Q1 2022 Revolve Group Inc Earnings Call

May 3, 2022

Good afternoon, My name is Abby and I will be your conference operator today.

At this time I would like to welcome everyone to revolves a first quarter 2022 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 on your telephone keypad.

If you would like to withdraw your question press the star one once again.

Thank you and at this time I'd like to turn the conference over to Erik Randerson, Vice President of Investor Relations at revolve. Thank you and you may begin.

Good afternoon, everyone and thanks for joining us to discuss with all first quarter. Two results before we begin I would like to mention that we have posted a presentation containing Q1 financial highlights to our Investor Relations website located at investors that revolve dot com I would also like to remind you that this conference call will include <unk>.

We're 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, including near term sales in greater China, our growth in market opportunities and related macro and industry trends and our plans to broaden our offerings, our plans to expand our operations footprint and the expected impact on delivery.

Our marketing investments and events, our seasonality pattern, our freight cost the convergence of year over year growth rates of the <unk> customers and net sales and our outlook for net sales gross margin operating expenses and effective tax rate.

These statements are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risk mentioned in this afternoon's press release as well it doesn't risks and uncertainties disclosed under the caption risk factors and elsewhere in our filings with the Securities and Exchange Commission, including without limitations, our annual report on form.

<unk> 10-K for the year ended December 31.

And our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors that revolve dot com.

We undertake no obligation to revise or update any forward looking statements or information, except as required by law. During our call. Today, We will also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow.

We use non-GAAP measures some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to 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 these measures there are limitations and rationale for using them can be found in this afternoon's press release and our SEC filings joining me on the call today are co founders and co CEO , Mike Carrel Nicolas in my commentary.

As well as Jesse <unk> our CFO .

Following our prepared remarks, we'll open the call for your questions with that I'll turn it over to Mike Hello, everyone. We started the year out strong with another incredible quarter highlighted by continued momentum across both segments in the first quarter of 2022, our net sales were $283 million or 58% increase year over year.

Very strong results further accelerated our multi year growth rate versus pre pandemic periods and underscore our team's ability to navigate through what continues to be a very challenging macro environment.

As founders we've been focused on profitable growth from day, one and this quarter was no exception continuing our long track record of delivering a unique combination of growth and profitability.

Net income was $23 million or <unk> 30 per share in the first quarter and adjusted EBITDA was $32 million, an increase of 35% year over year.

Cash flow generation in the first quarter was nothing short of incredible we generated a record $54 million in operating cash flow and $53 million in free cash flow and exceptional increase of 62% year over year for both measures further bolstering our already strong balance sheet.

Looking at net sales performance by geography, the U S was an incredibly strong increasing 66% year over year outpacing 28% growth in the international markets that faced a much more difficult comparison.

All international regions increased year over year highlighted by outstanding growth in Canada, and the U K, where we've made excellent progress with our localization initiatives late in the first quarter, we began to experience weaker trends in greater China. After COVID-19 restrictions negatively impacted consumer demand and logistics.

With the current state of affairs in the near term, we expect continued softness in greater China, which generated a low single digit percentage of our total net sales in the first quarter.

Now circling back to our consolidated results our results on a multiyear basis demonstrates just how much our business has strengthened during the past few years.

Consider that in the past three years, our net sales have more than doubled our adjusted EBITDA has nearly quadrupled and our free cash flow today is almost five X. The free cash flow, we reported in the first quarter of 2019.

Our results for the past several quarters demonstrate that we are gaining meaningful market share.

Our technology, driven DNA data driven merchandising operational excellence and digitally native approach has enabled us to connect in a very powerful and authentic way with the next generation consumer and provide us with even more opportunities to address more aspects of her life and capture more share of her wallet.

Our first quarter results offer encouraging indications of our progress for.

For instance, we added over 200000 active customers in the first quarter significantly exceeding our prior record achieved just three months ago.

Two quarters ago, I was thrilled that we added more than 100000 active customers for the first time and now we surpassed twice that amount.

Equally exciting is that our fast growing base of active customers is becoming more productive illustrating our success in capturing a greater share of wallet in fact for the trailing 12 months period net sales per active customer were $488, an increase of 17% year over year.

These exceptional results reinforced the path forward and the very large market opportunity. We are pursuing we're purchasing power has continued to shift in our direction.

Even with the recent growth acceleration, we still serve only 2 million active customers, representing what we believe to be just 3% penetration of our target demographic in the U S market.

The early stage of our expansion in the much larger global market opportunity, where the revolve brand translates across geography is what gives us confidence to keep the pedal down on our marketing and brand building investments our first quarter results demonstrate that our investments are working.

