Q1 2021 Revolve Group Inc Earnings Call

Good morning, and my name is Maria and I'll be your conference operator for today at this time I would like to welcome everyone to revolve first quarter Gustaf from 'twenty, One earnings call. All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If he would like to ask the question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question press the pound key.

At this time I would like to turn the conference over to Mr. Erik Randerson, Vice President of net of Investor relation such of evolve. Thank you you may begin your conference.

Good afternoon, everyone and thanks for joining us to discuss <unk> first quarter results before we begin I'd like to mention that we have posted the presentation containing Q1 financial highlights to our Investor Relations website located at investors that revolve dot com.

I'd also like to remind you that this conference call will include forward looking statements.

These statements include our current expectations regarding the continued impact of the COVID-19 pandemic on our business operations and financial results and our outlook for operating expenses and capital expenditures for 2021 of.

These statements are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially from these for forward looking statements, including the risk mentioned in this afternoon's press release as well as the other risks and uncertainties disclosed under the caption risk factors and elsewhere in our filings with the Securities and Exchange Commission, including without limitation of our annual report on form 10-K for the year.

Year ended December 31, 2020, and our subsequent quarterly reports on form 10-Q, all of which can be found on our website at investors that revolve dotcom, 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, adjusted EBITDA margin 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. The 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 prepared and presented in accordance with GAAP and our non-GAAP measures may be different.

For non-GAAP measures used by other companies reconciliations.

Reconciliations of non-GAAP measures to GAAP measures as well as the definitions of each measure their limitations and 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 of co founders and co Ceos, Mike Carroll, Nikolas, and Michael Mente as well as Jesse <unk>, our CFO following our prepared remarks, we'll open the call for your <unk>.

With that I'll turn the call over to Mike.

Good afternoon, everybody. We're excited to update you today on the momentum in our business and our record Q1 financial results.

As we successfully manage through one of the most challenging times in our history, we've been eagerly preparing for the reopening of the economy, which we believe will be extremely positive for revolve is a brand associated with an active social lifestyle.

I am pleased to announce the does the economy begin to reopen in the first quarter, we experienced a significant surge in demand, which drove the outstanding results for the first quarter.

Our top line trends saw substantial acceleration as we entered March increasing from the low single digit growth we experienced in January and February.

This vaccine started to rollout restrictions eased and additional stimulus payments were made by the federal government demand increased significantly the.

The strong close to the quarter continued into April with growth of over 100% compared to April 2020, and over 30% compared to April 2019.

Even more exciting was that the accelerated net sales growth in March and April came from both the revolve and forward segments as well as the domestic and international businesses.

With that as an introduction I will go into more detail on the first quarter results and recent developments.

Net sales for the first quarter of 2021 were a record $179 million an increase of 22% from the first quarter of 2020 substantially ahead of the low single digit growth we experienced for the months of January and February when we spoke during our last conference call.

Particularly exciting is that the strong recovery in growth during March came from a return to growth installs associated with social outings, such as dresses as well as continued strong growth in at home related product categories, including the beauty intimates inactive where that of rapidly grown throughout the pandemic.

These results support our view that we can return to strong growth in our core offerings of the occasion wear while continuing to drive growth in newer categories to pursue a deeper share of wallet.

Also driving our top line acceleration late in the quarter with strong performance and growth of new customers and a significant recovery in traffic during the month of March.

In fact March was the second highest month in our history for attracting new customers and delivered the highest year over year growth in traffic and more than a year. Despite mobility restrictions in most markets at the time.

This gives me a great deal of confidence in our longer term outlook when the wind is fully at our backs again.

It is also very exciting to see the recovery in the U S market.

On last quarter's conference call, we talked about key international markets like Australia, serving as the leading indicator of the potential recovery in the U S. The.

The domestic recovery, we anticipated took hold in March which certainly benefited to a degree from government stimulus.

Yet the domestic recovery remained on a healthy pace through the month of April as well when the U S growth outpaced the international business.

Our profitability and cash flow in the first quarter were outstanding net income was a record 22 million for 30 cents per diluted share of more than 400% increase from the first quarter of 2020 and also of more than 300% increase from the first quarter of 2019 free.

Free cash flow was $32 million of more than 300% increase from the first quarter of 2020.

This cash generation further strengthened our balance sheet position us well to invest in future growth opportunities.

Turning to operations, just as we were able to read and react and adapt last year. Upon the onset of the pandemic when demand was negatively impacted.

We've been able to quickly react to the significant increase in demand as the economies have begun to reopen and our customers began to socialize in person again and plan for summer travel.

Our fulfillment operations, we're able to scale up quickly and continued to meet our very high standards for customer satisfaction.

The increase in demand combined with continued operational efficiencies were key contributors to our record profitability in the first quarter.

We have and will continue to invest in technologies and tools to further raise the bar on service for our customers.

For instance in the past few months, we have significantly reduced the average timeframe for our customers to receive credit on their merchandize returns.

Our data driven merchandising function also continues to deliver what our customer needs when she needs. It during what has been a very challenging environment of rapidly shifting customer demand and supply chain dynamics.

Our inventory levels and assortment of been managed well as illustrated by our financial results and of more than 20% increase in inventory turns and our revolve segment.

Our inventory health is best illustrated by our gross margin expansion, which reflects significant growth in net sales at full price.

