Q3 2024 Revolve Group Inc Earnings Call
Good afternoon, my name is Julianne and I'll be your conference operator today. At this time I would like to welcome everyone to revolve third quarter 2024 results conference call.
All lines have been placed on YouTube for that any background noise. After the speakers remarks, there will be a question and answer session. If you'd 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 questions, press star one again. Thank you.
Speaker Change: At this time, I would like to turn the conference over to Erik Randerson, both President of Investor Relations at Revolves. Thank you, you may begin.
Erik Randerson: Good afternoon everyone and thanks for joining us to discuss revolts third quarter 2024 results. Before we begin, I'd like to mention that we have posted a presentation containing Q3 Financial Highlights to our investor relations website located at investors.revolved.com.
Erik Randerson: I would also like to remind you that this conference call will include poor looking statements. Including statements related to our future growth, our inventory balance, our key priorities, an operating and innovation initiative.
Industry trends are marketing events and impact, our partnerships and strategic acquisitions, our physical retail stores, and our outlook for net sales, gross margin, operating expenses, and effective tax rate.
Erik Randerson: These statements are subject to various risks and certainties and assumptions that could cause our actual results to different materialy from these statements, including the risk mentioned in the Saxon Youth Press release, as well as other risks and certainties disclosed under the caption, risk factors in elsewhere and are finally with the Security's Exchange Commission.
Speaker Change: including without limitation or any report on Form 10K for the year ended December 31, 2023, and our subsequent quarterly reports on Form 10K. All of which can be found on our website at investors.revolved.com.
Speaker Change: We undertake no obligation to revise or update any forward-looking statements or information except is required by law.
Speaker Change: During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results.
The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information 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-GAP measures to the most directly comparable GAP measures, as well as the definitions of each measure, their limitations and our rationale for using them, can be found in this afternoon's press release and in our SEC filings.
Erik Randerson: Joining me on the call today are co-founders and co-CEOs Mike Karanikolas and Michael Mente as well as Jesse Timmermans, our CFO.
Following our prepared remarks, we'll open the call for your questions.
With that, I'll turn it over to Mike.
Mike Karanikolas: Hello everyone and thanks for joining us today. We delivered an exceptional third quarter highlighted by double-digit top-line growth, a significant increase in net income year-over-year, and a 250 basis point increase in our adjusted EBITDA margin year-over-year.
Contributing to the significant growth and profitability was better than expected logistics cost efficiencies, helped by a meaningful decrease in our return rate, as well as impressive marketing efficiency that also outperformed our guidance, which more than offset a slight decrease in our gross margin year-over-year.
The fourth quarter is also off to an encouraging start with total net sales in October increasing in the low double digits year-over-year supported by year-over-year growth in both segments of the business and across both domestic and international.
Most importantly, we achieved these very strong financial results while continuing to invest in a wide range of initiatives that we believe set us up well for profitable growth and market share gains over the long term.
Speaker Change: With that introduction, let me step back and provide a brief recap of the third quarter.
Speaker Change: Net sales were $283 million, an increase of 10% year-over-year, driven by improved year-over-year trends across both segments and geographies, relative to our comparisons in the second quarter of 2024.
Net sales in the Revolve segment increased 12% year-over-year, our best performance in more than two years. Net sales in the Ford segment also improved to nearly flat year-over-year, helped by a solid exit rate that has continued in the month of October.
Speaker Change: Net sales in the fashion, apparel, and dresses categories rebounded strongly to 13% and 10% year-over-year growth, respectively, serving as key contributors to our growth reacceleration.
These results benefited from outstanding wins in product merchandising in these core categories that Michael will speak to in his remarks.
Speaker Change: The growth in net sales was further supported by our underlying key operating metrics highlighted by growth in active customers.
Speaker Change: Trailing 12-month active customers increased by 51,000 during the third quarter, almost double the increase in active customers achieved in the second quarter of 2024.
Speaker Change: Net income for the third quarter of $11 million, or $0.15 per diluted share, was meaningfully higher than the $3 million in the prior year quarter.
Adjusted EBITDA was $18 million, an increase of 85% year-over-year, with a 250 basis point expansion of our adjusted EBITDA margin.
Beyond the numbers, I'm excited by our team's execution that has led to continued great progress on the strategic priorities we have outlined on prior calls.
Here are some of the key highlights since our update last quarter.
First, I'm thrilled that we delivered significantly greater efficiencies in our logistics costs year-over-year than last quarter, contributing to our strong growth and profitability in the third quarter.
Expressed as a percentage of net sales, selling and distribution expense decreased by more than 200 basis points year-over-year, and fulfillment expense decreased approximately 30 basis points year-over-year. These impressive results are being driven by successful execution on two important priorities.
Speaker Change: We continue to make outstanding progress across many initiatives designed to drive efficiencies within our global shipping and logistics operations.
