Q4 2021 Revolve Group Inc Earnings Call
Good afternoon, My name is Paul and I'll be your conference operator today at this time I would like to welcome everyone to involves fourth quarter and full year 'twenty 'twenty. One earnings conference 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 you would like to ask a question. During this time simply press star followed by the number one again telephone keypad. If you would like to enjoy question Christy Patzke. Thank you at this time I'd like to turn the conference over to Erik Randerson, Vice President of Investor Relations at revolve. Thank you you may begin.
Good afternoon, everyone and thanks for joining us to discuss revolves fourth quarter and full year 2021 result.
Before we begin I'd like to mention that we have posted a presentation containing Q4 and full year financial highlights to our Investor Relations website located at investors revolve dot com.
I would also like to remind you that this conference call will include forward looking statements, including statements related to our current expectations regarding the continued impact of the COVID-19 pandemic on our business operations and financial results our growth in market opportunities our ability to manage through supply chain challenges, our plans to expand our operations footprint and loyalty programs.
Our marketing investments in the dense our merchandize mix or seasonality pattern freight costs in our outlook for operating expenses net sales gross margin 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 and Exchange Commission, including without limitation, our annual report on Form 10-K for the 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 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.
Presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented 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 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 our co founders and co Ceos, Mike Carey, Nikolas, and Michael Mente as well as Jesse determines our CFO .
Our prepared remarks, we'll open the call for your questions with that I'll turn it over to Mike.
Good afternoon, everyone I'm excited to update you on our exceptional top line growth and profitability in the fourth quarter are extraordinarily.
<unk> performance capped off a phenomenal year for us a year in which we outperformed in the face of macro challenges and supply chain headwinds demonstrating the strength of our brands and great execution by our team.
There are three points that I want everyone to walk away with today.
First our business has experienced incredible momentum as demonstrated by our financial results and key operating metrics.
We delivered record results in the fourth quarter highlighted by net sales of $240 million, an increase of 70% year over year and 63% growth on a two year basis versus the fourth quarter of 2019.
This is an acceleration of approximately five points compared to the two year growth rate, we reported for the third quarter of 2021.
And the outstanding revenue trends have continued through the first seven weeks of the quarter.
We also delivered record profitability for our fourth quarter highlighted by $29 million and net income and $34 million and adjusted EBITDA with each measure increasing by strong triple digit percentage compared to pre COVID-19 levels in Q4 of 2019.
For the full year in 2021, we achieved record net income of $100 million almost three times higher than the net income of $36 million reported in 2019.
An exciting driver of our outstanding results with a record increase in active customers. We added 162000 active customers in the fourth quarter outpacing our prior record of 124000 announced just last quarter equally.
Equally important our rapidly growing base of active customers are increasingly productive in generating orders and net sales further illustrating our business momentum and increasing customer engagement across the business our customer acquisition and retention efforts. We're also very efficient in the fourth quarter with marketing as a percentage of net sales declining year over year to $13 five.
Percent.
Evidenced that our brands are strong our marketing investments are effective and our customer is engaged.
We believe our ability to achieve such outstanding results during a challenging operating environment underscores our sustainable competitive advantages the emergence of the omicron variant created new headwinds and logistical challenges airfreight costs increased to the highest levels, we've ever seen and other supply chain and macro pressures have required us to be extremely agile.
To maintain our high operating standards against this backdrop I'm proud to share that our operations didn't skip a beat and that we achieved record net promoter scores during the fourth quarter and full year, a powerful indication of customer loyalty. We proved how effectively our organization can scale, while maintaining our quality standards by managing the 72% growth in customer order.
Year over year in Q4, our nearly 20 year history. Since founding revolve is taught Michael and I, the challenging operating environments create opportunities for the best positioned companies to capitalize on their strengths thrive and gain market share just as we successfully navigated earlier periods of macro disruption such as the great financial crisis, our strong team and competitor.
Differentiators have guided our outperformance throughout the pandemic, we believe our technology, driven DNA and proprietary technology infrastructure operational excellence and agility and the strength of the revolve brand positions us very well for 2022 and beyond third above and beyond our strong operating results achieved throughout 2021.
We see a long runway for growth ahead in 2022, we plan to continue to invest in customer acquisition and retention as well as thoughtfully investing and continuing to build our infrastructure to support our increased scale in pursuit of what we believe is a large market opportunity ahead of us.
Key priorities for our investments and focus in 2022 include the following.
We will build our brands and brand awareness to capitalize on our current momentum.
With our customer engaging with us more than ever following our successful brand marketing investments last fall, we plan to keep the pedal down on our impactful marketing efforts in 2022.
We're also excited about the potential of our recently announced brand Ambassador program that has performed extremely well early on.
Michael will hit on this more.
We will capitalize on the long term opportunity it forward and build a curated luxury platform for the next generation consumer.
After years of investment our fourth segment is firing on all cylinders, we delivered 83% net sales growth in 2021 outpacing industry benchmarks by a wide margin.
We see so much opportunity for growth in luxury even just within the existing revolve customer base that we're going to aggressively invest in <unk> in 2022.
We will expand our assortment into adjacent product categories, where we see exciting opportunity over the long term.
Consider that our beauty sales nearly tripled in just the past two years on top of continued growth in our more mature categories building on the trust. We have earned with our customer. We believe we can expand our offerings to serve more aspects of her life to expand our share of wallet over the longer term.
We will expand our international presence and elevate service levels overseas to capitalize on the huge global opportunity outside of the U S.
The successful service level enhancements for our customers in Canada led to a more than doubling of Canadian net sales year over year in 2021 in the coming year, we plan to increase service levels and additional markets offering exciting growth potential continued to refine the assortment for international customers and increase the level of marketing investment.
