies an increase of approximately 80 basis points year-over-year. For the full year 2025, we now expect gross margin of approximately 53.5%, a meaningful increase from our prior guidance. The new guidance implies a margin increase of roughly 100 basis points year-over-year.

Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.3% for the fourth quarter of 2025 and approximately 3.2% for the full year 2025 at the high end of our prior guidance range.

Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.6% for the fourth quarter of 2025 and approximately 17.3% for the full year 2025. Embedded in our assumptions is that our return rate in the fourth quarter will remain higher year-over-year, consistent with the third quarter.

Marketing. We expect our marketing investment to be approximately 15% of net sales in the fourth quarter of 2025 and approximately 14.6% of net sales for the full year 2025, a slight decrease from our prior guidance.

Looking ahead to 2026, we have some exciting marketing investments planned to support the growth initiatives we have been investing in and expect to launch in 2026.

General and administrative. We expect G&A expense of approximately $38.7 million in the fourth quarter of 2025 and approximately $153.5 million for the full year 2025 in the range of our prior full year guidance. The implied decrease in G&A costs year-over-year in Q4 is primarily due to the fourth quarter of 2024, including $2.7 million of nonroutine and transaction costs that we do not expect to reoccur this year. And lastly, we now expect our effective tax rate to be between 25% and 26% in the fourth quarter and 27% to 28% for the full year 2025.

To recap, we delivered very solid third quarter results, further strengthening our financial foundation that truly stands out compared to many in our industry. Even in what continues to be an uncertain environment, our healthy cash flow and rock-solid balance sheet enable us to continue to invest in exciting long-term initiatives such as international expansion, owned brands and physical retail that we believe position us to achieve profitable growth for the years to come.

Now we'll open it up for your questions.

[Operator Instructions] And our first question comes from the line of Rick Patel with Raymond James.

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? I know it was a benefit in the second quarter, and it sounds like the benefit accelerated in Q3. So I'm curious how that happened as you deploy it to more regions, more banners, et cetera? And how do we think about the durability of this improvement, not just in Q4 but beyond?

Yes. Thanks, Rick. 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.

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.

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.

And our next question comes from the line of Oliver Chen with TD Cowen.

Mike, great results. Jesse, yes, you had a great last year fourth quarter. That comparison is tougher. What do you think about average order value trends? And also any complexion in terms of like what you're seeing in October with price points or categories? I'm just concerned about the tough compare, but you keep on executing so well. The return rate is also a tough compare as well.

And then as you think more broadly physically, you're an expert at digitally enabling A/B testing, test read and react inventory management and also thinking about the speed at which you innovate. So how might you take these digital capabilities physical? It's a different ball game to a certain extent in terms of speed and scaling that. I was curious about your conceptual thoughts too, as that's clearly a big opportunity.

Yes. Thanks, Oliver. I'll take the first one and then kick it over to Mike. On the composition of October, similar to the third quarter, international outpaced domestic. On AOV, we'd expect to continue to see a slight increase in AOV in part due to the price increases. I think we had mentioned last quarter that we are seeing on the new product price increases of, call it, mid- to high single digits, and that's approaching double-digit range as we head into Q4. Not all that will hit this kind of -- it starts to have an increasing impact as inventory rolls in.

And then, of course, depending on mix between REVOLVE and FWRD and then the category mix as well. We saw, again, that men's beauty, home at double digit versus apparel at 7% and then dresses at 3%. So there was a slight offset to the AOV increases due to product mix. But again, to answer your question, I expect to see a slight increase in that AOV as we look ahead.

And regards to physical, I completely agree that we are experts in e-commerce, but we're early in the game in physical commerce. So we're super excited and hyper focused, investing a lot of time building teams, resources, processes. Literally just yesterday, I met with the team and was -- I encourage them to be very experimental and iterative. We have a vast, vast e-commerce store. But of course, our physical stores will be focused. So there will be a lot of experimentation, a lot of measuring and management and ultimately long-term optimization. We've seen great progress with Aspen, building from the learnings as well as trying new things and our internal numbers are very, very encouraging. And we recognize that it is a long journey ahead for us to be experts, but I think we're culturally built for this.

And our next question comes from the line of Matt Koranda with ROTH Capital.

I guess 2 for me. First one, I guess with the larger luxury players you talked about showing signs of stress, surprised you aren't seeing maybe just a little bit better growth out of FWRD in the third quarter. So maybe could you unpack sort of where you saw benefits and maybe where you're still seeing some headwinds in that business and when we expect the competitive environment to be more of a benefit for you guys going forward there?