Even more exciting, during the third quarter, we achieved incredible further progress on our efforts to reduce our return rate. In fact, our return rate decreased year-over-year during each month of the third quarter, and by a larger magnitude than the slight year-over-year decrease achieved in the second quarter.
Speaker Change: As an illustration of our success, total freight costs for customer shipments and returns decreased by a high single-digit percentage in the third quarter, despite a 3% increase in the number of orders placed and a 10% year-over-year increase in net sales.
These metrics provide an indication of the compelling financial benefits we hope to realize from reducing our return rate further over time.
Speaker Change: Importantly, we achieved a lower return rate in the third quarter through many efforts that further elevate the customer experience. For instance, a size and fit initiative we are testing has resulted in a noticeably lower return rate while also driving a meaningful lift to the conversion rate.
Speaker Change: It is a great example of a win-win scenario in that for Revolve, the initiative helps us to generate increased revenue at lower costs. And for our valued customers, the improved size and fit information enables us to even further elevate the overall shopping experience.
Second, we remain committed to efficiently investing to expand our brand awareness and further strengthening our connection with next generation consumers. We delivered another very strong and efficient quarter with increased customer acquisition and reduced acquisition cost driven by year-over-year efficiency gains across performance and brand marketing channels.
Speaker Change: In fact, it was our most efficient third quarter for marketing investments in four years, based on our marketing investment calculated as a percentage of net sales.
Speaker Change: Of note, one contributor to our marketing efficiency in the third quarter also provides a dual benefit of contributing to our reduced return rate. In recent months, we've begun to leverage our extensive internal data to optimize our marketing efficiency by including within our algorithms an understanding of our customer purchase and return behavior.
Speaker Change: This initiative provides a powerful illustration of the competitive advantages of our data-driven approach to nearly all aspects of our business.
Speaker Change: Third, we successfully expanded our international presence in the third quarter with net sales from international markets increasing 20% year-over-year. Net sales increased across all major regions and benefited from recent marketing innovations that have exceeded our expectations and further elevation of service levels overseas.
Speaker Change: The great progress we have made to improve the international customer experience in recent years now allows us to confidently invest marketing dollars to drive profitable growth in key international markets.
Speaker Change: And lastly, we continue to leverage AI technology to drive growth and efficiency initiatives across the company, including e-commerce operations, marketing, and customer experience.
Last quarter I talked about how our internal team of data scientists developed and launched into production on our forward website an internally developed AI search algorithm that meaningfully outperformed the incumbent retail search platform developed by a large third-party technology company.
Speaker Change: I'm excited to share that our internally developed AI search algorithm also tested exceptionally well on our flagship Revolve site and was recently launched into full production on Revolve.
Speaker Change: We estimate that our AI innovation will deliver incremental revenue in the seven figures on an annualized basis at a much lower operating cost than using third-party technology solutions.
Speaker Change: Another recent AI development that we are excited about is our internal development of AI algorithms that are able to better evaluate our products for marketing purposes and expand our marketing reach. Our team developed the AI innovation from concept to A-B testing in just a few weeks during the third quarter.
Speaker Change: Most exciting is that early results show that our AI algorithms can deliver a meaningful boost in both revenue and efficiency for one of our largest performance marketing channels, all at a very low operating cost.
Speaker Change: To summarize, we believe that our improved results on the top and bottom lines are a direct outcome of our team's strong execution on our strategic initiatives. I'd like to thank all of my Revolve colleagues for their incredible contributions that have driven the business forward this year and strengthened our foundation for future growth.
Speaker Change: We are firmly on offense, and as always, we are focused on testing, learning, and iterating our way towards continued improvement in all aspects of our business. We still have a lot of work to do, yet I feel great about our progress and current momentum in the business.
Speaker Change: Michael will now talk in his remarks about investments in our brands and many growth opportunities that we are very excited about.
Michael Mente: Thanks, Mike, and hello, everyone. I am very proud of our top-line and bottom-line results for the third quarter, highlighted by a seven-point improvement in net sales growth relative to our year-over-year net sales comparison in the second quarter of 2024.
Michael Mente: The clear takeaway is that our strong Q3 results are a result of our execution on key growth and efficiency initiatives, in spite of the many challenges in our operating environment today.
Michael Mente: Our hard work has enabled us to drive revenue and reduce costs through a wide range of notable wins, including the in-house AI innovations Mike mentioned, reducing our return rate in ways that actually elevate the customer experience, and expanding sales internationally through continued investment and focus.
Michael Mente: I would also like to speak about incredible broad-based gains in our merchandising and site experience that have been key contributors to our growth.
Michael Mente: Notably, site merchandising innovations relating to the showcasing of our merchandise assortments performed very well and contributed to the much improved growth in fashion apparel and dresses in the third quarter. By leveraging AI technology across e-commerce applications, we have made it easier and more intuitive than ever before for our customers to search our site and navigate through broader categories such as dresses, improving product discovery for the customer.