We will continue to reinforce our own brand capabilities to deliver healthy performance within existing categories and support expansion into additional product categories, which we believe will further differentiate our assortment.
As a sign of our early progress in the fourth quarter owned brands net sales mix as a percentage of revolve segment net sales increased year over year for the first time in two years.
We will further elevate our customer experience by investing in our operations footprint and staying laser focused on providing a best in class customer experience we strive.
To exceed our customers' expectations, each and every day.
Of note later this year, we plan to break ground on a second warehouse in the U S that we believe we've been further raise the bar on our very high standards for customer service and fulfillment operations.
And finally, we will further enhance our technology stack and leverage our rich data, including increased personalization on our websites that contributed to an improved conversion rate in 2021.
Our technology product and data science teams have done a great job in leveraging our vast data asset to optimize our assortment and provide a personalized experience for our customers and customer segments based on their prior behaviors. We will continue to invest in these and many other applications of our technology stack and serve as the backbone for our data driven approach to virtually everything.
We do.
I will wrap up by discussing the retention performance of our customer cohorts. During 2021, a major improvement compared to 2020 when cohort spending was challenged by COVID-19 headwinds that impacted consumer demand.
As economies begin to reopen we were able to reconnect with our customers through our impactful marketing campaigns and on point assortment the retention of our prior year customer cohorts achieved higher levels of performance than ever before.
This is very encouraging considering that our cohort performance has historically been so consistent and strong to begin with.
I would also like to highlight that the vast majority of our newly added customers in 2021 purchased from us at full price since full price customers generate a higher lifetime value than customers acquired through markdowns.
One factor that we believe is contributing to favorable customer retention is the success of our new loyalty programs.
We leveraged our proprietary technology to create a loyalty program first revolve in 2020 and later for Ford in 2020 one.
The early results have been really exciting among our active customer base on average are loyalty members placed almost three times more orders than non loyalty members during 2021.
And during every single month since we launched afford loyalty program, we have driven increased overlap between revolve and forward active customers that have contributed to Ford's exceptional sales growth throughout 2021.
We believe there is still a very long runway for driving further cross shopping between revolve and forward in the future.
We plan to further expand the revolve loyalty program in 2020 to rolling it out in select international markets.
Before I turn it over to Michael I'd like to thank our team for their incredible efforts that contributed to our exceptional results throughout 2021, Mike.
Michael and I are so fortunate to be surrounded by such an outstanding team of talented dedicated results driven and passionate individuals.
We're better positioned than ever before for what lies ahead and I truly believe the best is yet to come.
Thanks, Mike I couldnt be more proud of the team and our performance for the fourth quarter. Our results were nothing short of incredible across the board.
Net sales growth in the revolve segment accelerated for the fourth consecutive quarter to a 68% increase year over year OIBDA delivered an even stronger 83% growth in net sales year over year in the fourth quarter.
Formed as well, while facing serious challenges, including a COVID-19 spikes inflation concerns supply chain delays labor shortages and major changes in digital advertising is astounding also exciting is that for the full year in 2021, 87% of our total net sales were at full price that is 10 points higher than in 2020 and represents the first time the pulp pricing.
Net sales exceeded 80% for full year, our team deserves a lot of credit for these results, so agile and decisive during a fluid environment.
The competitive differentiator as Michael alluded to are built into our DNA guided through the pandemic and are positioned for continued success over the long term.
It starts with our proprietary technology data driven culture and exceptional.
Our accelerated growth through 2021 benefited significantly from having access to the right type of inventory during a time when supply chains when industry wide challenge proprietary technology driven approach has been a huge differentiator and I'm a disruption.
Since we have automated so many aspects of the decision making process, we can leverage data much faster than it is to identify chain make merchandising decisions in a very quick.
Accurate and efficient way.
Reading and reacting quickly calculating.
The right time, that's been quite proactive steps over the year was key to our success in the most recent quarters.
In addition to meeting a shopper needs and desires, having the right inventory allows us to be more aggressive and efficient in our marketing approach I have full confidence that we can quite the increase in consumer demand building combine apple marketing.
Our proprietary technology infrastructure. It also from a credit in a way that enables us to operate efficiently.
We exceed the expectations of our customers, while wholesale leverage I think not incisive about loyalty program.
Highly successful to deepen the connection with valuable customers and providing us with massive amounts of additional data.
That's in November we announced a further extension of technology with the launch of our new band basketball.
The program was it.
A portion of our pioneering influencer marketing strategy.
We're already generating a meaningful amount of incremental topic incremental.
We had almost 10000 sign ups within the first 24 hours.
A significant portion of the microwave.
Planning area of opportunity.
The band method.
Technology, we captured more data than ever before.
That's a enable our passionate customers.
With our brand.
<unk> top performing assets and gain access to this event.
At Ingalls segment and powerful incentives to drive further engagement with our brand.
The strength of our brands another key.
And gross profit.
We will be the strength of our brands and the diversity of our micro channel helped us navigate through the Michael.
Voting on Apple iOS product.
In fact during the fourth quarter.
For the full part of marketing efficiency.
Net sales compared to Q4 of 2020.
As our current brands and customer engagements suggest early indications are that the New York fashion week.
That's.
<unk> beneficial and to keep up the momentum we obtained in an elevated level of marketing investment in 2022.
We haven't gotten creative marketing events.
The year.
Earlier this month to coincide with the Super Bowl, we hosted in Los Angeles, We hosted an exclusive to date on that.
That was one of the hottest bodies on the planet and the biggest entertainment we end up the year cohort with the <unk> group.
Thank.
And by now preparing black together some of the most influential celebrity.
In addition, the world whether it be enforced in the sense of our aspirational lifestyle.
Attended by a.
Off the charts included Kendall Jenner Hailey Bieber Coy Kardashian, Heidrick now Nicole Scherzinger, Adele will miss out.