We also continue to remain agile on the marketing front and we are laser focused on capitalizing on the reopening opportunity.

While restrictions have eased and we have conducted some smaller scale brand marketing activations, we still haven't yet been able to fully deploy our optimal marketing investment.

This is the right time for us to really invest in marketing our brand is squarely in positively positioned for the reopening in the post COVID-19 World and we believed marketing investments in both revolve and for this year, we will deliver strong returns over the long term.

We want to take full advantage of the pent up demand among consumers, who are finally going to be able to get out of the house socialize and celebrate in person again.

When this moment comes they're going to want to look and feel amazing with our latest fashion.

It's also important to note that in the near term, we do expect some headwinds on marketing efficiency, resulting from the recent Apple iOS privacy changes that may reduce our efficiency and targeting users on Apple devices, which are used by a substantial majority of our customers the.

The increased marketing investment this year will have an impact on short term profitability measures, particularly relative to 2020, when our profitability benefited from temporary reductions in marketing as a percentage of sales due to COVID-19.

In particular, we plan to scale up our brand marketing investments, which pay dividends over longer periods of time building the brand increasing awareness and driving continued long term customer growth.

Lastly, our international business continues to perform very well and represents an exciting opportunity for future growth International net sales grew 38% in the first quarter of 2021 relative to the prior year driven by strength in all major regions and illustrating how well our brand is translating across cultures and geographies.

Australia, and Canada were among the top performing international markets in the quarter. In fact, Canada was our largest international contributor for the revolve segment in the first quarter.

Our catalyst was our recent launch of all inclusive pricing in Canada.

So in how our international investments can drive growth and customer satisfaction. The successful rollout of the more localized customer experience in Canada is another proof point that our international strategy is working and is particularly exciting since we plan to introduce all inclusive of pricing in many other international markets and for.

Fact, I'm excited to share that earlier this month, we launched all inclusive pricing for customers located in the United Arab Emirates, one of our largest markets in the fast growing middle East region.

China is another exciting driver of our international success.

In the first quarter, we began to see increased momentum in China and the revolve segment due in part to expanding our distribution to include a presence on Tmall global the largest cross border business to consumer marketplace in China with nearly 800 million shoppers through evolved store on Tmall global is powered by our differentiated merchandising strategy, which has driven strong.

Organic traffic, particularly from consumers interested in our emerging brands that weren't previously available on T Mall it's.

It's early yet we are encouraged by the opportunity to capture incremental growth in such an important market.

Before I turn it over to Michael I would just reiterate that while there are still some uncertainties out there. We are very proud of our results. We are ready to invest and we are excited about what lies ahead.

Thanks, Mike it's incredible to see the surge in traffic and demand as our customers get back out and start and joined the social life. They love and have gone to associate with the revolve after such a challenging past year. That's returned to robots clubs gratifying, particularly considering that we are now just gearing up for some of their very exciting and impactful marketing events.

We are proud of for the opportunity to capture demand during the June equal net and our events are a critical part of our demand creation I am thrilled to share that we have continued to scale up our in person marketing events that are such a powerful marketing lever for building the brand long term.

Remember that impressive momentum unfortunately been on hold for lots of 2020, creating a headwind to traffic and you catch of acquisition last year.

In March of this year, we hosted the inputs to the marketing event in Los Angeles attended by more than the 100 influencers over three days.

Protector community, we adhered to safety protocols that included COVID-19 testing for all participants.

One of the takeaways from this event was that the influence of community can't wait to get back to tweaking of Christian events. The desire to participate in them that was incredible amount into way more interest than we can accompany for Westinghouse. The unfortunately turned away a number of influencers.

This is just the beginning for restarting our events calendar, we plan to meaningfully increase the frequency and scale of events. The capital light in this moment in time expand our marking of Leach and drive long term returns. We're excited to get out there again in a more meaningful way of economies continue to open up.

We have several activation of tell the top influencers in the aspirational lifestyle locations that will help us to further expand our marketing reach and brand marketing attack, starting with them the Baton Turks and Caicos next week.

Moving forward I am excited about the powerful combination of our aspirational impressing biking events, along with continued growth and diversification of our content on the merchant digital channels, creating an expanded marketing playbook.

Data driven of collection of merchandising has also positioned us well to capitalize some of the reopening of showing we have the right products for our customer we have the <unk>.

The ability to efficiently scale up the reading and reacting to that of signals to quickly address shifts in consumer preference of assortment of emerging trends expand our style count and doubling down on successful styles of product Reorders.

Our merchandising agility, how jive of year over year of growth rate that expanded from the low single digits in January February to over 100 per cent year over year of growth in April all of the strong inventory turns and full price mix of net sales.

The successful inventory of Bath and shifting the assortment is particularly impressive when considering that just a year ago, our merchandise flow gets shifted away from price associated with social, adding and channel such as dresses and.

And now we are again, we are starting back into the historical strong product categories, while still driving rapid growth in our newer at home categories like beauty, which more than doubled in the first quarter.

We have succeeded in providing her with the right product at the right time price.

Part of that fits our current lifestyle, whether its socializing traveling or even gain a lot of kind of home. She recognizes this and it's coming to us for more athletes of our lives, allowing us to expand our share of wallet over time.

Merchandising and marketing work hand in hand, we are continuing to innovate on our marketing and merchandising efforts to deepen our relationships with our community for it.