Michael Mente: More than ever, we are also driving increased conversion by leveraging data to optimize the products we merchandise on specific channels to maximize revenue across mobile, desktop, and social. And by servicing more relevant products to our customers, when and where they are most likely to engage, we have created an even better shopping experience.
Speaker Change: We also recently delivered an impactful upgrade to our global site navigation, meaningfully improving engagement metrics by servicing the most relevant products of the greatest interest to our customers. I'd like to thank the merchandising product teams for their great work this quarter, and I'm excited to see what they can deliver going forward.
Speaker Change: The merchandising gains are not just limited to the site. In the third quarter, we also achieved improved consumer engagement and revenue from the email channel, also by leveraging technology and data in innovative ways. It was our best third quarter performance for email metrics since 2021, but the consumer spending backdrop was in a much better place.
Speaker Change: We believe these gains illustrate the strength of our brand connections with the next generation of consumers, particularly in the current economic environment.
Speaker Change: I'm also pleased with our recent progress in own brands, a key differentiator of our assortment. In the third quarter, own brand net sales increased year-over-year for the first time in almost two years, helped by the outstanding results from our recent launches.
Speaker Change: Our Girlfriend-owned brand generated headlines when Taylor Swift was spotted looking stylish while wearing girlfriend denim in front of an audience of tens of millions of television viewers at a recent Kansas Chiefs game.
Speaker Change: Most important, the success of our recent launches and strength in key underlying brand metrics gives us confidence as we invest into several exciting launches for Pampa 2025, including collaborations with incredible talent in the re-planned launch of Alexandre Bautier brand and DDC site that we acquired on our earnings call last quarter.
Speaker Change: Speaking of investing, I'm thrilled that we have another efficient quarter for marketing and investment, even while we continue to push the boundaries and exciting new ways to build our brands and drive deeper connections with next-generation consumers.
Speaker Change: I'll now provide a recap of marketing and brand building investments that I'm excited about.
Speaker Change: We hosted a New York Fashion Week activation to celebrate our launch of style icon and media personality, Morgan Stewart's Wengley brand on Forward. Wengley is one of the hottest fashion brands around right now, and Forward is the first and only retail distribution partner where the Wengley brand is available for sale. The brand has sold incredibly well on Forward in the early going.
Speaker Change: We had a highly successful retail activation in Dallas in partnership with Cotton in September. This was our first ever pop-up shop in Texas and a great way to engage in real life with our growing customer base in the Southwest region.
Speaker Change: Retail sales of our merchandise were outstanding, reinforcing the exciting growth potential in physical retail.
Speaker Change: We announce our first ever global brand ambassador for Revolve, international sensation Jeon Somi, one of the most popular female K-pop artists.
Speaker Change: We have launched our first ever global campaign that showcases our iconic styles of fashion trends, etc. We will also introduce a merchandise collaboration to align with your new music in 2025, that we expect will resonate with our expansive and passionate Gen Z audience that includes more than 20 million social followers on Instagram, TikTok, and YouTube.
Speaker Change: Lastly, we executed an impactful marketing activation with NBA legend Dwayne Wade that generated excitement and favorable awareness for our forward man and revolve man brands.
Speaker Change: We co-hosted the Miami event to celebrate the unveiling of a bronze statue for the Hall of Famer's illustrious career with the Miami Heat.
Speaker Change: You can see that we've been active in engaging with the customers through our dynamic marketing playbook. We intend to keep the pedal down and invest in the large runway ahead of us for years to come.
Speaker Change: Now, I will conclude with an update of our exploration of physical retail as a future growth opportunity.
Speaker Change: As announced last week, we are opening an exclusive and limited-time Revolve Holiday Shop at The Globe in Los Angeles, a high-end retail and entertainment destination that is the second most productive shopping center in the United States. Our Holiday Shop will remain open through the holiday season until January 5, 2025.
Speaker Change: On the heels of our incredible holiday season success in Aspen last year, we are thrilled to showcase our revolving forward brand within the most visited holiday shopping destination in Los Angeles. A prime location in the center of the action positions us to maximize consumer awareness for our brand, acquire new customers, and generate sales.
Speaker Change: And in true Revolve fashion, we have an exciting set of marketing events planned for the holiday shop involving our expansive community of brands, influencers, and celebrities.
Speaker Change: We believe that activations will create an even further excitement for the revolving floor brands while driving increasing consumer engagement.
Speaker Change: We are confident the Revolve Holiday Shop will strongly resonate with our loyal community and even further strengthen our connection with next-generation consumers. Equally exciting, we have also entered into a long-term lease to open a flagship retail store in Los Angeles within a very desirable location.
Speaker Change: We expect to open our stores by mid-2025. The learnings we will gain from operating our Revolve holiday shop at The Grove will undoubtedly help us prepare for a successful opening of our permanent retail location in Los Angeles next year.
Speaker Change: We have built an incredible brand that we continue to believe can translate to physical retail, and the opening of our flagship store in Los Angeles next year will be an important proof point in our physical retail journey.