Cardi B offset narrowed the Casio Lil Wayne Jamie Foxx Russell Wilson.
All peer my title Jackdaws Jefferies.
As we look ahead to relax social club a pop up retail concept opening Los Angeles next week.
End of April .
A couple of future lots of experiences and special events for our loyal customers and staff.
<unk>, yes.
Then in April after a two year hiatus.
Adding back our shelf with cobalt.
Revolve festival has historically been our most impactful event of the year, and we are going bigger and better than ever.
So excited by the continued expansion of our marketing playbook across both mobile and for various special poet Activations in the works with our creative director at Kendall Jenner later this year.
But the strength of our brand in China.
Our core customer.
This is an aspirational, Mike walnuts all of them.
With our exceptional service levels.
To expand our offerings and broaden our range of shopping.
Sure.
We believe the opportunity continues to grow and is a key building block of our growth plans in 2022 and over the long term.
And finally, our operational excellence agility, a key differentiator and a critical long term competitive advantage.
We are in today.
During 2021, our average cost of fill in orders decreased by 12% year over year, despite rising inflation pressures and the headwind of increasingly turn rate year over year and throughout all the chaos. During the pandemic, we are continuing to maintain our very high standards in environmental.
Shipping delays have become widespread.
As a number of the tests, we are leveraging our competitive advantages to delight, our customers and gain market share in a challenging operating environment that adversity.
Adversely impacted to that both for many other companies language.
As excited and proud as I am of our recent department, even more excited about what lies ahead.
With our position at the intersection of the digital shift and the rise of the next generation of insulin that we believe there remains a large opportunity.
There might be share from legacy competitors.
The digital shift has accelerated over the last two years.
More opportunity in the years to come.
Our brands are truly connecting with the next generation consumer demographic expected to become the dominant generation in the coming years with a further increase in purchasing power with these favorable industry trends combined with our technology agenda.
Some of our brands, our operational excellence and our focus on the customer. We believe we are positioned to win the hearts of the wallet of the consumer.
Now I'll turn it over to Jacky for a discussion of the financials.
Thanks, Michael and Hello, everyone. We believe our results throughout 2021 demonstrate the exceptional momentum of our brands, our competitive differentiation and our focus on operational excellence.
I'll start by recapping the fourth quarter results highlighted by continued acceleration in our top line growth and record growth in active customers.
Net sales were $240 million a year over year increase of 70% and reflect a two year growth rate of 63% compared to the fourth quarter of 2019. This two year growth rate is five points higher than the 58% two year growth rate that we reported for the third quarter of 2021, both segments contributed to our exceptional.
Revolve segment net sales increased 68% and forward segment net sales increased 83% year over year in the fourth quarter.
From a merchandising standpoint triple digit growth in dresses with a notable contributor to our accelerated growth in net sales during the fourth quarter and yet the net sales mix of dresses remained well below pre COVID-19 levels, which illustrates how successful we have been in driving rapid growth across a wide range of categories.
Also notable is that owned brands as a percentage of revolve segment net sales increased year over year for the first time in two years. We continue to expect the owned brand mix of revolve segment net sales to trend higher in 2022, increasing from the owned brand mix at 20% we achieved for the full year of 2021.
By territory, both domestic and international markets contributed to the strong topline results.
Active customers increased by an exceptional 162000 compared to the third quarter of 2021 handedly outpacing the prior record performance announced just last quarter. This.
This expanded our active customer count to $1 8 million, an increase of 25% year over year.
This expansion was driven by record new customer additions as well as record retention rates.
And our customer was very accurate, placing a record $1 8 million orders in the quarter, an increase of 72% year over year.
Average order value or <unk> with $292, an increase of 14% year over year, and an increase of 6% sequentially from the third quarter a.
A key driver of the growth in <unk> year over year and sequentially was a further shift in mix back to higher price point merchandize, such as dresses handbags and shoes.
As well as the continued strength coming from the forward segment.
Shifting to gross profit.
Consolidated gross margin was 54, 8% a decrease of 116 basis points against a record prior year comparison gross margin increased 189 basis points on a two year basis compared to the fourth quarter of 2019.
This strong result was ahead of the gross margin outlook provided last quarter. Despite the cost of inbound freight in the fourth quarter, increasing to a record high level.
Moving onto operating expenses.
Distant with the outlook, we provided last quarter fulfillment expense showed efficiency as a percentage of net sales year over year, while selling and distribution increased to 15, 9% of net sales.
After the significant marketing investments in the third quarter, our marketing expense as a percentage of net sales came in at 13, 5% in the fourth quarter due in part to the timing of brand marketing investments as well as sequentially efficiencies gained in our performance marketing efforts.
General and administrative expense leveraged significantly primarily due to a robot 70% growth in net sales outpacing the 26% growth in G&A expenses during the fourth quarter.
Net income was $29 million or <unk> 39 per diluted share a 50% increase as compared to diluted EPS of <unk> 26 in the fourth quarter of 2020.
This brings the full year diluted earnings per share to $1 34, and 2021, an increase of 70% year over year.
We reported adjusted EBITDA of $34 million.
Record high for our fourth quarter and a year over year increase of 82% adjusted.
Adjusted EBITDA margin expanded to 14, 3% from 13, 3% a year ago.
An increase of 93 basis points.
On a two year growth basis, when compared to the fourth quarter of 2019, net income and adjusted EBITDA increased by 250% and 150% respectively.
Finally profitability highlights for the full year 2021 included net income of $100 million and an adjusted EBITDA margin of 12, 9% up from 11, 9% in 2020.
Moving to the balance sheet and cash flow statement during the fourth quarter, we continued to invest in inventory to position our assortment to support strong consumer demand and to ensure we have adequate available inventory as we head into 2022.