In the first quarter, we launched a new of all back depends on Instagram to create an intimate with the fitness consumers fans and influencers in perfect alignment with the daily work as we apologize on Instagram live for the passenger to engage the community. These workouts of generated 10 million views of the pandemic began.

As I mentioned beauty continues to perform very well and I'm excited to share that we recently beta launched of of passion save program for our beauty customers, who buy beauty products regularly. This enables us to automatically ship of customers' favorite products to them regularly scheduled interviews promoting convenience customer loyalty and repeat purchases.

Our own brand remains quite for a long term strategy of driving traffic and scaling of unique assortment and expanding gross margin of the long term.

The capitalizing the growing consumer interest in sustainable fashion, we recently introduced a true the roadside Green collection.

Two of the rest of the Green styles are made with all natural and chemical free diet with 100% organic cotton the.

The production uses of technology that jobs, 40% less water in the use of the water to reduce it get back on the environment. This is just the beginning to a more sustainable production process, we are pursuing within our own brands.

Another exciting product launch in recent weeks is our latest collection from golfing available on both the revolve and forward.

The new girlfriend line aligns with the card of fashion trend towards the more comfortable on the Mr. Fink denim some of it that many customers are seeking for today.

We started reinvesting in the old bonds in late 2020 after a significant pullback early of the year and we will continue to invest heavily throughout 2021 to maximize our launch of opportunity.

But in some great talent and while it's still early in the rebuilt the I'm very optimistic about the underlying metrics, we're seeing in this area.

Of course that with the discussion of our luxury segment of the forward.

The momentum has been quietly building for some time.

Board hadn't extended quarter growing net sales 24 per cent and the first quarter of 2021 relative to the prior year. This is on top of of very strong prior year comparison in the first quarter of 2020, when the board net sales grew to 47 per cent. If you do the math that means that for the first quarter of Florida is around 82% since the first quarter of 2019.

For it also delivered record gross margins to increase 7% year over year on a full price sales mix of that was also an all time line.

We believe for it holds the differentiated position of the market and serves as the destination for the next generation of luxury consumer from curation and its strong at it.

The ads recognized out of momentum and value of our product curation impactful marketing engine customer rebates and best in class cataloging of editorial of photography.

During the fourth quarter, we launched to cover the luxury of times with only limited wholesale distribution the row and alliance.

Additionally, supermodel and that's just really the Hunton Whitney recently debuted for a new shoe collection with <unk> exclusively unfolded shooting of special good deal of Chipotle Orlando our site.

With the great product curation, the key leverage further expanding forward as beverage and of the revolve customer base and platform to cross market and increased for its share among our existing customers, even though the revolve and forward merchandise the complementary with Florida over indexing in handbags and shoes only of low single digit percentage of revolve customers are also for our customers.

This speaks to the huge opportunity ahead of us that we continue to pursue as illustrated by the launch of law for loyalty program earlier this month the full.

All of the problem, it's fully integrated with the revolve loyalty program rewarding and incentivizing cross shopping on both the buy side.

The program will create a great deal of customer segment and engage with in the months ahead.

Lack of of all forward at the global brand and channel has there been a key contributor to for his exceptional growth over the past two years of.

Forward has attracted a large following of more than 250000 followers of the weibo of leading social media platform in China.

We view the global e-commerce market of for luxury as a massive opportunity and with the reopening of economies around the world. We think there is more opportunity to come.

We will be making some exciting investments in Florida in the near term the details of which in the sense of shock future calls.

All told the recent momentum in our business across both of the evolving for the segment types of incredible with our brand positioning on point of segment and a strong financial position, we are primed and ready for the reopening and beyond I'll turn it over the Jets now for a review of the financials.

Thanks, Michael and Hello, everyone. As you can tell we are very pleased with the first quarter results and even more excited about the recent top line trend with that let's start with the results for the quarter.

Note that all of the comparisons I will discuss will be on a year over year basis, unless otherwise stated in certain cases, I will speak to our growth compared to 2019 since the comparison to 2020 is skewed by the impacts of COVID-19.

Net sales were $179 million, an increase of 22 per cent compared to the first quarter of 2020, which is the significant improvement from the low single digit net sales growth trend, we had been experiencing for the first seven weeks of the quarter that we disclosed during our last earnings call.

Compared to the first quarter of 2019 net sales grew 30% for the first quarter and at an even higher rate for the month of March when our net sales growth meaningfully accelerated.

During January and February growth is primarily coming from categories and products like beauty, intimates, and activewear, which more than offset the headwinds in products that are more focused on going out like dresses.

The shifted in March when we experienced a meaningful increase in demand for products related to going out. This increase in demand combined with the continued strength in at home products helped drive the strong overall top line results as we exited the quarter.

By the territory, both the U S and international markets contributed to the strong top line result for the quarter with domestic and international growth of 19% and 38% respectively.

Both regions also contributed to the growth acceleration in March.

The international strength was broad based with Australia, Canada, Greater China, and the Middle East as key contributors.

By segment revolve segment net sales increased 22% and forward segment net sales increased 24% in the first quarter.

The forward sales increase is particularly notable considering that forward grew net sales of 47% in the prior year comparable quarter.

Active customers were $1 5 million a decrease of 3% consistent with our commentary on our last earnings call to expect further deceleration since active customers as of trailing 12 month measure importantly, active customers grew on a sequential basis compared to the fourth quarter of 2020, marking our first sequential.