Speaker Change: The proximity of our home base of Los Angeles provides compelling benefits. Virtually, our entire leadership team is based here in Los Angeles, along with our Primary Fulfillment Center, creating meaningful operations and logistics efficiencies.
Speaker Change: For instance, we plan to drive foot traffic and provide elevated service to our customers by encouraging them to return items purchased online to the store and to pre-select items for our website to try and for free in the store.
Speaker Change: We will provide more details on our next earnings call as we get closer to the launch date.
Speaker Change: To wrap up, we are very pleased with the momentum in our business and excited about the many initiatives underway that we believe will continue to drive growth in the months and years ahead. Rest assured, we will continue to invest, innovate, and aggressively pursue the significant market opportunities that lie ahead. Now I'll turn it over to Jesse for a discussion on the financials.
Jesse Timmermans: Thanks, Michael, and hello, everyone. I am very pleased with our third quarter, highlighted by a return to double-digit net sales growth, significant expansion of our profitability year over year, and great progress on operational initiatives that lay the foundation for profitable growth in the future.
Jesse Timmermans: I will start by recapping our third quarter results and then close with updates on recent trends in the business and our outlook for gross margin and cost structure for the balance of the year.
Jesse Timmermans: Starting with the third quarter results, net sales were $283 million, a year-over-year increase of 10%.
Jesse Timmermans: We delivered meaningfully improved top-line results across both segments and geographies.
Jesse Timmermans: Revolve segment net sales increased 12% and forward segment net sales were essentially flat year over year.
Jesse Timmermans: Domestic net sales increased 7% year-over-year, and international net sales increased 20% year-over-year.
Jesse Timmermans: Active customers, which is a trailing 12-month measure, grew to 2.6 million, an increase of 5% year-over-year.
Jesse Timmermans: Total orders placed were $2.2 million, an increase of 3% year-over-year.
Jesse Timmermans: Average order value, or AOV, was $303, an increase of 1% year-over-year.
Speaker Change: Consolidated growth margin was 51.2%, a decrease of 56 basis points year-over-year. In an otherwise exceptional third quarter, growth margin is the one key metric that underperformed our prior expectations.
Speaker Change: primarily due to deeper markdowns than we had modeled. We understand the underlying dynamics and of course corrected, setting us up for a return to gross margin expansion in 2025.
Speaker Change: Let's shift to operating expenses, a source of meaningful operating leverage in the third quarter. We delivered better-than-expected operating expense efficiency across each of the four line items that we guide to each quarter.
Speaker Change: Fulfillment costs were 3.3% of net sales, a decrease of 29 basis points year-over-year.
Speaker Change: Selling and distribution costs were 16.9% of net sales, a decrease of 206 basis points year-over-year, and outperforming our guidance by approximately 140 basis points.
Speaker Change: This impressive result reflects outstanding execution by our teams to drive efficiency in our logistics costs, and a decrease in our return rate year-over-year for the second consecutive quarter.
Speaker Change: Our marketing investments were 14% of net sales, a decrease of 141 basis points year-over-year, driven by efficiencies in both performance marketing and brand marketing.
Speaker Change: General and administrative costs were $33.9 million, approximately $1.6 million lower than our outlook, as the timing for certain investments shifted into the fourth quarter of 2024.
Speaker Change: We continue to invest in a variety of exciting initiatives, such as exploration of physical retail, AI technology, and own-brands expansion, all of which support our long-term growth opportunity.
Speaker Change: Our tax rate was 26% in the third quarter, consistent with the prior year and within our expected range.
Speaker Change: The increased net sales and gross profit year-over-year, the improved marketing efficiency, and the outstanding progress-driving efficiencies in our logistics costs result in impressive growth on the bottom line.
Speaker Change: Net income grew significantly to $11 million or $0.15 per diluted share from $3 million or $0.04 per diluted share in the third quarter of 2023. Note that the prior year comparison included non-routine costs of $5 million net of tax for a settled legal matter.
Speaker Change: Adjusted EBITDA was $18 million, an increase of 85% year-over-year. For the first nine months of 2024, adjusted EBITDA increased 47% year-over-year.
Speaker Change: Nine months into 2024, we have already surpassed our net income and adjusted EBITDA results for the full year of 2023.
Speaker Change: Moving on to the balance sheet and cash flow statement. Net cash generated by operating activities was $9 million, and pre-cash flow was $6 million in the third quarter, which further strengthened our balance sheet, although these metrics were lower year-over-year.
Jesse Timmermans: Inventory at September 30, 2024 was $240 million, an increase of 18% year-over-year that outpaced our 10% net sales growth.
Speaker Change: In the coming quarters, we expect growth in our inventory balance year over year to converge more closely with net sales growth, which should have a favorable impact on our cash flow generated from operations.
Speaker Change: As of September 30, 2024, cash and cash equivalents on our balance sheet were $253 million, an increase of $8 million from the second quarter of 2024, and we have no debt.