Expecting seasonality to return closer to the historical cadence and also considering the current supply chain challenges as a result inventory increased by $29 million during the quarter to $171 million.
For the full year 2021, we generated $60 million and free cash flow, representing 7% of net sales.
The 16% decrease in free cash flow generation year over year reflects the much larger inventory investments in 2021 compared to 2020, when we reduced inventory to preserve liquidity.
Our balance sheet remains debt free and cash and cash equivalents at year end 2021 were $218 million.
An increase of $72 million or 50% from $146 million as of the end of 2020.
We're extremely proud of our incredible result, especially considering the challenging and uncertain macro environment, we see.
It's a myriad of headwinds this quarter inflation, the omicron variant global supply chain challenges and other logistical challenges yet we continued to maintain our world class customer service and operations, while delivering exceptional growth and profitability.
We feel great about our success in navigating these challenges so far yet these are real headwinds that we continue to contend with everyday.
Now let me update you on some recent trends in the business since the fourth quarter ended and provide some direction on our cost structure to help in your modeling of the business.
Starting from the top of the strong top line trends, we experienced in the fourth quarter continued through the first seven weeks of the first quarter of 2022.
With a year over year growth rate in the same zone as our fourth quarter 2021 growth rate.
Now as you think about modeling net sales growth for the full first quarter. It is important to consider that year over year comparisons become much more difficult beginning in March.
Can you put a finer point on this recall from our prior commentary that net sales in the month of January 2021, and February 2021, each grew by a low single digit percentage year over year.
By comparison net sales in March 2021 grew by a much faster rate year over year, leading to the 22% growth for the full first quarter of 2021.
March was also the largest monthly contributor of net sales in the first quarter of 2021.
Do bear in mind, the more difficult monthly comps for the rest of the first quarter.
Looking at the potential trajectory for net sales growth over the full year 2022, Directionally speaking, we are confident in our ability to meet or exceed our long term target growth rate of 20% in 2022.
Even coming off of the year, when we delivered net sales growth of 54%.
From a linearity standpoint, considering that our growth rate and meaningfully accelerated throughout 2021, we expect our growth rate in 2022 to be the highest in the first quarter of 2022 and lowest in the fourth quarter of 2022.
On an absolute basis, and barring any macro shifts we expect our quarterly seasonality to revert closer to historical patterns with a peak in the second quarter as we head into festival season, and the warm summer months.
Finally, we expect strong net sales growth across both segments and expect that forest growth rate will continue to outpace revolve in 2022.
Shifting to gross margin we are extremely pleased with our gross margin performance that hit our long term target of 55% for the full year 2021, an increase of 237 basis points versus 2020, and 138 basis points higher on a two year basis versus 2019.
Looking ahead and starting with the outlook for gross margin in the first quarter we.
We expect gross margin in the first quarter of 2020 to be between $53 $5 and 54%.
A strong result, considering this would represent the lowest sequential quarter decrease compared to the preceding fourth quarter gross margin in seven years.
For the full year 2022, we expect gross margin to be flat to slightly down versus a record gross margin of 55% achieved in 2021 due to some offsetting puts and takes.
We expect the gross margin benefit from a moderately higher mix of own brand sales in 2022 to be at least offset by three main factors.
One are.
A greater mix of forward net sales were segment gross margins are roughly 10 points lower than the revolve segment gross margin importantly, gross profit dollars per forward order are actually higher than that we bought because of the much higher average order value. So it's a tradeoff we're happy to make.
Number Q.
As Michael mentioned, we achieved a record 87% of our net sales at full price in 2021.
At 10 point increase compared to 2020.
As well as record low depth of markdowns.
While we believe we can continue to deliver outstanding results on full price sell through and the depth of markdown consistent with our prior commentary we are expecting these metrics to start to move in the direction of historical trends in 2022.
And number three we expect inbound freight costs to remain elevated in 2022 as a reference point inbound freight costs for our own brand products in the fourth quarter increased three X versus 2019 level and have remained elevated thus far in 2022.
Fulfillment.
Performance in the past two years has been incredible with fulfillment leveraging by approximately 40 basis points for each of the past two years.
In 2022, we believe we can maintain these efficiencies and achieve fulfillment expense of around two 5% of net sales.
We expect further efficiencies, resulting from incremental automation in place maximization, and our warehouse and a higher average order value to be offset by increased wages and other input costs.
As expected pressure from a return rate in 2022 being higher year over year.
Selling and distribution in 2022, we expect selling and distribution costs to be around 16% of net sales.
With prior commentary.
The anticipated deleverage versus 2021 reflects cost pressures, resulting from our return rates. So we expect to be higher in 2022, as well as external pressures on shipping costs industrywide.
Recall that shipping and handling costs comprise the majority of the selling and distribution line item.
Marketing.
We expect our marketing investment to remain approximately flat with the 2021 rate of 15, 8% of net sales we.
We are very excited by the performance of our recent in person activation and how well our brand is resonating with the next generation consumer <unk>.
As illustrated by record growth in active customers in the past two quarters and the record retention performance of our prior year customer cohorts in 2021.
To capitalize on our current momentum we plan to maintain a slightly higher than historical level of marketing investments in 2022.
General and administrative.
G&A expense of approximately $26 million in the first quarter and $105 million to $110 million for full year 2022, as we continue to invest to support our growth and expansion.
Lastly, let me touch on our tax rate, our effective tax rate for the fourth quarters of 2021, and 2020 reflect tax benefits realized as a result of the exercise of nonqualified stock options.
Absent such tax benefits in future quarters, we expect our effective tax rate to be around 24% to 26%.
To recap we are incredibly excited about our recent results capping off an outstanding year with strength across segments and geographies.
Courted by a very loyal customer.
While mindful of continuing short term uncertainties challenges and potential headwinds in the current environment. We remain focused on the customer and on the long term and we are investing in the business to capitalize on the incredible growth opportunity ahead now.