Quarterly growth in active customers and almost a year.

Our customers placed one 3 million orders in the quarter, an increase of 9% the highest year over year growth rate in five quarters.

Average order value was $256 flat with the fourth quarter and down 1% year over year.

Moving to gross profit consolidated gross margin was 54% the highest ever gross margin reported for our first quarter and an increase of 546 basis points year over year.

This performance reflects the healthy inventory across both segments, particularly compared to the prior year, leading to an increase in the percentage of net sales at full price and a decrease in the depth of markdowns.

These positive contributors to gross margin were partially offset by a decrease in the mix of owned brands as the percentage of revolve segment net sales consistent with the outlook. We shared on our recent Investor Conference calls.

Our operating expenses expressed as a percentage of net sales were lower year on year across all line items in the first quarter.

Our fulfillment and selling and distribution expenses continued to realize of meaningful short term benefit from a lower return rate year over year we.

We do not expect this benefit to repeat in upcoming quarters as product mix shifts back towards going out categories. Additionally.

Additionally, we realized marketing efficiency in the first quarter as we have not yet fully re engaged on the marketing front. It is important to note that we intend on aggressively ramping our marketing investment for the balance of the year for both revolve and forward.

The strong top line results gross margin expansion and operating efficiencies resulted in record net income of $22 $3 million or <unk> 30 per diluted share for the quarter.

The five times higher than the six cents of diluted EPS in the prior year.

Net income was also four times greater than the first quarter of 2019.

We reported adjusted EBITDA of $23 $3 million, an increase of 316% with the margin of 13% adjusted.

Adjusted EBITDA was nearly three times greater than the first quarter of 2019.

Moving to the balance sheet and cash flow statement.

During the first quarter, we continued to invest in inventory to position our assortment for an anticipated increase in consumer demand as a result inventory increased by $5 million from year end to $100 million, but decreased 1% year over year.

This compares favorably to the 22% increase in net sales for the first quarter of 2021, illustrating our higher inventory turns of year on year and improved inventory health.

Even with the investment in inventory, we generated $32 million in free cash flow in the first quarter, a more than fourfold increase from the prior year.

Cash and cash equivalents net of borrowings at March 31 were $183 million, an increase of $109 million or 149% from $74 million as of March 31 2020.

Now looking ahead with the return to growth in Q1, and very strong trends in March and April we are confident that we can continue to deliver net sales growth in excess of our long term growth target of 20% just as we were prior to the onset of COVID-19, However, considering the recent acceleration in net sales growth represents a small sample size.

And that there are still many moving parts and uncertainties in the short term, we will hold off on providing formal guidance at this time.

Ted Let me update you on some recent trends in the business since the first quarter ended and provide some direction on our cost structure for the balance of the year to help in your modeling of the business for 2021.

Starting from the top of the significantly improved trends we experienced in the month of March continued through to the month of April in fact April net sales grew over 100% year over year against a relatively easy comparison in April of 2020, when our net sales had declined approximately 40% year over year as we previously disclosed.

As compared to April of 2019, net sales grew over 30%.

We are very excited about the recent top line trends and the prospect for a continuation of these trends, but we also want to temper. This optimism is there remains some uncertainty related to COVID-19, there of potential headwinds from the recent Apple iOS changes that Mike mentioned, and we would anticipate the tailwind from the government stimulus will subside.

Shifting the gross margin we are extremely pleased with our gross margin performance in recent periods for context for three quarters in a row, we have generated a full price mix of greater than 80 per cent meaningfully exceeding historical ranges.

The very high full price mix of net sales and our inventory health have benefited from our successful inventory rebalancing in response to COVID-19 last year, which significantly skewed the mix of our inventory of full price.

We want to caution that as we rebuild inventory to support future growth, we expect our full price mix of net sales and the depth of our markdowns to revert closer to historical norms overtime.

With this taken into consideration for the full year 2021, we expect gross margin of 53, 5% to 54% at the midpoint. This reflects an increase of more than a full percentage point compared to gross margin of 52, 6% for full year 2020, and is also higher than the 53 six per cent for the full year 2000.

19.

Fulfillment.

We expect the fulfillment costs in the second quarter to increase sequentially as a percentage of net sales as a return rate moves higher year over year due to our sales mix shifting to the products and categories related to going out for.

For the full year 2021, we expect the fulfillment to be approximately two 9% of net sales.

This implies a decrease of 30 basis points compared to the fulfillment representing three 2% of net sales in 2019 as the result of the automation efficiencies implemented which are more than offsetting macro cost increases.

For our selling and distribution costs similar to our fulfillment costs, we expect the sequential increase as a percentage of net sales in the second quarter and for the full year 2021, we would expect to be in the same range as the 14, 6% of net sales we achieved for the full year 2019.

This implies a significant year over year increase in selling and distribution cost consistent with our prior commentary and driven by two main factors for.

First as we have now anniversaried. The COVID-19 outbreak, we expect a return rate to be higher year over year in the near term, particularly as we comped the very low return rate in the prior year and since dresses, which have a much higher return rate than average have recently returned to growth of <unk>.

Higher return rate results in increased costs for shipping handling packaging and payment processing for returned items with shipping and handling costs, representing a majority of this line item.

Second our average shipping cost per package have increased in recent months with the increase in shipping demand industry wide.