Speaker Change: Our strong financial position gives us the capacity to continue to invest in the business while opportunistically evaluating strategic M&A and repurchasing Class A common shares to enhance shareholder value.
Speaker Change: During the third quarter, we repurchased approximately 118,000 Class A common shares at an average price of $15.67.
Speaker Change: Approximately $58 million remained under our $100 million stock repurchase program as of September 30, 2024.
Speaker Change: Now, let me update you on some recent trends in the business since the third quarter ended and provide some direction on our cost structure to helping your modeling of the business for the fourth quarter and full year 2024.
Speaker Change: Starting from the top, our strong top-line performance has continued into the fourth quarter, with net sales in October 2024 increasing by a low double-digit percentage year-over-year, with year-over-year growth across both segments and geographies.
Speaker Change: Shifting to gross margin, we expect gross margin in the fourth quarter of 2024 of between 51.2 and 51.5 percent.
Speaker Change: which implies a decrease of 65 basis points year-over-year at the midpoint of the range.
Speaker Change: For the full year 2024, we now expect gross margin to be approximately 52.2%, an increase of around 30 basis points from our gross margin of 51.9% for the full year 2023.
Speaker Change: The decrease from our prior full year guidance range primarily reflects deeper markdowns within our markdown inventory that we expect to continue in the fourth quarter, as well as continued pressure on inbound freight costs for receiving merchandise from vendors.
Speaker Change: Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.4% for the fourth quarter of 2024, a decrease of approximately 10 basis points from the fulfillment efficiency ratio in the fourth quarter of 2023.
Speaker Change: After delivering better-than-expected fulfillment efficiency in the third quarter, we now expect fulfillment costs for the full year 2024 to be approximately 3.3% of net sales, which is at the low end of our prior guidance range.
Speaker Change: Selling and Distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.3% for the fourth quarter of 2024, which implies a year-over-year improvement of approximately 50 basis points.
Speaker Change: On the heels of our strong third quarter results for the full year 2024, we now expect selling and distribution costs to improve to approximately 17.5% of net sales, nearly a full point lower than the full year of 2023.
Speaker Change: Marketing. We expect our marketing investment in the fourth quarter of 2024 to be approximately 15.9% of net sales, a decrease of around 50 basis points year-over-year. For the full year 2024, we now expect our marketing investment to represent approximately 15.1% of net sales.
Speaker Change: Looking ahead, we will continue to invest in building our brands to support the attractive long-term growth opportunity ahead of us. So, on a preliminary basis, I would expect marketing costs in the 15-16% of net sales range for 2025.
Speaker Change: General and Administrative. As I mentioned earlier, the timing of some of our G&A investments shifted from the third quarter to the fourth quarter. With that, we expect G&A expense of approximately $35.6 million in the fourth quarter.
Speaker Change: For modeling purposes, remember that our G&A expense in the fourth quarter of 2023, a year ago, included a non-routine accrual of $3.4 million for a then-pending legal matter.
Speaker Change: For the full year 2024, we now expect G&A expense of approximately $136 million, towards the lower end of our prior guidance range.
Speaker Change: And lastly, we expect our effective tax rate to be around 25 to 26% in the fourth quarter and 26% for the full year 2024.
Speaker Change: To recap, I am very encouraged by our third quarter results, highlighted by an inflection in our top-line growth and operating discipline that drove a substantial increase in profitability year-over-year. Now, we'll open it up for your questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star than the number one on your telephone keypad.
Speaker Change: Our first question comes from Oliver Chen from TD Cowan. Please go ahead, your line is open.
Oliver Chen: Well, hi, Mike, Mike and Jesse. The revenue growth is impressive.
Oliver Chen: The momentum sounds like it continues. How do you reconcile that relative to what you said?
Oliver Chen: on deeper markdowns and any category call-outs in terms of stronger relative to weaker. Also as you continue to innovate physically
Oliver Chen: Should we think about your strategy longer term as flagships and that being an opportunity in different places, or any context on how you're thinking more broadly about physical?
Oliver Chen: And finally, Jesse, the longer-term algorithm calls for double-digit net sales growth as much as in the 20s.
Oliver Chen: So, what are you thinking as we look towards...
Oliver Chen: Longer term like how can how can you get closer to that over time? Thank you
Speaker Change: Sure. So I'll start by addressing the revenue growth in the quarter. So we feel great with the acceleration in revenue growth.
Speaker Change: And actually, as far as it relates to the markdowns, our full price sales was actually up year over year. So it was just steeper markdowns on some of our inventory that led to the decreased margin. Revenue gains, we think, are a result of some really great marketing activities and marketing efficiency, site merchandising gains that we've done that Michael talked about.
Oliver Chen: including, you know, curative product assortments and then also some of the AI improvements on the site. So, yeah, we feel great about the momentum there. You know, the inventory, you know, levels in certain categories were a little bit elevated coming in and that's what led to the increase in discounts.