Now we will open it up for your questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will possibly just a moment to compile the Q&A roster.
Sure.
Your first question comes from the line of Erinn Murphy with Piper Sandler.
Your line is open.
Great. Thank you good afternoon, and congratulations on a great end to 2021 and two questions. If I may 1st just as we think about the category performance going forward. Following cheniere as a global pandemic can you talk a little bit more about what you're expecting between casual dine in traffic and the forward business and then how are you thinking about.
The return rate into 2022, and then I've got one follow up thank you.
When it comes to the category mix right now Michael.
<unk> strong strength across the board in all categories are going out categories are particularly strong right now, especially on a year over year basis prior to the depth of the pandemic and such but we're seeing strong growth in some of these category before things that.
Or kind of stay at home categories like beauty, so across the board, we see great strength.
Looking to the uptick in Houston.
Great.
Keybanc.
So I'm sorry, Mike here with regards to return rates.
Seen that uptick in recent quarters, and we do expect that trend to continue but we also expected to level off throughout the year, but just as things continue to reopen up and consumer trends could get back to where they were pre pandemic, we expect to see further upticks there.
And as well, we continue to invest in our international territories, making it easier and easier to to return items, which we think is key to our long term success.
Great and then my second kind of key question is just on own brand that 20% now do you see this going on prior peak over the next couple of years and if so what is your gross margin be structurally higher over time. Thank you.
Yeah, maybe I'll jump in on this one this is jesse.
Great growth in the owned brands, especially this last quarter with the first increase that we've seen on the <unk>.
Last couple of years, and we do expect it to move moderately higher in 2022 and want to use that moderately carefully we're trying to do the right thing focus on quality assortment and the right pace of expansion. So we're not committing to getting back to that 36% peak.
Any given time I think we can get to the comparable economics that are lower mix than we were at before and then maybe on your last point structurally yet.
<unk> brands carry a significantly higher gross margin than a third party. So on brand increase we do expect to see higher gross margin over time that said and I know you've commented on this in the last couple of quarters, we do expect that pulp prices moved down this year and.
Much closer to historical levels, we think we can do better than our previous highs of 79% but.
But it will come off the highs that we have seen it already has since Q2.
And then that also goes for the depth of markdowns as well, but overall feel great about our margin and hitting that 55% long term target. This year, we're really proud of.
Your next question comes from the line of Oliver Chen with Cowen Your line is open.
Thanks, a lot congrats on a great quarter.
Guidance was very helpful year, Anniversarying, a tougher compare in March at the same time, you've done a really great job with active customers in the four division as well so.
Well those help offset a potential deceleration.
And then a second question Ford has been remarkable would love your thoughts on categories and if you could just help us compare and contrast, your approach to marketing at that division and marketing techniques as well as a percentage of sales as we look ahead to that big long term opportunity. Thank you.
<unk>.
Yeah definitely help our mic here, so yeah with regards to the momentum of the business you're absolutely right. There is a ton of things. We have that are really working well for us we think the business really strong regardless of comps active customers.
My employees.
Active customer adds are at all time adds are at all time highs strong acceleration from the previous quarter.
So.
We feel great about the momentum of the core business is strong as well at the same time there is such a shift in comps between the first couple months of the year in March and beyond that it would.
Be remiss for us not to remind the analyst community that is as far as how it's going to affect the.
The growth rates going forward.
And from a marketing perspective with forward, we're able to leverage a lot of the same.
Techniques and tactics that we built on the revolve side and that's something that we're continuing to build its something that historically, we haven't leveraged strongly but we're starting to leverage influencers more strongly on the Ford side, the new brand Ambassador program, which has been a huge success for revolve we're looking to roll it forward in the coming months.
And then of course for just being such an incredible premium positioned brand.
This opens up all sorts of avenues to market. The brand that we're really excited about it and certainly having Kendall Jenner is our creative director doesn't hurt.
And one day.
Two category mix like forward and recall also we are seeing strong strength across the board with that everybody's talking about it in.
Event, driven category, but the one thing I did mention earlier that board is particularly exciting is the handbag business before it is quite strong.
The revolve brand mix doesn't add.
Add back that kind of it really does was that under the forward kind of retail retail brand. So as we continue to migrate to the vault customer programs forward.
To see continued strength in our handbag category.
Many quarters ago.
Your next question comes from the line of Seth Sigman with Guggenheim. Your line is open.
Everybody. Thanks for taking the question.
As you look at the acceleration in the business and the drivers of outperformance, Mike I think you talked about some of the Differentiators, which I think makes sense, but do you think there is anything specific or unique to this period that may be helping maybe better in stock levels or any other drivers that are perhaps.
Unique to this period, where you just think good old execution in fiery.
Firing on all cylinders.
Definitely.
So I think theres some factors.
Wouldn't use the word unique to this period, but have contributed.
So our success in a big way and I think first of all just broadly speaking revolve is historically thrived in times of disruption, we're very agile and nimble as an organization. We have a history of really strong execution and when the environment is tough we think it's even easier for us in general to put distance between ourselves and the competition in terms of factors.
That we've been able to leverage soon can you continue to increase the strength of our brand.
<unk> gained just in terms of the competition, we think from a brand perspective.
Second half of last year really starting in the fall we put on some incredible brand marketing efforts and certainly some big twos with bringing in Kendall Jenner as creative director revolt fashion week, we're incredibly excited to be able to get back to revolve festival. This upcoming year. So just a lot of momentum there from an inventory and technology perspective as well as the.
And which we present our products to our customers and how we personalize the website very significant major upgrades over the past couple of years that have really contributed to our success. So we view it as more part of a longer term path and a continuance of what we've done but we think we are continuing to gain distance between ourselves and the competition.