Our continued strength and consistent delivery of results also reflect our long term focus on building trust with our customer through our brand over the last nearly 20 years corner building. This trust is operational excellence and exceptional service levels.

We founded revolve with a laser focus on customer satisfaction is key to our long term success with this customer centric mindset from the outset, serving our customer incredibly well is consistent with an unrelenting organizational focus on the customer that is built into our DNA.

Our net promoter score once again remained at World class record level in the first quarter underscoring how much customers love our brands and value of our service levels and importantly, we are on track to begin operating our first east coast warehouse in the second half of this year, which we believe will even further raise the bar on our ability to delight customers with even faster.

Livery times for some of our key geographies haven't gained her trust we've been able to expand our revenue per customer through category expansion increased customer loyalty that has driven more orders per customer in recent periods and increased overlap between revolve and forward active customers.

Recall that approximately one year ago, we launched the fourth loyalty program that encourage cross shopping between revolve and forward.

This was followed by more cross marketing of the forward destination to revolve customers.

Each month since the launch we've expanded the overlap between revolve and forward active customers you have the overlap is still less than 5%.

This is particularly exciting considering that it forward average order value of around $650 every additional 1% overlap between revolve and forward active customers could drive more than $10 million in incremental net sales annually.

Over the longer term, we believe that the foundation of our team consistent delivery of operational excellence the strength of our brands competitive differentiation and customer loyalty will enable us to not only continue to acquire new customers and gain market share.

But also significantly broaden our offerings to serve more aspects of her life and.

And expand our share of her wallet.

Now over to Michel for an update on our exciting brand momentum. Thanks, Mike.

We are excited about the momentum in the business with a strong operations and service levels. The foundation, we kicked off the year with the marketing playbook that is back to full strength and driving incredible momentum in the business.

I'm so proud of the team's execution that delivered outstanding results in the first quarter.

Net sales growth and as our bulk segment increased 56% year over year segment highest fourth quarter growth.

Eight years forward.

We delivered <unk>, 71% growth in net sales year over year in the first quarter.

To deliver nearly 60% topline growth in an environment with inflation pressure supply chain headwind.

Lockdown and the warranty claim truly remarkable while the macro environment is challenged we see strong demand from our resilient consumer after Martin tiers. It's finally able to live her life to the fullest again after being on the sidelines for two years the constant effects.

Has come back strong leisure travelers.

Accelerated equal one and 2022 is expected to be the busiest critical even in nearly 40 years and all of these cases, our customer want to look and feel of our best as the go to fashion destination for millennial and Gen Z consumers on Clinton equipment matchup.

Operational lifestyle elements provide the integration. She is looking forward. We believe we are entering an exciting phase of growth and consumer engagement and we are investing in this opportunity to engage in this community and build on the solid and some of our bags.

After patiently waiting for most of the past two years, our in person micro events are trimming back and better than ever Istanbul February with exclusive home coming event held in Los Angeles During Super Bowl weekend that was attended by an unbelievable amount of investors.

Timing was perfect, yes to many including myself the time around the Super Bowl with a 20 point, but in personal social activities. The highly impactful event generated more than $2 5 billion Crescent version. We continued the momentum in March with the launch of a good American band on rebel an amazing event with co founders Kardashian and evergreen.

Attended by quoting Kardashian, Kendall Jenner Cabot slacker anymore.

Also in March we reopened to the bulk bushel club and experiential pop up retail concept to combine the retail store lounge Cafe bond Wellness center all into one along with credible backdrops for guests to share their experience. Unfortunately, yet.

The social club was open to the public enable our community experience to evolve Blackstone realized.

<unk> or stable or joining more than 20 actual event.

He'll lead to work out you can make a reasonable.

Over the course of approximately six weeks.

R&D footprint isn't VIP guests, including Kendall Jenner Kim Kardashian.

Okay.

And the crowd Winnie Harlow, Elsa Husky and Shay Mitchell just say Matthew.

Associated with highly effective in building excitement within our community and driving traffic to our site in the weeks, leading up to our flagship event from a ball festival.

Illustrate the consumer segment, but return us back book a.

Our sales generated from the <unk> portion of the <unk> Dot com.

We need to evolve more than doubled compared to the same period in 2019, when we lap the bulk of that.

So all of that.

The two year hiatus from the vault platform combined with our brand heat.

I believe building among millennial and Gen Z consumers and their incredible lineup of counterparty led to an overwhelming consumer demand and a robust festival at Barrick.

When guests arrive to revolve festival at exquisite written in lithium and that'll be the feedback with the people at the time of their lives.

In so many ways revolve festival with us.

<unk> ever had a musical lineup with an invite only crowd of around 2500 people was incredible featuring performances from post Malone Lotto tie dollars signing Willow Smith, Nicos <unk>, Scott and Jack Harlow was recently hit song debuted at number one on the Heartland Hydrogel Bar chart.