Centered around the reopening in the long term market opportunity ahead.

Now opened up for your questions.

And at this time, if you would like to ask any questions you will need the press for one on the telephone keypad again that is the star one on your telephone keypad real fast for just a moment of the compiled of getting a roster.

And your first question comes from the line of Aryan Mercy from five per cent or your line for your line is open.

Great. Thank you and good afternoon, I guess my first question for the team is on the quarter to day trying super encouraging what you're seeing here in April can you talk a little bit more about the customer cohorts that you're seeing is it more new customers existing customers are you starting to see some laps consumers back in the fold and then I have of.

Follow up.

It's really a mix of of all of those April represents the continuation of the trims day, we saw in March and we're continuing to move more volume on on a daily basis, the number before and it's coming from all cohort just come in from the existing customers ordering more frequently it's coming from last customers coming back into the fold and it's <unk>.

Coming from some really nice acceleration on the <unk>.

Great and then just on the return rate. The Jesse of you were speaking about kind of of expecting that to normalize are you already seeing that in March and April as dresses and some of the other going out categories have accelerated and then I have just the follow up bigger picture on the fashion cycle, you guys talked a little bit about the denim so.

<unk> change I'm curious, if you're seeing with with the denim orders are you seeing of higher attach right on other items in the wardrobe of as consumers kind of think about that silhouette changed from skinny to maybe more of of loose or of straight leg. Thank you.

Yeah I'll take the first one here. This is just the and then the ticket over to might go for the the more fashion forward question on the return right. We have seen that start to pick up and if you go back to the quarters. You know we saw that dropped down to the low very low forties at the depth of COVID-19 given the the mix and the shift and mix and then that started to pick up even through the back of.

Of last year, and we're in the mid forties in queue for and it hung out in the same mid 40 range for Q1 and then in the most recent periods of March and April we have seen that pick up as dresses did return to growth.

And that some of the commentary, we're giving for the the forward looking information as well as that we do expect us to come back in a meaningful way and that will increase return rate sequentially that said you know the other categories are holding and we do expect and optimistically hope that uhm returned rate will be lower.

Then the been in the past you know in the past it's been in that 50% to 55% of zone. So.

No I think with the with the assortment, we can balance of that going forward.

Ooh.

Yeah, Michael here of How's it going with the you know with with the performance across the board really improving we're seeing you know shop for five minutes and a <unk> a number of of of categories. You know from going out of type of clothes, you know dresses that what up world of course, not as popular no event dresses real seeing a lot of the strength in terms of like all of those you know depended of demand for it kind of of Akane.

<unk>, the weddings and graduation type things and whatnot what is the with a specific day, regardless of that we're really anticipating this could be any of <unk> of nice cycling. The longterm trying to receive that these type of channel, particularly the number of things that you know the last year's upon years, so what position of ourselves right now for the beginning of something new I think of course, we've seen how skinny jeans were important for our customer.

For many many many years. So we are excited about the beginning of of new cycle with a couple of this if we can get them.

And your next question comes from the line of Oliver Chen from Cowan Your line of Simpson.

Thank you very much your inventory positions look really clean uhm, what are your thoughts on on balancing inventory versus sales going for it and as you investing more of inventory give me your full price spelling level, the very high right now, but which categories my.

The the drivers you know for taking the lower you know as your balance those investments and then the second question Tmall is the is a huge deal uhm do you have parameters of thoughts for how you you will approach the on a on a multi your basis and also any statistics around your.

The Chinese audience on social media and what you see happening. Thank you.

Yeah definitely so from an inventory of physician standpoint, where where later on the inventory side, but with our motto, we're able to the Doctor I quickly the consumer.

Consumer trends, so as I said I think the receive more stability in the trends, we should expect to see the inventory levels climb of it just because that'll be of more optimal condition for us the maximize the economics uhm, but we came out of the quarter later on the inventory side compared to work I mean, the we were able to react quickly and I think leverage.

Inbound demand that we saw and really help you with in terms of of the categories that were looking at you know growth for this year is definitely gonna be in those growing out of categories.

The everyone's been missing out on and that we're seeing a lot of pent up demand, but I think it was really exciting for US is that we're seeing continued really strong sales in the categories that we made a huge headwind and last year. During the pandemic beauty continues to be strong through the month of April active continues to be strong so.

So those categories do we gained strength and we're seeing those sales hold up with you know the one exception maybe mean that on the one of them side received amount of where sales taper off of them.

And then.

Turning to the the Timor question, it's still very early on T. Mo, but we've been really encouraged by the trends that we see there and we think longterm in China, It's gonna be a very important part of our strategy just because.

It has such a huge mind share among consumers, what's really exciting for us as we've seen actually that.

New customers that have come in on Tmall. Given later converted off of the room on the website itself. So it serves not only to kind of expose was initially and is there really of a very low cost channel for us, but it also converts people to the revolve that form of of long term. So you know we're just getting started there, but we're optimistic about again for me can drive.

And your next question comes from the line of <unk> Hutchinson from Bank of America. Your line is open.

Thanks for good afternoon, encouraging to hear about the meaningful failed acceleration I just wanted to follow up on the inventory commentary and get your view on the availability of product and both third party branded product and one brand to meet the demand if it continues to accelerate.