Yes. So we were actually extremely encouraged by the FWRD results. And I focus not on the top line number for FWRD on the gross profit growth for FWRD, which was absolutely incredible. And so we made a decision to focus on margin and get the margins on FWRD back up to where we want them to be over the mid- to longer term and had huge increases in gross profit. And so I think it was a very favorable environment for us. And going forward, we hope and expect to drive both large gross profit increases as well as more sizable revenue increases.

Okay. All right. That makes sense. And then just on the...

Let's add a little bit to that -- sorry, one thing to add is that, of course, these very, very weak competitors still have a lot of inventory for previous seasons. But as we go season to season with a lack of new deliveries, we're quite optimistic that we will accelerate and gain share as the lack of refresh in our competitors is quite obvious and more customers coming to us.

Okay. All right. That's very helpful. And then maybe for Jesse on the gross margin guidance. I guess just why the step down in the fourth quarter sequentially? It sounds like most of the wins are at your back there with more owned brand launches. You still have the benefit of the markdown algo. Maybe just why the slight step down that you're embedding there?

Yes. I think a little bit of it will be mix. And then I think as that markdown algorithm starts to season itself and then also 3Q had the biggest benefit from those promotional shifts that we talked about. So we'll see how it goes, but still optimistic even with that 4Q step down with the full year being 100 basis points higher than last year.

And our next question comes from the line of Michael Binetti with Evercore.

I guess just if I look at the marketing, you kind of lowered the -- you came in a little lower than you were thinking for the quarter and you lowered the outlook for the year a little bit. Any reason to cut it back while sales are decelerating a little bit after July and into the ongoing tough compares? And I guess as you look at fourth quarter, how much of it is already -- how much of the marketing budget has already been deployed that we see reflected in the October numbers that you gave us, Jesse, relative to what's still on the come ahead? I could imagine maybe there's some pretty impactful marketing as you guys look to the growth.

And then just one on AOV. I think you said third quarter like-for-likes were up mid or maybe even approaching high single digits and AOV was up 1. So it seems like the category mix down is maybe low to mid-single digits. And then the like-for-likes, you said approach, I think, double digits in the fourth quarter. Is the mix down effect similar on AOV in the fourth quarter? Or any moving parts there that we can think about as we try to triangulate around the AOV?

Yes. I think we need to see -- sorry, I'll start with the last question. I think we need to see how the mix plays out in Q4, but that definitely was the offset to the price increases was that mix shift across categories. And then also a little bit of REVOLVE FWRD mix shift with REVOLVE outpacing the higher price point FWRD.

Yes. And on the marketing side, I can speak to the budget high level and then Michael can speak maybe to some more specific elements, including to the extent we can reveal anything upcoming. So from a budget standpoint, we actually did find good opportunities and spend a bit more aggressively on the performance marketing side. But there were some shifts on the brand marketing budget due to timing of events and kind of other factors there that led us to come in a little bit under.

So with brand marketing, it's always very timing-driven and opportunity driven in terms of where the spend comes in, in a given quarter. So that's why we saw that spend in Q3. And again, we're very happy with the results, huge margin gains, double-digit gross profit gains. So we felt like we didn't need to press the marketing budget further than was necessary.

And quickly to note that in Q4, we do have something exciting coming up. So we can't wait to share. I think we're maybe just about a month away. So super excited there. The one thing, though, that we found is that if we choose store locations well, we don't have to market as aggressively. There's -- we're putting our stores where we know our customers already are. So there will be some, of course, activation for store opening, but it won't be on the scale that you'll expect from us on the digital basis on a global scale. But we do have something exciting cooking this quarter as well as a lot in 2026 that we're very excited to share with you guys.

Okay. If I could sneak one more in on the international business. It's getting close to maybe be in 1/4 of the business or so maybe next year, pretty material. I know you've added a lot to the customer experience and some logistics there. Can you speak to where you are today on the contribution margin from a sale in international versus U.S.? Is that gap closing today? And is there much opportunity to improve that?

Yes. Yes. The gap is fairly tight there. Shipping, of course, is much higher internationally, but there's other puts and takes like a lower return rate. So still very healthy contribution margin. But to your point, there's always opportunity. The team does a great job at continuing to optimize last-mile shipping channels and also the customer experience and localizing things even more to get better rates across those variable line items. And then a good example, maybe just a very finite example, but that would be that owned brand collaboration that we did in China where the product is produced there, you don't ship it to the U.S. and then ship it back. So excited to see more of that to come.

And our next question comes from the line of Janine Stichter with BTIG.

Congratulations on the good quarter. I wanted to go back to the owned brand improvement a little bit. Can you help us contextualize what the year-over-year increase looks like in Q3 versus Q2? And then maybe just put into context where the owned brand penetration sits now versus historical and how you see that unfolding over the next few quarters as we get the benefits of SRG and it sounds like some other launches in the pipeline.