It was also really excited with the JAK Hollywood tied all of a sudden buying some of our latest thoughts on flood mentoring there Seth.

Yes.

The event with even more impactful than ever across several dimensions. The cabinets was incredible and a wide range of personnel.

Actors celebrity designers athlete.

Im Influencers and take Tungstite.

Notable VIP, even a technical Covid Kendall Jenner, Kim Kardashian, Kylie Jenner Hailey Bieber, Justin Bieber, Timothy Charlemagne catching the home policy, another Dicaprio giddy Tiger Noah back Peter to understand more.

When compared to our most people move off that 1090.

Hundreds more influencers and partnered with even more top tier consumer facing brands and could you quantify benmelech.

Brands are increasingly recognizing the power of a mall.

The high value of tapping into a strong connection with millennial and Gen Z consumers.

Yes.

With such an impressive halbrook performers attendees and partners generating impact far beyond the search interest for our revolve bandwidth higher during the week of revolve festival ever been according to Google checks.

This excitement around the kind of evolve basketball that resulted in demand for an incredible event in much higher than we anticipated.

Pat.

I, just thought that with temporary Gerry logistics challenges maintenance starts to have a market for.

Export capacity, causing longer wait times and.

And we've got some guests not being able to attend to basketball, we have reached out to all those to affect it to make it right and we believe we identified certain chevy avoids domestic that feature equally.

We believe our brand building investments will further strengthen our connection with the next generation consumer demonstrated by the very positive consumer engagement.

In the fourth quarter, we drove record quarterly growth and lack of customers by a wide margin and Charlotte's web sites and mobile apps increased significantly year over year monetization of this larger base of tactical <unk> continued to increase our paas.

13% increase in average order value year over year.

<unk> net debt to oil price.

We're spending more with us more aspects of their lives further validate the trust. We have earned that provides us more opportunity to deepen the relationship over time.

Encouragingly net sales across virtually all product categories increased year over year in the first quarter.

It's how we've expanded our customer relationships in recent years.

Active alpha is particularly exciting growth potential since our customer who is an active lifestyle increasingly to evolve integration.

We recently launched our first active on graph.

One strong vertical well being being well granted features.

Sustainable materials thoughtfully designed with upside in mind, and our advances our strategy to diversify our owned brand assortment continued category. We also have an opportunity to diversify our assortment to further expand our reach into our target demographic.

An exciting development with the recent launch of Colgate Kardashian size inclusive got American on behalf that I mentioned earlier specializing in premium denim with the right size ranges from <unk> to 'twenty six the lunch resonated extremely well with our customer and generate a lot of extend the brand continues to perform exceptionally well for us.

John .

Continuing on the inclusive of this team, we recently announced plans to create a sizable group collaboration for our own brands and content creator and sort of model than the beta launch of evolve.

The following 2022, and finally I'll provide an update on the new brand Ambassador program discussed on last quarter's conference call that Leverages, our proprietary technology.

Immunity to have an extension of our influenza micro strategy has proven to be a powerful driver of the business traffic from these initiatives increased to more than 80% in the first quarter compared to the fourth quarter of 2021.

It's early with abandon Bachelor program has already driven meaningful incremental engagement and generate a great deal of excitement caused ambassadors interested in gaining access to events.

Other parts of the program.

Vesting of Fedex men's brand about searching and finding innovations forward in the months ahead to wrap up I'm extremely proud of the outstanding results. We have achieved to date, especially over the last two years driving a time of disruption and volatility uneven.

Even more excited about the future we've had a very busy few months from a legal interests.

<unk> generated significant momentum over Jeff getting started we will continue to invest in marketing and building the brand and with our data driven approach operational excellence and very strong connection with the next generation consumer. We believe we are well positioned to further gain market share in the months and years that now I'll turn it over to Jacky for a discussion of the financials.

Thanks, Michael and Hello, everyone. We believe our first quarter results demonstrate the incredible momentum of our brands, our competitive differentiation and our focus on operational excellence I'll start by recapping. The first quarter results highlighted by exceptional top line growth and record growth in active customers for the third consecutive quarter.

Net sales were $283 million a year over year increase of 58% and an increase of 18% on a sequential basis from the fourth quarter.

Both segments contributed to our exceptional growth revolve segment net sales increased 56% and forward segment net sales increased 71% year over year in the first quarter.

From a merchandise standpoint, the dresses category further accelerated to nearly 150% growth year over year, demonstrating that our customers out again living a very active social lifestyle.

Owned brands as a percentage of revolve segment net sales also increased year over year for the second consecutive quarter.