Speaker Change: Yeah, and then maybe I'll jump in there, Oliver. Wait, go ahead, Jesse. Oh, sorry. I was going to jump in on that last one with the longer-term algorithm. Of course, we feel great about returning to double-digit sales growth for the third quarter, and that continued into October. So it feels good to be back in that double-digit zone. As we look ahead, you know there's a lot of macro factors out there and uncertainty, but given everything the team's been working on this past year, we feel good about the things we can control in getting back up into that, you know, closer to 20% zone over time.
Oliver Chen: And regarding the physical, our strategy is, you know, definitely ever-evolving. You know, we have the one store in Aspen, which is going great with continuing from...
Oliver Chen: and a larger store in Los Angeles.
Oliver Chen: I would hesitate to call it a flagship at this point. We think it's going to be a really strong effort. But on the big scale, I think it's smaller than stores of competition locally and such.
Oliver Chen: There's a lot of opportunity for evolved kind of balanced playbook. We'll learn very, very quickly, iterate and expand, and the strategy will get better and better, you know, after every story will be open.
Speaker Change: Thank you for watching!
Oliver Chen: Thank you.
Oliver Chen: Thank you very much. Best regards.
Erik Randerson: Our next question comes from Ana Andreeva from Piper Sandler. Please go ahead, your line is open.
Oliver Chen: and many more. Thank you. Thank you. Thank you. Thank you.
Ana Andreeva: Great. Thanks so much. And let me add my congrats.
Ana Andreeva: Great results.
Ana Andreeva: A couple of questions from us. Really good to see that double-digit strength that revolves. And you guys have talked about expanding into new categories there, like work and athletic, to capture more of the wallet share. I'm just curious, is that starting to kick in now in a bigger way? Are you picking up new customers at the brand from the luxury shake-up, or is that still ahead? And I think you mentioned both brands are positive in October. It would be great to hear what's driving improvement forward. And then we had an inventory follow-up as well.
Oliver Chen: Thanks.
Speaker Change: I think regarding the, you know, expansion and penetration, we're starting to see wins there, but it's still very early innings. I don't think it's going to be the surge of, you know, immediate impact, but it's going to be compounded gains for many, many years to come. So internally we see, you know, great progress in some of the newer zones, but also still see tons of wide open white space in some of the other zones. So it should be, you know, a lot of ongoing journey.
Oliver Chen: I do think that with, you know, the disruption in the luxury space, you know,
Oliver Chen: I think that there is, you know, not direct, but kind of like anecdotal evidence that this is benefiting us and also will be something that we'll be seeing for many years to come. We can't say...
Oliver Chen: that this particular thing caused this particular effect, but we have to think that, you know, with the challenges in the space and operating well, that we will be winning new customers over and winning in the marketplace.
Speaker Change: Great, and just the strength in October and specifically at Forward, and thank you.
Speaker Change: Yeah we did we did see that strength continue into October and you know encouragingly it was across both segments and geographies as well. So really good to see that growth coming there and in particular as you mentioned to see growth coming out of the forward business.
Oliver Chen: Nothing really further to comment there.
Speaker Change: Okay, terrific. And just on the inventories, I think still a little elevated at up high teens. Can you just talk about your comfort level by division, especially at forward? And should we be thinking ending 4Q inventories will be more in line with sales? And thanks again.
Speaker Change: Yeah, thanks Anna. Inventory is still a little bit higher than we would like. Now that said, we did reduce the spread between net sales and inventory growth from
Speaker Change: Q2 to Q3, so we're at that 8-point differential now. If you break it up by segment, that differential is actually much better on forward, so we feel like we're in a good place on forward.
Oliver Chen: More work to do on Revolve, but Revolve, as you know, is much easier and quicker to correct than the forward side of the business, so, you know, we think it's a shorter-term dynamic and, you know, encouraged by exiting the year in a good place and setting us up well for 2025. So, if you think about year-end inventory balance, we expect that to decrease from Q3 to Q4 in absolute dollars.
Oliver Chen: And then also the year-over-year growth rate also coming down and converging closer with net sales And of course all of this depends on the net sales growth in Q4 But you know, we feel like we're on a good path. We just have a little bit more work to do there
Speaker Change: Our next question comes from Nathan Feather from Morgan Stanley. Please go ahead, your line is open.
Nathan Feather: Hey everyone, thanks for taking the question and really encouraging results. I guess just first on return rate, great to see the progress there. It's high level, can you talk to how much of that was due to policy changes versus tech improvements? And do you expect to continue a similar pace of improvement as we think about 4Q and kind of heading into 2025 and any opportunity potentially?
Oliver Chen: improve that a bit. Thanks.
Speaker Change: Yeah, definitely. So, we didn't run a controlled A-B test with the return rate policy change just because it would be too confusing for customers. You know, that said, the data that we have suggests
Speaker Change: it had, you know, call it an important contribution or a meaningful contribution, but certainly not the dominant, you know, kind of factor at play with the return rate reduction. As we stated on previous calls, it's really a whole host of things across the board focused on really improving the customer experience, you know, better optimizing product assortments for customers to find things that they're gonna like, better communicating information to product, to customers regarding size and fit and things of that nature. And so, you know, it was really just a combined effort across the board.