Okay very helpful. Just a follow up question on the gross margin if you could perhaps bridge the gross margin upside. This quarter. Obviously came in well ahead of your expectations. Despite some of those inbound freight pressures that you highlighted.
Just more color on perhaps the upside drivers there and then regarding the outlook it sounds like you're expecting some normalization and promotional activity is that something that youre seeing right now, we're just anticipating that throughout the year. Thanks.
Yeah and this quarter.
It was mostly the full price mix as well as the markdown that they continued to perform really well now it is down off of the peaks of Q2, but continued to perform.
Ahead of our expectations and then also the own brand acceleration in mix.
So those were the main contributors on Q4, and then to that earlier point on the full price mix coming down from the peak of Q2. So we are starting to see that and we do anticipate it to.
Do you continue to shift back towards again towards the normal historical.
Historical norms and again, we think we can do better than that 79% previous peak.
Really healthy in terms of inventory right now turns and then also the mix of Reorders.
And that's coming.
In part from the expansion and Brett and we had a lot more breath on the site and kind of back to the core buying broad and shallow and hitting on those reorders has been phenomenal the past few quarters.
Your next question comes from the line of Michael Binetti with Credit Suisse. Your line is open.
Hey, guys congrats on a great quarter. Thanks for all the detail here.
I guess can we get just could we get a little more help bridge and down the P&L and in the first quarter here, maybe down to the EBITDA line.
You helped us how to think about sales and a little color on gross margin, but maybe some of the other lines. Just if you wouldn't mind and then.
Jesse I have to ask Jesse so related to the 20 plus revenue guidance for the year you ended the year with 25% more customers.
Mike talked about the cohorts outperforming for the year you are shipping across the consumer's shopping across the two different changed now with loyalty working <unk> spending higher with dresses and higher price items, leading the way what are we getting back what are we getting back.
That will get us down to a 20% revenue growth rates of the year.
Yeah, Yeah no. Thanks, Thanks for that question Michael.
I think what we're trying to say is that we feel really good about our long term plan. Our long term target of 20% now we hope to do better than that we do have a lot of tailwind to your point, we had great customer adds on both on the new customers record new customer also on the retention that we didn't touch on the post call but.
Our retention was a record as well.
Price mix is good or it's hitting on all cylinders. The customer is strong but it is still very uncertain and I think today is no exception.
The market itself.
It's just getting caution.
To that upside on the 20%.
We will do what we can we can control we can control and then.
The rest will will deal with them, we've managed through times like this before so just keep our heads down and execute.
And then on the kind of full P&L kind of walking through the line items that we talked about margin fulfillment.
Maintaining roughly where we're at.
Reasonable, we get efficiencies of space maximization.
Automation and other efficiencies there on the flip side, we do have some cost pressures in terms of wages and other input costs on that line item selling it selling and distribution is probably the biggest kind of in place and cost pressure line item to focus on so we closed out the year at 15.9% I think assuming that level or slightly higher.
For 2022 and.
And again.
The biggest piece of this line item is shipping where we're starting to see.
Real real pressure on the shipping side, particularly on the surcharges fuel in particular.
So continued pressure on that line of marketing we've hit on that continuing to invest there there will be some seasonality shifting back closer to the historical pre COVID-19 norms.
We had some great events this quarter, even more coming up in Q2 that Michael touched on.
And then G&A, we just continue to invest in G&A building the team building.
Support to really drive this top line demand.
Your next question comes from the line of Camilo Lyon with <unk>. Your line is open.
Thanks, Ken good afternoon, and great to see how the continued momentum.
Particularly here in the first quarter.
Wanted to delve into that a little bit first if we could.
By the commentary you gave about January and February and implied March it sounds like.
You're anticipating or projecting.
A flattish sort of March results.
But then in the same breath, we're talking about greater penetration of dresses and going out occasion wear.
And higher <unk> with new customers that have come on so kind of in the same zone as is.
Is the question that Michael asked just a minute ago.
Is there something that we're not contemplating that.
Just that.
That kind of thinking for that March period is the right way to think about it.
Yeah, I'm not going to comment too much on the specifics of March maybe just reiterating that continued strength from Q4 into this first seven weeks in the same zone is that Q4 growth.
So that momentum continues again the future is uncertain, but we continue we have a lot of good stuff lined up for Q1.
And into Q2, and again approaching closer to that historical seasonality, where we see the build into Q2 with the festival season the summer months.
So again, a lot of tailwind, but again, some uncertainties out there too that we're being cautious on.
Got it and then maybe just if we could talk about the freight cost that you mentioned and how to think about those.
In the 20th your outlook and what's really embedded from a perspective of.
Any sort of relief that you are expecting or are you anticipating that the pressures experienced.
Experienced in Q4 persist at that same rate throughout 2022, and if you could actually tell us what that margin impact in Q4 was that'd be great too.
Yes, we are not baking in any relief in 2022 I think.
Our best guess is that that doesn't happen until 2023.
And that freight is hitting on two line items, one is the selling and distribution and thats. The most evident so again.
We can manage around that 16% down, but probably not a lot of benefit there given the pressures.
And then in gross margin as well there's pressure there on the inbound freight inbound freight from.
The 80% that is third party and then also the 20% that is own brand and if you look at that one brand specifically, where we have the most direct visibility through the whole supply chain. We saw freight costs increased three X from the pre COVID-19 levels back in 2019.
Is it real impact on the gross margin, which kind of reverting back to our gross margin points a lot of tailwind, but we do have some cost pressures there as well.
And maybe to your point on.
The impact on margin that maybe how much. This comprises keeping in mind that we do have the higher price point that premium products. So freight is increasing but we're more insulated and can manage it maybe better than some of the others that operate at lower price points.
Price point again, allowing us to absorb more of those freight charges without a significant impact.