Territory, both domestic and international markets contributed to the strong top line results.

Active customers increased by an exceptional 201000 compared to the fourth quarter of 2021 exceeding our prior record performance announced just last quarter.

This growth expanded our active customer count to $2 million, an increase of 38% year over year.

Looking forward since active customers is a trailing 12 month measure the comparisons become more difficult as our new customer growth.

Began to accelerate in the second quarter of 2021.

We continue to expect year over year growth rates of active customers and net sales to converge in the coming quarters as we cycle out of the Covid period that negatively impacted the trailing 12 months' measure for active customers.

And our customer was very active placing a record $2 2 million orders in the quarter, an increase of 68% year over year.

Average order value or <unk> was $288, an increase of 13% year over year that benefited from the strong growth in dresses and an increasing mix from the forward segment.

Shifting to gross profit consolidated gross margin was 54, 5% our best ever margin for our first quarter and an increase of 44 basis points year over year.

Moving on to operating expenses fulfillment, selling and distribution and marketing expense were generally consistent with our full year 2022 outlet commentary on these measures from last quarter.

We continue to drive very efficient resulted in fulfillment despite inflation headwinds on a year over year increase in our return rate.

As expected.

Distribution costs were a significant headwind year over year.

Higher return rates that came with the shift in mix back to dresses and other going out categories and higher shipping costs industry wide.

The increased oil prices have also driven incremental fuel surcharges further increasing shipping costs that comprise the majority of this line item.

For marketing, we continue to keep the pedal down on our investments to capitalize on the current momentum in our business. We are very pleased with the early results of our increased marketing investment and continue to believe that our in person marketing activations have a long tail and will continue to provide benefits over the long term just as they have historically general and administrative.

Constant dollar terms came in slightly higher than the Q1 outlook. We provided last quarter. Nonetheless are very strong topline results enabled us to achieve operating leverage as our 58% net sales growth outpaced the 35% growth in G&A expenses. During the first quarter income before income taxes increased 38% year over year, driven by the strong top line.

<unk>.

Our effective tax rates were very different for the year over year comparison, our tax rate for the first quarter of 2022 was 22% 28 points higher than the negative 6% tax rate in the first quarter of 2021 that included meaningfully higher tax benefits.

Net income was $23 million or <unk> 30 per diluted share flat year over year because of the meaningfully higher tax rate in the first quarter of 2022 that I just mentioned.

Adjusting for the differences in our effective tax rates between both years earnings per share would have increased 37% year over year.

We delivered adjusted EBITDA of $31 5 million, an increase of 35% year over year on top of a huge increase in adjusted EBITDA from a year ago.

Adjusted EBITDA has now nearly quadrupled in just three years when compared to the first quarter of 2019.

Moving to the balance sheet and cash flow statement, we had net cash provided by operating activities and free cash flow of $54 million and $53 million, respectively, an increase of 62% year over year for each measure.

The strong cash flow generation has further strengthened our balance sheet and liquidity, we remain debt free and cash and cash equivalents as of March 31, 2022, or $271 million, an increase of $52 million or 24% from just last quarter, and an increase of $88 million or 48% from a year ago.

Most impressive our cash and cash equivalents net of borrowings were more than 250% higher than just two years ago.

We are proud of our incredible results, especially considering the supply chain headwinds and uncertain macro environment that have dominated the headlines on a daily basis.

Our team has remained agile and focused on the customer throughout rising to the occasion to successfully navigate through these operating challenges.

Yeah.

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

Starting from the top through the month of April we have continued to deliver strong top line growth with a year over year growth rate of more than 30% that was achieved on a more difficult comparison than we faced in the first quarter.

Now as you think about modeling net sales growth for the full second quarter. It is important to keep seasonality and prior period comparisons in mind Rick.

Recall that our strong sales trends in April of 2021 continued into May and June of 2021, but the monthly growth rate in 2021 were skewed by the Covid dynamics of 2020.

We believe it is more informative to view that 2021 comps on a two year basis versus 2019.

To provide some context on a combined basis. The net sales comparisons we face in May and June of 2021 or more than 10 points higher than the April comparison, we faced on a two year growth basis versus 2019.

Also keep in mind that in light of the exceptional sequential sales growth of 18% from the fourth quarter of 2021 into the first quarter of 2022 that was significantly above the historical trend line. We expect the sequential growth from the first quarter of 2022 into the second quarter of 2022 to moderate versus historical pre.

Covid levels, such as 2019, we continue to expect the second quarter ending on June 30 to be the peak sales quarter for the full year and we expect year over year growth for the second quarter to exceed our long term target growth rate of 20% shifting to gross margin. We are very pleased with our gross margin performance that exceeded our Q1 outlook provided last quarter.