Yes. Thanks, Janine. We don't get too specific on the quarterly dynamics around owned brand growth or mix. Obviously, it grew faster than the overall business given that increase in the penetration. Last year, we were about 20% of mix, and we've seen good increases in the last couple of quarters. So expect to see an increase there this year, not as much as we would expect to see into next year given that SRG just launched and we have some other exciting things coming up. So we do expect to see a pretty good clip of increased mix there in the coming quarters.

And our next question comes from the line of Anna Andreeva with Piper Sandler.

Congrats. Nice results. We wanted to follow up on higher returns. Could you just elaborate on that a bit more? Was that seen across any specific categories? And what's driving higher returns again in the fourth quarter? Do you guys think there's still an opportunity for improvement as we look into next year?

And then just as a follow-up, so looking at the category performance that you disclosed in the Q, it looks like the handbags, shoes and accessories is what slowed to negative low singles. Can you just elaborate more on that? What's driving that? And do you expect that category to bounce back here in the fourth quarter?

Yes. So speaking to return rates in Q3 and some of the increases we saw there, I'd say there are a couple of factors. There's a little bit of mix shift, and you mentioned some negative mix shift in what typically are lower return rate categories. We also started to see some of the higher AURs with Q3 new product flow in. And generally, there's a bit of an inverse relationship on return rate and I should say a direct relationship on return rate and price.

And then the last thing is we did see some of our marketing channels, we started to see them kind of stand out in terms of unusually high increases in return rates on some of those channels. And so that's something that we're diving into and we hope is an opportunity to kind of correct what's going on with those channels.

Looking into Q4, of course, the comp is even tougher, and there's going to be continued focus on margin and some more price increases going in there. So we think it's going to be a tough compare in Q4. But looking forward beyond Q4, we definitely have things in the pipeline that we're working on that hopefully can continue to drive those longer-term reductions in return rates that we saw over the past year, and we're hopeful we can get some more of them.

Yes. And then on the handbag shoes, accessories, that mix skews higher on FWRD and REVOLVE, and on FWRD is where we saw more of the impact from that promotional shift in the markdown algorithm. So that is a piece of it, and we would expect that to rebound in the quarters ahead.

That makes a lot of sense. Can I just follow up? The markdown optimization tool sounds pretty exciting and early days of that. Can you guys just talk about how that should manifest as we go through next year, it just sounds like there could be some nice upside from that.

Yes. Yes, we're very pleased with the optimization there and a very healthy inventory balance. So that sets us up well as we head into 2026. Now we will face the comps as we enter kind of that midpoint of 2026 when we started to layer in that shift in the markdown or that optimization in the markdown algorithm in 2025. So I wouldn't expect to see such massive year-over-year improvements on that, but a good steady baseline on margin. And great to see FWRD at nearly 45% margin, and our target has been to get that consistently in the 40s. So to be in the mid-40s, really encouraging. And on top of a healthy inventory balance, we feel good about where we're positioned there.

And our next question comes from the line of Nathan Feather with Morgan Stanley.

This is [indiscernible] on for Nathan Feather. Really impressive EBITDA performance. Given the success in tariff mitigation throughout the third quarter at current rates, are you expecting tariffs to be an incremental headwind into the fourth quarter or 2026?

Yes. No, we're very pleased with the mitigation efforts by the team. They've been working really hard on this. So it's really good to see that margin result come through this quarter. I wouldn't say we're expecting any incremental headwinds with all the mitigation efforts. And then also China has come down to an incremental 30% from what was 145% at some time in Q2. And that has the potential, we'll see if it actually goes through, but to come down from an incremental 30 to an incremental 20 as they cut that APA kind of fentanyl tariff from 20 to 10. So I think if anything, hopefully, and potentially a net benefit from where we stand today. And then we mentioned it on previous calls, some of the mitigation efforts that we've implemented have the potential to actually increase margin over the long term. So we could see some benefit in the out quarters.

And our next question comes from the line of Jay Sole with UBS.

Mike, I think you mentioned in the FWRD business, you've managed it to drive gross margin and maybe somewhat at the expense of sales. Can you just talk about the REVOLVE business, how you manage that? Did you also sort of look to drive more gross margin in the quarter? And if so, sort of can you describe the thinking behind that strategy?

Yes, 100%. So in both businesses, there was a decision to focus more on driving margin versus sales growth. Obviously, we want to deliver both, and we fell short of where we'd like to be on the sales side. But overall, we're really pleased with the combination of the efforts and again, resulting in double-digit gross margin gains. And on REVOLVE, we saw really nice gross margin gains as well. But again, some of that does come in a little bit of sales expense.