Oliver Chen: In terms of the pace of improvements, I do think the pace of improvements will slow down. It's been a big focus for us and we've rolled out a number of really important projects for us really in there, but it is gonna be.
Oliver Chen: a continued effort over the medium term, over the long term,
Oliver Chen: quarters you
Oliver Chen: I think you'll see the level of sharp acceleration that you did in this particular video.
Oliver Chen: You know, call it in, you know, Q4 or any particular quarter coming up.
Speaker Change: Q4 of last year. Historically, we do see a reduction in return rate sequentially from 3Q to 4Q in the zone of
Oliver Chen: you know, call it 70 basis points. Last year, there was a significant decrease from Q3 to Q4, close to two points. So, you know, just keep that in mind as you model the return rate for Q4. Internally, you know, we're modeling closer to that more natural seasonal differential versus that significant difference we had last year.
Speaker Change: Great that's helpful and then can you talk about the the pacing of revenue acceleration as you kind of went through 3Q given it was you know not as strong but still a good start to the quarter?
Speaker Change: I hope you enjoyed this video. Thank you for watching. I'll see you in the next video.
Speaker Change: Yeah, as we had commented last quarter, we had said that July was up mid-single digits, and then we closed at plus 10, so.
Speaker Change: You know, there was acceleration in the quarter, you know, and across, again, both segment and geography. And, again, just to reiterate that October, we saw growth across all cuts of the business, both domestic, international, and revolving forward, so on a good path thus far.
Speaker Change: Helpful. Thank you.
Speaker Change: Our next question comes from Michael Benetti from Evercore. Please go ahead, your line is open.
Michael Benetti: Hey guys, thanks for taking our question, congrats on a great quarter.
Michael Benetti: Jesse, just as you look out to 2025 a little bit on a few of your comments, could you walk us through any early thoughts on what the leverage points are in the P&L for 2025 on distribution, marketing, G&A? Do those lever on the mid-single-digit sales growth like we've seen in a few quarters this year? And I just use that as an example for where consensus is next year. I know you'd aspire to do better. Maybe just help us early think about the leverage points in the model. And then I'm curious if there's anything in that October…
Michael Benetti: Low double-digit number. That was unusual to think about either this October and the comparison that would would roll off as we think about the rest of the quarter looks like the comparisons get a little a little easier from here actually, which could lead us to believe there's potential for an acceleration. I just want to make sure we're not missing anything.
Michael Benetti: and many others. Thank you. Thank you.
Speaker Change: Yeah, yeah, absolutely. So for 2025, maybe if we start, and I know you didn't mention it, but starting with gross margin, we do think there is opportunity in gross margin. You know, exiting in the year, the plan is to be in a good inventory position.
Speaker Change: Full-price sales have been really strong. So, you know, we expect that to continue into 2025 now the expansion will be lower or less in the first half of the year versus the second half of year In part due to comps and then in part as we start to roll on the own brand launches that Michael mentioned in his prepared Remarks, so we do see opportunity in gross margin. First of all, and that's regardless of you know, net sales or any leverage points
Speaker Change: If we go down the line, fulfillment, some opportunity there, much of this is dependent on return rate and if we can continue that return rate reduction, and less dependent on the...
Speaker Change: on the sales growth on that one. Similar with selling and distribution, we again do see opportunity there. Now, there is challenges on fuel.
Speaker Change: and then also somewhat dependent on the return rate. But the team's done a great job absent those things and really managing those costs down and getting more efficient there.
Speaker Change: Marketing, we had mentioned in our prepared remarks.
Speaker Change: that we expect marketing to be in the 15 to 16% zone. I think the key there is we want to communicate that we're going to continue to invest. We have a lot of exciting things coming up in 2025, so not to model, you know, in the 14s that we've been seeing, but modeling some investment.
Speaker Change: and then General and Administrative. That's the one that is really dependent on sales growth and you know there's some moderate leverage in the mid...
Speaker Change: Michael Mente, Jesse Timmermans, Erik Randerson, Michael Mente, Jesse Timmermans, Erik Randerson,
Speaker Change: And then just really quick on the Q4 and the comps there.
Speaker Change: Also, although I hate to do it, if you look on a multi-year basis, the comps do get tougher for November and December.
Speaker Change: And there's just still a lot of uncertainty out there in the macro environment, you know, pick your cause, but, you know, I think there's just still uncertainty there. So, internally, if it helps, we are modeling in some moderation in November and December.
Speaker Change: Our next question comes from Mark Altschweger from Baird. Please go ahead, your line is open.
Mark Altschweger: Thank you, good afternoon, great quarter.
Mark Altschweger: The sales acceleration you're seeing does seem to run counter to some of the broader industry and macro environment.