Yeah. So we've been really good about our ability to meet the increased demand if not to say there aren't some pick up some challenges under the covers but if you're talking to the whole broad based we feel really good amount of our ability to react the shifts in demand that we saw just get the right person for consumers and continue to do that.

Thank you.

And your next question comes from the line if Michael Minetti from credit Smith. Your line is open.

Hey, guys Uhm congrats on the nice quarter, thanks for taking out all of our questions here I.

I guess.

As you Jesse of you think about where the.

Post COVID-19 makes the business is going in and the the legacy categories come back can you point I need the miracle evidence that you're looking at it in for me, where where where gross margins go and also I.

I guess <unk> return rates since they're so influential in the P&L I'd be curious there how much you you mentioned I know you mentioned a few takes there was some of the inflation and and and shipping rates lately, but.

I didn't hear of I didn't hear much on the east coast facility that you guys had been contemplating is there is there any help it on a per order basis that could help the economics of return as we kind of returns of it'd be kind of normalize here.

Yeah, Yeah for sure. So there's a lot of in there in terms of both margin and return rate, but maybe if we start with the gross margin as.

We as we stayed in on the prepared remarks Martin has been really strong we've had full price sales in excess of 80 per cent for three quarters in a row, which is phenomenal and we're very pleased with that but we do expect as we building the inventory and things normalize overtime that that full price sales mixed bill come down slightly back towards you know the historical norms of you know in that mid seventies.

The range Uhm also markdown margins have been extremely strong with the the lighter markdown inventory. So we've been able to really deliver on the markdown margin side again as we built in the inventory things will normalize overtime. So those are too kind of pressure points. You know as we look ahead on gross margin also.

The one brands you know it would be talked about over the last couple of calls own brands have been uhm uhm compressed as a percentage of of the revolve segment net sales that will continue to the you know the next couple of quarters before it starts to Reaccelerate. So we'll see some near term pressure there before it starts to Reaccelerate and add some gross margin you know in the late 21, and the 20th 22 so.

You know a number of things going on there, but uhm structurally over the long term still feel of really good about our gross margin target of the 55 per cent plus.

And then on return rate Uhm, Yeah, that's that's largely a product mix story, where you know as the dresses.

Fell off a cliff last year around this time and the depth of COVID-19 and we saw a mixture of towards beauty, which has a low single digits return right now we're seeing that uhm dresses come back with the higher returned range. So seeing some pressure there, which will add to the cost structure, especially on a year over year basis, as we can't those COVID-19 time periods.

But we are doing things in the background to help manage that one you know the mix will be more diversified so that will have some positive impact on the overall return rate and then to just you know, making it a great experience for the customer making it easy uhm, but also you know trying to manage that returned right to a certain extent and on the cost from.

You know doing things like you mentioned, the east coast returned facility and and bulk shipping over from the East Coast, which will give US you know some benefit in the future.

So a lot going on there, but you know again, we feel good about you know the balancing returned right to Ah Ah right. That's that's not at that peak 55 per cent that were out in the in the pre COVID-19 day.

Got it and then could I just.

The.

You might get cut off.

And your next question comes from the line of Edward the room ask him Keybanc capital markets. Your line is okay.

Hey, guys. Thanks for taking the question and thanks for all of the color on the on the P&L, especially relate to the market expense I guess two questions on that front, while I know that you'd historically do a lot of these events during the summertime it should be assumed that the cadence of markings and chefs from the historical of pattern given that kind of the ongoing reopening and too I know you guys are spec in at the other.

O S changes may have an impact of get any early learnings that you're saying in terms of marketing advocacy I given the changes the place a couple of weeks ago. Thanks.

Yeah. So in terms of of the timing of the marketing spend yeah, you're gonna see of different cadenced in an historical uhm. Historically April of is a very big spend month for us on the brain working side any of this year, we weren't able to do anything comparable just for me what we did in 2019 uhm, but if all goes well and according to plan because it is and.

Uncertain environment out there you're gonna start to see some Africans framework investments in the coming months through the summer and through the fall and so there's a little bit different kingdoms there.

And then with regards to the I O S changes, we haven't really seen anything yet, but it's it's very early so you know, we'll just have to see how that all plays out of it I think that's that's.

Central headwind that the it all online e-commerce shops. Please.

And your next question comes from in the line of mob Gerbil from Guggenheim Security of your line is okay.

Hi, guys. Good afternoon, congratulations kind of great quarter Uhm I guess my question is on on the categories. When do you think about dresses or you know I think the there was it the vaccine ready category. When you look sort of pricing around where you where historically is the customer willing to go to a higher price points are you seeing.

Is it a steady price point I'm, just trying to understand how you guys are positioned and and I guess for the lean that into on the forward side you know in terms of the the brand offering their issue you know skew more towards the luxury are you getting you know there was a story of around getting better branch of newer branch has that been the case in any of that you're pretty excited about is you.

Look for the rest of the year from that perspective. Thanks.

Yeah, Hey, Bob Thanks for the questions I'll take the first one and then and then pass it off Yeah. I think you know you're seeing a O V.

The state of with the queue for and there's a lot going into that a O V and that's a growth number on the net day O V basis for seeing that increase pretty meaningfully uhm year over your N sequentially. So you know I think that's one point in the second point of more to your question is you know the customer is willing to spend you know call. It the same amount of she was before we're not seeing any significant shifts in.

Uhm the initial price.