Despite continuing headwinds on inbound freight costs that remain significantly higher than pre pandemic levels.

We expect continued gross margin strength and expected gross margin in the second quarter of 2022 to be between 55% and 55, 5% improving sequentially from the first quarter margin of 54, 5% consistent with typical seasonality for the full year 2022, we continue to expect gross margin to be flat to slightly down.

Versus a record gross margin of 55% in 2021 for the reasons outlined last quarter.

We continue to expect fulfillment expenses of around two 5% of net sales for the full year 2022.

Which we view as very efficient among peers and gratifying considering the current inflationary environment and rising input costs.

Selling and distribution in 2022, we continue to expect selling and distribution cost to be around 16% of net sales, but we remain very cautious and are closely monitoring fuel surcharges from our carriers, which is a key driver of shipping costs that comprise the majority of this line item.

Marketing.

We continue to expect our marketing investment to remain approximately flat with the 2021 rate of 15, 8% of net sales as we keep the pedal down to fully capitalize on our current momentum.

With the return of our revolve festival bigger and more impactful than ever we expect the second quarter to represent the highest level of marketing investment of the year comprising at least 17% of net sales.

General and administrative we expect G&A expense of approximately $28 million in the second quarter and now expect the full year to be approximately $110 million at the high end of the previously provided range for the full year 2022, as we continue to invest to support our growth and expansion.

Lastly, let me touch on our tax rate.

Absent tax benefits in future quarters, we continue to expect our effective tax rate to be around 24% to 26%.

To recap we are incredibly excited about our outstanding start to the year.

With strength across segment and geography supported by a very loyal customer while mindful of everything going on in the world around us and the current environment, including continuing macro headwinds and geopolitical uncertainties. We remain focused on the customer and on the long term and we are investing in the business to build our brands and capitalize on the incredible growth opportunity.

Ahead.

Now, we'll 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 and we'll pause for just a moment to compile the Q&A roster.

And your first question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Thank you good afternoon.

I wanted to follow up on your comments around inventory.

It looks like Youre in good shape for Q2, but how do you that time any struggles getting inventory the need or are you seeing any logistical challenges with the more recent COVID-19 outbreak in China, and what's your outlook for inventory availability and levels going into the back half.

Definitely I'd like Mike Carroll quoted here, we feel really good about our inventory.

<unk> at the moment, we feel like we're well supplied certainly there has been challenges and we expect there to continue to be challenges.

For the back half of the year at the same time. This is really consistent with the environment. We've been doing over the past two years and we feel confident in our ability to execute and deliver results regardless.

Thank you.

Your next question comes from the line of Ana <unk> with Needham Your line is live.

Great. Thank you so much and good afternoon, guys and congrats.

We just wanted to follow up on the quarter to date trend.

And you said sales up the necessary should we think it's a similar dynamic like the last couple of quarters that forward is outpacing the growth of that revolve segment. What are you guys seeing with international business quarter to date just yet.

The macro and curious if you could talk about how you feel about the pipeline of in person events.

For QQ and thank you so much.

Yes, so with regards to revolve and forward, we feel really good about the trends in both businesses and they continue to perform strongly.

And then.

So it was the second part of the question.

Pipeline international quarter to date.

All of our international reporting on.

On a one year on a one year basis the international.

Not quite as strong as the domestic on a multiyear basis, we feel really good about.

National continues to perform well.

And with regard to the pipeline of events Youre feeling great that the world is opened.

We're back to full strength, our full range of capabilities and a full calendar and revolve festival is.

A large investment to begin the warm weather season, and there will be other interests and events in Q2, and then <unk> II will have similar scale events as revolve festival as we pursue the cold weather season. So.

Youll see a lot more of our customers will see a lot more of us and the rest of the year.

We will take our next question from the line of Mark <unk> with Baird. Your line is open.

Good afternoon, and thanks for taking my question.

The active customer productivity metrics have been pretty impressive I think $488 net sales per active customer on a trailing 12 month basis is it your expectation that these higher levels of productivity are sustainable I guess, the key drivers that you've outlined I think you have them on page six.

The slide deck.

Sound pretty structural but I am curious if there is a view that some pent up demand does that play here as well. Thank you.

Yeah, Hey, Mark this is Jesse yes, we're really pleased with the active customer growth this quarter again after several quarters of fairly robust growth.

<unk> said, we have commented in the past is that active customer growth number will start to come down as we kind of cycle out of those COVID-19 periods of Paas and active customer growth will converge closer to net sales growth.

But to your point structurally we anticipate and expect continued productivity from those customers.

One important driver there is that overlap between the revolve and forward customer in that forward customer <unk> being much higher than the revolve cut.