And it sounds like you feel like on the FWRD side that when you reset the gross margin higher by adjusting promotions and adjusting price. And it sounds like you feel like that's a sustainable level where once you get to that point, you take a sales impact, but then going forward, you can maintain that level and grow sales on top. Is that how you think about it? Or am I sort of reading into it too much?

Yes. No, no, that's certainly the hope and the expectation. Now FWRD is always going to be a bit more volatile business than REVOLVE in terms of the quarter-to-quarter gross margin. And so it's not necessarily going to be a straight path, but we feel like this is a great step towards where we want to be, and it's our absolute expectation that we want to stay here and average these levels over the mid- to longer term. And so that's what we're focused on.

Got it. And if I could just ask one more about your owned brands. Is there -- is the opportunity that you see based at all on some merchandising angle where maybe some of your partners, your third-party brands aren't sort of creating products in certain categories where you know your consumer wants something where you can fulfill that need with your owned brands. What is it about what you can do with private label that maybe you're not getting from the other brands? If you could elaborate on that a little bit, that would be helpful.

Yes, it's ranging. Sometimes we find product that we can't find from our third-party brands, and we will create it ourselves. Sometimes we see that certain zones are very, very interesting and our customer loves it, and they want more. So we'll pursue that as well. The other ability on the owned brand side is to combine our design and manufacturing with our incredible brand building and marketing capabilities. So that has been very, very, very fruitful. We've seen incredible short term, near term and LTV numbers from our owned brands as well. So it is a huge, huge and powerful lever that the team has been really focused for quarter in, quarter out for many, many years to deliver the improved results quarter after quarter and very excited about the path ahead. There's a lot cooking right now, exciting new launch in Q4 and a lot to come in 2026.

And our next question comes from the line of Peter McGoldrick with Stifel.

I was curious on the state of the consumer. It seems you struck a balance between markdowns despite macro volatility. So I was hoping you could help us think about the health of your core consumer in the U.S. And then if there's anything to add about any of the international markets or new consumer behavior to add to that?

Yes. So we think the health of the consumer is still generally good from the numbers that we're seeing. We are seeing certainly like some pockets of weakness and strength. So generally, we were a bit stronger with some of the higher income segments this quarter and the lower income, a little bit of weakness, but nothing dramatic. Some regional differences, the government shutdown in the surrounding areas there, D.C., Maryland, Virginia, like a little bit of weakness there. But in general, the consumer still feels still feel strong, but it does feel like we're in an environment where there's risk that, that changes or drops off. But so far, we're continuing to see decent signs from the consumer.

That's good to hear -- Go ahead, Jesse.

Yes, I was going to follow up on your international question. I think we talked about it in the prepared remarks that kind of the standouts were Europe, Middle East, Africa and within Europe, strong results out of Germany, Netherlands, Switzerland, countries like that. So really encouraged by that. And then we mentioned that China as well the Mainland China, up 50% on REVOLVE. So really pleased with the progress on the REVOLVE side of the business in China.

Appreciate that. And then I did want to follow up on Jay's question and the answer where you pointed to the balance between managing growth and margin. I was curious if there's a permanent shift in the strategy for which you approach the business or if this is sort of a onetime item?

Yes. No, there's not a permanent shift in the strategy. Quarter-to-quarter, depending on where we see the opportunities, things might shift a bit, and this was certainly a more dramatic move this quarter. But it's still our goal and focus to drive double-digit plus top line gains while improving margins, particularly net EBITDA margins over time and getting those back into the double-digit range. And so the dynamics just play out a bit different in the current quarter where we saw a lot more of the gains on the margin side.

[Operator Instructions] And our next question comes from the line of Mary Sport with Bank of America.

Could you provide an update on how your beauty category is performing and how you're thinking about that opportunity moving forward? And then I guess, how much of that customer do you expect to be new versus an existing customer?

Yes. Beauty is quite strong. Yes, performing at double-digit growth rates. We try not to disclose too much detail there, but very optimistic there. It is very, very early in our journey there, where our selection is starting to get very exciting, and we're leaning into further developments in the business, most notably the customer experience online as well as beginning to finally aggressively market. So early stages, great progress, a long road map ahead. And long term, we think that this could be a very, very, very significant portion of our business.

And we have no further questions at this time. I will now turn the call back to management for closing remarks.

Thanks for joining us today. And most importantly, thank you to the team for the excellent execution this quarter. The profitability numbers and cash flow numbers are something we all should be very, very proud of. We always preach that in challenging environment, breaths lots of opportunity, and it's clear that we're ready for this opportunity this quarter and the quarters ahead. Very excited to join you guys in 3 months from now and show you where we're up to.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.