Yes.
Yes.
Your next question comes from the line of Mark our tracker with Baird. Your line is open.
Thank you good afternoon.
So you look to be well on your way to eclipse $1 billion in revenue. This year, so clearly a lot of momentum on multiple fronts.
You could talk more about the investments that are needed to sustain the pace of revenue growth that you've been delivering Mike I think you mentioned the technology stack and planned expansion on the fulfillment front, maybe you could expand on that a bit and Jesse maybe speak to the margin implications medium term as you pursue some of those investments.
Yeah. So from my perspective broadly speaking, but were looking to do is make revolve the best destination that can mean for premium passion for for younger consumers for next generation consumers and we think we're the best game in town there.
But we want to continue to build on that advantage and get better and better right and so it's just continuing to invest and we've seen the results of our investments over the past couple of years and we think there's a lot more to invest in whether it's continuing to invest in the technology stack.
And make sure we're bringing the best products to customers when they want to see them.
On the fulfillment center side for us, it's pretty exciting because it opens up an opportunity to get even better at service levels were already.
Two day shipping everywhere within the U S right in one data some locations opening up that east coast fulfillment center is going to allow us to start getting more and more customers.
Next day shipments.
So just continuing to invest in all the areas across the business that are going to continue to to allow us to thrive and provide a better offering for consumers owned brands. We mentioned, we're really pleased with the momentum we've seen there.
Year over year growth for the first time.
Several years in really excellent metrics across the board, indicating the products resonating with consumers. So we're going to continue to build on that we're not going to commit to any specific targets cause it's all about delivering great product to the consumer, but we feel great about the momentum there so.
Again, just continuing to invest and get better and better and we think that's going to extend our lead on the legacy players that were taking share from.
Yes, and then maybe February on those.
Oh, sorry.
To the second part of your question there the three areas that youre going to see this and as G&A. So this is reflected in our G&A commentary and this includes owned brands technology website, everything Mike talked about.
The second area is marketing keeping the pedal down on marketing so that that call at 15, 8% in 2022, a full point higher than the pre COVID-19 levels of 2019 on a much higher base of revenue.
Which impacts the brand marketing so more investments there and then on the Capex Brent.
Related to that fulfillment center.
You can go back to 2019, and our Capex is generally less than $5 million a year. So very capital efficient in 2019 was $12 million and Thats. When we moved into our consolidated facility here the east coast facility will be.
Smaller than this facility so call it roughly a third of this facility. So you can kind of roughly back into it won't have a significant capex impact.
Your next question comes from the line of Ed <unk> with Keybanc. Your line is open.
Hey, good afternoon. Thanks for taking the question I Wonder if you could comment little bit more on the shape of the year as it relates to marketing spend and now you are keeping it kind of flat year over year. I know you have a bill because of the festival season, the second quarter.
Going to lap I think tougher are higher marketing spend in the third quarter, how should we think about how it's spread through the balance of the year and then just a click down a little bit you guys also mentioned some improvements in performance marketing.
Marketing and can you kind of talk a little bit more about that thank you.
Yes, maybe I'll hit the first one and then kick it over to Mike.
On the on the curve of marketing closer to the historical norms.
Where Q1 and Q4 the lowest Q2 has historically been the highest that that tells you. The difference this year compared to the pre COVID-19 levels is just the success of our fall activities back in 2021, with New York Fashion week. So you might see that curve not quite as steep on either end, but higher in Q2 and Q3 than Q1.
In Q4.
Yeah and on the performance marketing side as you noted we did see some nice efficiency third and the fourth quarter. Our performance marketing is dynamic things shift from month to month from quarter to quarter. So we're really pleased with the results that we saw in the fourth quarter, but broadly speaking, it's kind of within the normal shifts that we see quarter to.
And month to month.
The only thing I'll, maybe comment on more specifically as.
As you know.
Been a headwind.
And for US we've been very pleased with what we've been able to navigate it and we think that the.
The strength of our brand.
Gives us a diverse way in which we can market, which makes us less reliant on some of the more extreme levels of targeting that come with ideas.
And so we think that was a factor in our success in the recent period.
Your next question comes from the line of Tom Nick <unk> with Wedbush Securities. Your line is open.
Hi, Andrew Wiener here on for Tom Thanks for taking my question.
So.
We were interested.
You said powered mix is going to be a headwind to gross margin for the year.
Just really wondering within that segment, we see that gross margin gap narrowing or do you think that is going to stick with it.
You know call it roughly the same we're in the mid 40 <unk> now we think Thats really healthy place to be if you look back two years ago. In 2019, we were closer to the 40% down to.
Five point expansion in the last couple of years, we feel really good about.
I think it'll be plus minus in that same 10 point differential.
Your next question comes from the line of Simeon.
<unk> <unk> with BMO capital markets. Your line is open.
Thanks, a lot.
Chavez.
Sorry, if I missed it did you say, what you're expecting for active customers in Q1 and in the year and then more qualitatively just as you think about the active customer growth at this point I guess, where do you think youre getting from like where are you on the expanding awareness trajectory, where you where you take share from et cetera, and then just following up on the point right before can you just maybe dig in.
Again into how you think about the <unk> IRS privacy changes so how it impacts maybe your competitors versus how you guys can navigate through that thank you.
Yes, maybe I'll start with that first part and then kick it over to Mike on the active customer growth.
Again, maybe just doubling down on our prepared remarks, and then it came from both new customers and that really robust activity from the existing customers. So we feel great about that.
Looking into 2022 were not giving any guidance on new customers or active customers, but <unk>.
Given that that active customer number is a trailing 12 month number and we're still kind of being pulled down by at least a couple of months of <unk>.
Covid activity in this most recent 12 months you can expect the year over year growth to increase from the Q4 growth rate at least in Q1, but then starting to get closer where active customers and net sales growth start to converge around the middle of the year.