And then to your point you know seeing forward perform of really well, especially when you look at that two year stack in Q1, where we grew 47 per cent last year, and then 24 per cent on top of that this year. So luxurious performing wealth, we see a lot of opportunity and cross marketing forward to that revolve customer and we see that already in the numbers that you know she is willing to spend.

The up and she's willing to complement her wardrobe with some of the more statement pieces.

Yeah, when it comes to the new brands I think it's it's exciting to see that you know slower changing the luxury of world, but I think everyone's understanding that you know the historic personally the story place of distribution you know aren't you know aren't the strong and and what the <unk> and ultimately you know for does that preferred part of the moving forward. So.

You know bands you know like you mentioned like the wrong with a lie of these or brands of that when we found it forward. We're kind of you know at the pinnacle of our wish list of things that we really respected so much of that perspective on the luxury of perspective. So very proud that we have that you know that's part of the kind of our stayed without brands and I'm Super optimistic that more it'll be coming I think that ultimately the that.

Only a handful of bands that we don't carry and I think you know optimistic that the old friends will be coming our way as well.

And your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your line is open.

Oh, great. Thank you so much.

I wanted to ask about the in person marketing events and if if I'm remembering correctly back in 2019, Michael I think you held over 100 events that year, if I'm not mistaken.

We're likely to come out of the P&L.

Yeah, we don't fully know yet we havent seen these costs increased year over year pretty consistently but we are seeing of Serge just given everything that's going on out there. So I think of piece of it will be temporary but a large portion of it will just be cost increases over time.

That said, we do have some things in the works and with the <unk>, increasing as well that helps alleviate some of that pressure, but not counting on a significant relief there at least for the balance of the year.

And our next question comes from the line of Mike algae Swagger from Baird. Your line is open.

Good afternoon, Thanks for taking my question.

Maybe just another follow up on the on the margin, but kind of a bigger picture. One is the guidance implied some more significant reinvestment this year, which.

It makes sense, but if we were to assume a more normalized kind of low twenty's top line I.

I mean do you expect the business to leverage of would you planned leverage moving beyond 2021, I guess, just any any big picture thoughts on how youre thinking about the normalized EBITDA margin.

After all of the learnings over the past year.

Yeah over time.

We expect to increase EBITDA margin, we're seeing some of it.

We saw some underinvestment last year, which meaningfully added to the EBITDA margin, we're going to reinvest the this year, so you're going to see some pressure there.

And really on that marketing line items. So if you look the longer term, we expect to continue to increase gross margin.

Which gives us a lot of headroom and then as the other line items balance out and we get leverage, especially on the more fixed line items like G&A will we expect to see EBITDA margin.

Expand over time and still targeting those long term targets of the 55% gross margin in 14% EBITDA margin, but this year will be of euro of reinvestment and again, especially you know it really just doubling down on that marketing in capturing this kind of returned to normal.

Post COVID-19 world.

And your next question comes from the line of Camilo Lyon from <unk>. Your line is open.

Thank you.

Good afternoon.

Just wanted to dig a little deeper into the will be nuances around where the demand for occasion, where it's coming from if there's any regional differences that you've already seen that of particular particular call outs for.

For example, or just is doing better in Texas, and Florida and the northeast.

Or is there just the pent up demand across the states, it's pretty similar.

The people are feeling more comfortable and in the buying debt type of what type of apparel.

Yes, so from a timing perspective, we certainly saw some states. The reopened earlier ahead of others in terms of.

Trends in demand.

Both overall and the kind of by category, but as we moved into April we started to see those of those trends being largely broad based across all states.

Obviously small sample size of it can have different the southern Cal, but kind of broadly speaking.

The strength of theirs.

Across the U S versus just certain skus.

And your next question comes from the line of Zhang Maggard from MTN Partners. Your line is open.

On a strong quarter and thanks for taking my questions.

My first question is on marketing you mentioned that in March you had the second highest month in the Companys history for new customer acquisition and that occurred without fully stepping your foot on the gas from the marketing spend perspective, so I'm just curious.

If you can provide.

Breakdown of was that for revolve or for <unk> and for forward and what do you attribute to the strength of our new customer acquisition.

Yes, so the new customer acquisition was again fairly broad based really across all of our business segments.

We started the scene.

Very broad based strength, particularly as we entered into the April.

We attributed by and large to the reopening and consumers wanting to get out again and get back to the previous lifestyles.

And our hope is that all for the continuing a big way throughout the year.

And our hope is that as we begin to layer on really impactful marketing investments that we will see that accelerate even further.

We feel good about the trends.

Great and then I just wanted to follow up.

In a previous question.

The events.

Obviously, youre not doing events yet.

Perhaps you have historically, but are you able to share the the lift that you've seen from some of the recent events you've done.

In the prior quarter, maybe quarter to date and give us the side from the revolve around the world any other a preview of some of the events you may have planned in the next quarter or two.

With all the events, we think it's a super are crucial for our strategy. So super excited about what's the common of course that'd be of mentioned many times a couple of I'm, sorry, any of that there'll be more to come.

Our marketing team would kill me, if I started to blackbird not the but all of the exciting things they have working on but theres going to be a lot of exciting things coming out of things that you've never seen before.

Revolve around the world coming up going to you know.

Adjusted kind of tried and true approach you know next week will be great, but looking at past events, such as the real the real.