Customer <unk>, so we see a lot of opportunity there and structurally just really good momentum in terms of customer productivity retention across the board.

Thank you.

And your next question comes from the line of Seth Sigman with Guggenheim. Your line is open.

Hey, everybody I wanted to follow up on the seasonality of the business. I think you did say you expected higher revenue in Q2 than Q1, but not the same seasonal increase that you would typically see I guess when you go back to 2019 or other years is there a reason why we wouldn't see a similar 18% pipe.

Quarter to quarter growth rate was there a pull forward or anything else that we should be thinking about here.

Yes, no great question.

I wanted to call that out I think the main point here is that we just had an exceptional Q1 in that sequential growth coming out of Q4 of 'twenty one into Q1 of 'twenty two is phenomenal with at 18%.

You didn't see that back in 2019, so kind of balancing between the Q4 to Q1 and in Q1 to Q2.

And then just factoring in all of the uncertainty out there.

Wanted to provide some caution on that sequential growth, but still expect Q2 to be the seasonally seasonal high for the year.

And then.

About 30% growth in April so in Q2 to Q2 to date performing well.

And your next question comes from the line of Michael Binetti with Credit Suisse. Your line is open.

Hey, guys. Thanks for taking our question here I had one similar to staff I guess, if we look on a three year basis to the pre pandemic period that Mike spoke to I guess, the 30% that you're pointing to in April as you know.

Maybe a 15 point slowdown.

<unk> versus <unk> I don't know why why it would slow it seems like demand is very strong in the quarter and then to SaaS question.

Maybe it does seem like recent data points are a little more indicative of the demand environment and going back to all the way to think about what the world does.

<unk>.

I guess.

It seems to me the categories you want to work our working.

Festivals.

Well I'm just wondering what you think we should think about seasonality different beyond <unk>. If there is any kind of anything specific you can point to a <unk> multiple on its been pent up demand.

Niche that you think slows or anything like that.

Yeah, Yeah I think.

The three year is the is the most appropriate way to look at it you know going back to 2019, which is the most recent kind of quote unquote normal period that we had and more similar to 2021 with festivals and bolt or sorry, 2022 with both to the festivals in both years.

Difference being we had a lot of activity early on in the current year, starting with the Super Bowl and then heading into the Social club, which then lead into festival, where a little bit lighter in 2019 and that Q1 period. So there is some.

Seasonal shifts.

Within the quarter and into April .

But again, it's really tough to call and kind of what's going to happen out there. So we're cautious but is still really excited with the performance thus far.

And Jesse can I follow that.

I'd be curious.

You came in revenue is about 30%, sorry, 30 million above where consensus was in the first quarter EBIT of about $3 million of Bob is yes.

Should we should we think about.

Incremental margins there doesn't a year, if we do track above the revenue.

The revenue trends in the consensus models, how should we think about flow through is it similar to what we saw in first quarter would you say you pulled forward some marketing or anything like that to go big on the first of all test in a few years any help there would be helpful.

Yeah, I wouldn't factor in too much incremental flow through.

Looking ahead in.

In Q1, we didnt feel the full.

Full pressure from inflation fuel surcharges costs et cetera return rate was also just.

<unk>, increasing as people starting to get back out and started buying dresses again, so I think we'll see some of those pressures continue and it's still uncertain out there.

What freight charges fuel surcharges due for the balance of the year and inflation and everything else thats in the headlines.

You know again phenomenal quarter.

We continue to invest in the marketing and then continue to pace those cost pressure so.

Yes, I wouldn't factor too much incremental flow through.

As you look in the back half of the year and then G&A we mentioned.

Being at the higher end of that range for the full year.

Okay. Thanks for the detail appreciate it.

And your next question comes from the line of Lauren Chung with Morgan Stanley . Your line is open.

Great. Thanks for taking my questions.

Similar question as some of the others to put on the gross margin line. The first quarter gross margin better than than expected wondering why perhaps we shouldn't assume that that flows through to the full year.

You know relative to your comment that.

Still expecting flat to down slightly for the full year and then as a.

Part of that how are you thinking about promotional environment.

For the industry more broadly through the course of the year.

Yes, yes, gross margin performed really well again, this quarter and and really driven by continued full price strength.

Again really strong this quarter as we've seen in the last several quarters and that helped to help through Q1.

Did see slightly higher markdowns within that markdown mix.

Smaller portion of course, but we did see some offset there and then back to the plus side. Our owned brand mix did increase and those products performed really well in Q1. So recall that we were in at a 20% mix in 2021, so that increased slightly an increase from the exit rate that we're at in 2021 as well, although I think.

Great margin performance for holding the full year outlook. There is we do anticipate just natural inventory flow through that that full price markdown or a full price mix will come down.