Yes, and then in terms of where active customers are coming from we believe we're still really.
Yes.
I've really small penetration in our target market in terms of percent market share.
So for US we just continue to invest in the things that we've been investing for for many years, we're really pleased with the momentum we saw in active customer growth this period and kind of more specifically right as far as how we market and how customers procure about us.
We find that where customers are first hearing about us is primarily through social media brand marketing and word of mouth, and thats really kind of where they are finding out about us.
And then a lot of the performance marketing channels or what kind of take them from that initial awareness to making purchases on our site.
And then sorry, and then with regards to the idea of Fei.
Yes.
Certainly I think had a big impact on some companies out there and it was something that we were.
No.
Ed mentioned is having a possible impact on a several quarters ago.
And we're pleased with how things have played out certainly theres been some impact on our side in terms of how it's affected our marketing many of those impacts.
Set one another.
And I think if you look at the Big picture in terms of when we're able to do to recruit customers and how we believe we have a better offering than the legacy players out there.
You know things like <unk> or more kind of blips along the road.
<unk> is an important part of our strategy and execution.
Your next question comes from the line of Matt Koranda with Roth Capital. Your line is open.
Hey, guys. Thanks.
Just wondering on <unk>, if you could unpack the key drivers of growth on a year over year basis in Q4.
It looks like my assumption would be mostly mix, but anything you can say it would be helpful. And then just in terms of approaching that prior peak, where you guys are at in like in 2017 around 300. It feels like we can eclipse that just with a better mix of forward revenue. So just anything you can say there on the trajectory of that will be used throughout the year would be helpful.
Yeah Yeah.
In the current quarter to your point number one mix where forward.
<unk> to outperform so theres some mix shift there number two is mix shift by category.
So within revolve seeing that dress mix tick up.
Year progressed and into Q4 more people going out and then even within dresses and within categories, just more kind of more going out kind of end use.
Products within each of those categories. So it's coming from a number of different places.
And then again that full price mix continued to be strong coming down from the Q2 peak, but still very strong on a year over year basis. So they look into 2022 would you expect <unk> to continue to increase.
For the same reasons really.
Number one that part makes important continuing to perform.
Number two for the full year of 2021, the dress mix with 25%. So it's still not at that kind of 30% pre COVID-19 level that we were at the <unk>.
Continued mix to your addresses higher price point items.
And then again continued shifts within categories as well.
I think we feel good about the <unk> growth coming from Aon EBIT more importantly from customers customer activity and just core growth in the business.
Your next question comes from the line of Roxanne Meyer with MK Partners. Your line is open.
Great. Thanks, Thanks for taking my question and congrats on an amazing fourth quarter.
My question is looking at the relationship between growth in active customers and orders placed P&L. If you look pre COVID-19 .
The growth rates were somewhat aligned you look at fourth quarter growth in orders placed was three times that of active customers and for the full year with double so I guess, what what's driving the growth in orders and in an outsized way and how should we think about that going forward.
Yes, let's get back to that trailing 12 months aspect of the Arctic customers. That's one one reason were.
The full year, we had those couple of months early on in the year still being dragged down in our customer growth really accelerated through the year.
And then you have this quarterly number of orders that was just phenomenal.
70%. So you have kind of an outsized order within a quarter compared to a blended active customer number over the course of the year.
So that's one reason and then I think.
Our customers given the going back to that retention rate than breaking records on retention of our existing customers tend to place orders more frequently and a higher average order value. So you do see some kind of order frequency element as the customers came back after.
Being quiet there during COVID-19 .
We're expecting that to continue into 2022 as well.
These customers at full price full price customers for us and historically performed much better than a markdown customer.
So feeling good as we head into the year.
As we are at the end of the call. Your last question is from the line is Susan Anderson with B Riley. Your line is open.
Hi, Alex leg on for Susan Thanks for squeezing us in my question was just related to the strong balance sheet and the cash balance that you've built up.
What are your thoughts on.
What to use that excess cash for how much is earmarked for current investments such as the D. C increased working capital usage thoughts on M&A any any guidance would be pretty helpful.
Yeah, Yeah. Thanks for that question.
And to your point feel really good about the balance sheet the strength the strength of the balance sheet, especially after coming out of the year like 2020 during the Covid. So to see that build is just phenomenal and we have been investing in inventory to so to have that cash balance on top of the significant investment in inventory to support. This most recent demand. We also feel good about.
So where does that cash go from here forward not as significant John cash due to Capex and we've been historically very capital efficient I touched on kind of fulfillment center expansion later this year and that that should be a very minor capex outlay.
Working capital and a significant needs there so that gets back to your third point of M&A. We continue to look at potential M&A opportunities were very.
Selective and disciplined and just continue to look at it more opportunistically over the long term and do what's right for the business.
Thanks, and just a follow up on the D C.
Do you have an estimate of potential cost savings if that instead of shipping everything out of West coast.
Do you have an east coast D. C is there a potential number on that.
None of us yes.
I would say that there's going to be.
Some minor disruption anytime you get a facility up and running so some call. It duplicate cost very short term and then over the very quick.
Quickly thereafter, having some offsetting efficiencies that's baked into that.
On that line item. So I think this is one way of battling some of those cost pressures that we're seeing and then more importantly might can double down on this just the customer experience.
So having that speed of delivery.
That's all the time, we have for questions today, I will now turn the call back to the management for closing remarks.
Alright, thanks, guys for giant.
Blowout quarter.
A special thank you to our team who needs to get better in everything that we do continue to improve continuing innovation.
Florida uncertain future is going to be challenges no doubt, but in these challenged.
The doors of opportunity for us So we're ready and excited for you guys next quarter.
This concludes today's conference call you may now disconnect.
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