Impact is really of that brand equity of the brand awareness over the long term, we do see sales bumps and increases in the very very short term for sure, but the real meaningful impact is really getting that awareness.

And the increased frequency of events.

Upcoming cadence I think is really what we see.

The value of the investments compound when we're doing things now not once the wall, but one where they're unavoidable when we're really just.

A part of the entertainment in the part of your life. So we all of that will be for swing.

Very very soon.

Great. Thanks, a lot of and best of luck.

Thank you.

And your next question comes from the line of Ross Sandler from Barclays. Your line is open.

Hey, guys just the question on the marketing.

So the 200 bps of deleverage this year with all of this our revenue growth is that mostly the idea of anything how.

How big of an impact is that going to have and does this change and kind of how marketing works from the internet.

Does it change or you think about.

Potentially moving transactions inside of other apps like Instagram or wherever.

Or was it more strategic to just keep everything in your own operating can have your marketing be less efficient.

And then one more on the marketing is as the mix of Reengagement marketing versus new customer acquisition changing in the keynote 200 bps of deleverage.

Thanks, a lot guys.

Yes so.

I guess it's.

Certainly answer your question about the the iOS components, we've simply highlighted that as a potential risk factor and we'll have to see how that plays out I think if you look at the marketing budget as a whole of the driver. There is our strategy that we think it's time to reinvest we think the reopening of all of those going to be perfect for the revolve brand and we think those investments pay strong dividends.

Over time.

But.

But of the full impact is over the long term not the short term. So we see there just been a great opportunity to invest large amounts of marketing dollars. This year and so thats, what we would.

I would like to do.

Things continue to play out of the way currently seen them and it's consistent with comments that we made in the past, where we expected the market to be.

Yes.

We used at historical levels and as we've seen things unfold, we see the opportunity to invest even more.

And over the next question comes from again from the line of Matt Koranda from Roth Capital. Your line is open.

Hey, guys. Thanks bottom of them have been asked but just wanted to ask about the interlinking between the revolve the loyalty program. It forward if you could provide a little bit more color on.

Some of the steps you're taking the kind of convert some of the folks from revolve over to the platform it would be helpful.

Yes, definitely so we recently launched that for loyalty program and we cross promoted into a revolve shoppers and so we're really excited about the potential over the long term to continue to move more and more revolve shoppers to the Ford platform.

The quiet over the course of the.

Past year, or so has been the really strong strength, we've seen in the Ford platform, where on a two year basis, it's grown 82% and so there's a lot of reasons for that we think it has a lot of momentum internationally and there's a lot of momentum from a brand standpoint.

But also a really big reason for that is our ability to move those of the bulk customers over the forward for the luxury purchases. So.

We feel great about it.

Over the long term.

For more and more of those customers in the loyalty program will be of very helpful.

Okay, Great and just one more on cash deployment, if I could.

It just seems like even though youre signaling there is the uptick in marketing expense on a go forward basis, and maybe a little bit of uptick in terms of the fulfillment of.

It seems like you're more than cover those cash deployment requirements with the existing business and so youre going to continue the kind of stack cash.

For the foreseeable future.

Are there any.

Capital investments that you can kind of highlight.

Of that would require additional cash on the balance sheet going forward or should we start thinking about sort of cash deployment of the form of dividends or.

The other M&A just wanted to get your latest thoughts on how you think about the plant capture.

Yeah, Yeah, no we've been.

We're really happy with the with the cash flow dynamics over the past year now some of that is due to the inventory shift in being able to really successfully and aggressively cut inventory in the early days of COVID-19. So there.

Or is the cash draw as we invest in inventory now and into the next few months also the cash draw on those marketing investments, but to your point and it's still really healthy cash flow dynamics. So.

Going to continue to see a really healthy cash balance.

No significant internal of tech projects, we remain very capital efficient in terms of our Capex is very low single digit as a percentage of net sales and we expect it to remain there for the foreseeable future.

Then kind of to the point of your question.

It's too early to start talking about dividends and buybacks probably the next logical place debt, we will look at opportunistic M&A, but emphasizing the opportunistic we want to make sure. It's the right long term move for us. So we'll continue to review opportunities.

But until then.

The maintain that strong balance sheet.

And we will take our final question from Susan Anderson from B Riley Securities. Your line is open.

Hi, Alec leg on for Susan Thanks for taking our question so kind of piggybacking off of Ross's question on Instagram and your own mobile App are you able to provide any details on the sales penetration through this alternative channels and then also just what are the metrics on those platform relative to your own websites such as the conversion rate.

New customer acquisition any details would be helpful. Thanks.

Yes, so starting with our own out of our own App is a very significant portion of it.

Our sales of represents call it roughly a quarter of our sales and then with regards to customer shopping through the Instagram App. We have seen some increased momentum there in recent periods, it's still a very small portion of the business.

In terms of the.

The.

The mix there.

The favorable for us but.

You are generally not going to see the same level of.

The quarter size.

Of our on their website.

Long term, it's a part of the overall.

Suite of options that we have for our customers.

Thank you.

And there are no further questions at this time I will now turn it back to the management for any closing remarks.

And thank you everyone for joining us today, and we would also like to thank all of our investors for your continued support over this past year.

We look forward the meeting again on the conference call next quarter.

And this concludes today's conference call. Thank you for participating you may now disconnect your lines.

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