That markdown margin will come down as well just naturally.

But great performance in Q1, thus far.

And then the promotional environment, we're not seeing anything too dramatic out there I think there's maybe brand by brand some incremental promotion, we're not really.

<unk> focused on.

Trying to compete there.

Maintain our cadence in.

Watch the inventory flow through.

And velocity.

Thank you.

And your next question comes from the line of Camilo Lyon with BTG. Your line is open.

Thanks, very much good afternoon guys.

On the return rates it looks like you got back to that 2019 level in that 64% range.

But then in 19, two really does start to kind of decelerate going into the back half of the year is that the right way to think about how the return rates should unfold for the balance of the year.

Yes, generally that's historically, that's what we've seen you see the full price mix and kind of drag.

Dressmaker hitting a peak in Q2 with just as having a higher return rate full price, having a higher return rate. That's why you see the peak in return rates and then it starts to come down.

For the balance of the year in the past I think we should.

Assuming a consistent making consistent seasonality, we should see something similar different though is over the last three years, we've layered on.

Almost 10 countries, maybe more with the all inclusive pricing free shipping free returns internationally.

Meaningful increase in return rates internationally.

Have any impact this year that wasn't there back in 2019, so that if you look at the return rate comparison, this year versus 2019 and that incremental call. It point, maybe a little bit north of a point.

Largely due to international.

And those customer service initiatives that we've been layering in and then also the other component. There is full price. If you look at just domestic and normalize for that full price mix actually saw return rates ticked.

Ticked down just very slightly but back to your main question I think it depends on the mix.

And both in terms of full price and address mix.

And what that does to your churn rate for the balance of the year.

Super helpful. Thanks, Jesse and then just one final question.

On your <unk>.

So if we kind of unpack.

The metrics underneath when you provided today and think about the.

Consumers purchasing behavior are you seeing any signs of a pullback on spend whether its basket size or a trade down in and price of goods. So she normally would have bought anything just signaled that there is some inflationary pressure that's impacting your purchase behavior.

Just speaking considering Q1 kind of results to date, we're not you can see it.

At $288.

I think it is a key one high record.

We're seeing the orders per customer checking really well.

So just kind of across the board purchase frequency the types of products.

Dresses is coming back in a really big way and then even within dresses.

Special occasion, and kind of going out type dresses.

Not really seeing and we see that continued overlap between the revolve and forward customer continue.

Continue to increase.

Kind of her even moving up the chain a little bit.

In terms of <unk> and and purchasing.

Not yet not to say that won't change, but so far so good.

Hey, Thanks for the color good luck.

And your next question comes from the line of Oliver Chen with Cowen Your line is open.

Hi, Thank you the average order values were impressive going forward what are your thoughts on that dynamic as it applies to dresses and door mix and second as we think about new customers.

What are your thoughts on retention and retention strategies I also noticed that you increased performance marketing with IBSA and new customers just would love some color on why and why that made sense and finally on the more markdowns are.

Are there implications for how you are planning inventory given that you have slightly deeper markdowns I know you're up against a lot of very.

Very full price selling thank you.

Yes, maybe I'll take the first the first and last one on the <unk>.

And then the inventory and together to make for the idea of FA performance marketing stuff. So yes.

This is largely.

Largely dependent on what makes does in terms of dresses and full price again full price continues to check we do expect that just makes to balance out over the course of the year, especially in the back half of the year just typical seasonality.

We expect continued strength on on that <unk>.

Again really strong full price and then calling out that forward revolve customer overlap again.

With forward having.

Two plus ex AOE, then then revolve.

And on the inventory.

Instantly balancing inventory.

And when I say, the markdowns were slightly deeper on that Mark down. It was it was slightly and it was natural unexpected. So I don't think that has changed anything in terms of how we're planning inventory for the balance of the year.

We did stock up ahead of the increased demand and felt really good coming out of last year and into this quarter.

Able to support that robust demand we saw in Q1.

Yes.

Okay, sorry about that yes.

And then with regards to <unk> I mean, it's certainly been an industry headwinds.

We generally have been impacted by a less than others due to our very diversified marketing mix brand marketing, obviously has been very strong for us word of mouth being a huge source of customer acquisition.

But it's certainly something that has an impact.

From quarter to quarter, we're going to see some volatility between the various channels that we market in.

Okay and lastly, it looks like private label has had seen some really good momentum how do you feel about the capabilities you have there and what we should know relative to the Paas and <unk> also curious about super down <unk> <unk>.

Lower average unit retail strategies forward is really doing excellently, but as you think about broadening to lower price points is that in your radar as well thanks a lot.

Yeah, Hey, Michael Mente, Tahira, Hi, Oliver.

Yes.

Capabilities over the past two years, obviously pulling back on and accelerating it again, having an incredible quarter and moving forward, there's only a big diversity of capabilities and owned brands cost pipelines across fabrications across end uses.

As we thought a SaaS quarter lots of active which is going extremely well and you'll see a lot more things in that nature diversified offering we've been already classically grade that something's going out categories like dresses and such and really seem to the consumer not just throwing bandwidth across the board what the shopper broader selection for us not just going out and the festivals and travel.

The pandemic at home active beauty and just the range across the board so diversity across the board without which we think ultimately going back to an earlier question long term wise. We are really optimistic that we can really increase productivity per consumer as you have this broader offering and of course through our integration with forward handbags shoes, and accessories and all of that.

When it comes down to low priced capabilities are strong there, but we think that's a greater opportunity over the long term.

In our core as well as continuing to move up market. I think there is an appropriate balance of low priced product that we have and I think we're calibrated quite well, but I think it's important for us being a premium brand with a real white space.

And our core price points, and we think that there is a lot of opportunity to continue to migrate that core price point up over time so.

Anticipating anymore.

<unk> ratio at that low price product in the future.

And your next question comes from the line of Matt Koranda with Roth Capital Partners. Your line is open.

Hey, guys. Thanks for taking the questions.

Been asked and answered, but just wanted to cover the loyalty program and just whether you could comment on the cross pollination between forward and revolve.

This latest quarter.

Just I think in the past you guys have quantified active customers.

Buy from both Florida, and a revolver. So I'm wondering if you guys could update on that front and then just any benefits that you see coming from all the events that you are able to hold.

<unk> and the rest of this year from that loyalty program.

Yes. It continues to be a huge success for us and it's really more of the same of what we've been seeing where we're continuing with each passing month the increase.

The percentage of active customer overlap between revolve and forward.

I think we last disclosed it's less than 5% of the business, it's still less than five but if it is starting to get a lot closer to that number.

We think long term the opportunity is huge we think the vast majority of revolve customers shop products, but forward carriers and so we're just excited to keep driving that number month after month quarter after quarter and the loyalty program is a big driver of that.

Okay.

And your next question comes from the line of Tom Nick <unk> with Wedbush Securities. Your line is open.

Okay.

Hey, good afternoon, guys. Thanks for taking my question.

I wanted to follow up on the gross margin sorry, if this was.

I mentioned already earlier, but.

There was a disparity between the year over year changes in gross margin between revolving forward I think revolve was up about 100 basis points looking forward was.

Down about <unk>.

Over 100 basis points.

Can you help us understand why.

The disparity between the two segments.

Yes.

Yeah, Hey, Tom This is Jesse.

It's really about inventory timing and foreign accelerating faster than revolve last year. If you recall last Q2, we had a phenomenal quarter for our forward. So kind of heading into that you had had higher full price and then kind of transitioning faster on the forward segment than it is the revolve segment, but still really strong on both fronts.

<unk>.

Got it.

If I could ask one more.

You mentioned the pop up store that you did the.

Revamped social club.

Honestly, you're doing great online.

But.

I wonder if.

Or is this kind of like a sign that you think that maybe having more of a physical presence right would.

Would be beneficial and maybe we will see more of these pop up store events.

Yes, the pop up store events are kind of great. They really give us an opportunity to get in front of a consumer they give us great opportunity to engage with the community.

There's a great opportunity to experiment with retail concepts and such so we learned a lot.

All social club and I think that we further iterations in the future I think.

On top of can easily be incorporate into <unk>.

A number of our future events you know for example that revolve ethanol theres no pop ups are and I think that.

On the right way it could be in a very incremental additive component and with future events as well so and we've done things in times past that we continue to learn and we will definitely see experimentation and continued evolution of what we're currently doing.

And your next question comes from the line of Jim Duffy with Stifel. Your line is open.

Thank you good afternoon.

Terrific growth in the active customers I recognize this is hello.

<unk> 12 month metric, but can you comment even directionally on the composition of customers net new to the data file versus the Reengagement of those who may have lapsed during the COVID-19 influence period.

Yes, this quarter was really both.

And I know, it's very general to say that but it certainly was both new and.

And and repeat customers.

We saw more.

Kind of recovering from that relapsed customer over the past couple of quarters before we got to Q1. So those customers have kind of already come back, but what you have seen is that and this is true historically as well that full price customer performs really well for us over a lifetime and with the robust full price sales mix that we've had over the over the last four plus quarters.

Seeing really great retention coming out of that 120% retention that we saw in 2021.

Great.

Sorry, yes.

Go ahead please.

Q1 2022 Revolve Group Inc Earnings Call

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