Mark Altschweger: Just can you give us a little bit more context on what you think is driving the improvement?
Mark Altschweger: click this quarter. I guess, you know, similar question regarding the email channel. You mentioned some efficiencies there. I guess, you know, what's happening now that seems to be contributing to this pretty significant acceleration in the business. Just really looking to double click on that. And then separately, Jesse, just want to clarify
Speaker Change: You said you feel confident you can continue to progress towards the 20% growth algo versus the double digit you're running right now
Speaker Change: Street Consensus has the company growing revenue mid-single digits next year, so is the takeaway here that you're comfortable sustaining low double-digit growth in 2025, potentially even accelerating? I just want to be clear we're all taking away the right thing there. Thank you.
Speaker Change: Maybe I'll start with that one and then we can go to the first one.
Speaker Change: But, you know, optimistic with everything the team's been doing that we can continue to grow, you know, at a greater pace than the overall environment.
Speaker Change: And with regards to the revenue acceleration, we have an incredibly strong brand.
Speaker Change: a huge market opportunity. You know, we've underperformed for a number of quarters against that opportunity, against that brand. But we think, you know, we've been making really great improvements quarter over quarter to really attack that opportunity in the right way. And I think this quarter you're starting to see a lot of things come together as far as us kind of more fully capitalizing on the really big opportunity in front of us.
Speaker Change: and others. Thank you.
Speaker Change: Our next question comes from Matt Karanda from Ross Capital. Please go ahead, your line is open.
Matt Karanda: Hey guys, thanks for taking the question. Just getting back to return rates, do you guys see any structural impediments to getting back to the pre-pandemic return rates that you had? I'm just curious.
Speaker Change: How long it could take to get there and any reason we can't get back to kind of that low to mid-50s run rate that you were on pre-pandemic?
Speaker Change: Yeah, I mean, I think the question is how we get back there. We've talked many times how we want to do so in a way that's beneficial to the business across the board, not just to hit a certain number. And so, you know, that's certainly a number that we would aspire to, but our focus is just coming up with meaningful improvements that can improve the business, improve the customer experience, and hopefully improve the return rate quarter after quarter. And we'll see where that takes us in the coming quarters.
Speaker Change: Yeah, the one thing I would add...
Speaker Change: I would add that physical retail being in its early days, this will be several years to get there, but I think physical retail and having that a bigger part of our mix.
Speaker Change: has tremendous opportunities to reduce return rates with a more omni-channel approach, as well as do it in a margin-decretive way, both from a margin perspective and a cost perspective. So that is something that we won't see necessarily quarter to quarter.
Speaker Change: Our next question comes from Rick Patel from Raymond James. Please go ahead, your line is open.
Rick Patel: Hey guys, congrats on the strong execution. Can you talk about trends by month? Curious if there's anything to call out in terms of consumer behavior as 3Q progressed. It'd be great to get additional color around both revolve and forward banners.
Speaker Change: Yeah, nothing really...
Speaker Change: additional to call out. You know, we did see acceleration through the quarter. It was across both segments.
Speaker Change: you know, categories performed really well. Dresses were up 10 percent. Fashion apparel was up 13 percent. So those core categories really performing. International had a great quarter at 20 percent growth with, you know, growth across all regions which was really impressive even in China which has been struggling more broadly. So
Speaker Change: You know, I think just an overall great quarter with some acceleration as we progress through the quarter, but nothing really additional to call out there outside of the execution from the team that we've been talking about.
Speaker Change: and many more. Thank you for watching. We hope you enjoyed this video. If you did, please click the Like button and subscribe to our channel. See you in the next video.
Speaker Change: Can you double-click on own brands? You know good to see the growth there. How big do you see that business at the end of the year and given the investments you're making?
Speaker Change: Where do you see this segment going to in 2025? And also, if I can add, can you update us on the margin delta between own brand and third party right now?
Speaker Change: Yeah, we feel great about own brands. The underlying metrics have been performing really well, which was the goal, to get those underlying metrics in a really good place before we start pushing the pedal down on expansion. So we're there. Now is the time when we're going to start expanding. We've got some exciting things coming up in 2025. You know, that said, it does take some time for these things to spin up. So, you know, I think towards the back end of 2025 is when we start, you know, in 2H25 is when we start to see some.
Speaker Change: expansion in the own brand mix. It was great to see this quarter own brand sales were positive for the first time in a while.
Speaker Change: That said, the mix was lower, slightly lower.
Speaker Change: year-on-year given that third-party grew in excess of that own brand, but feel really good there and over time It can be much bigger than it is today not commenting or
Speaker Change: Committing to a percentage, as you recall, it was 36% back in 2019. And great that Revolve Margin is loosely in the same zone today as it was in 2019 with a much lower mix of own brands.
Speaker Change: And then on the margin differential, we're not getting specific there, other than to say it is significantly better than the third party margin. So over time, of course, as own brand expansion increases, then that's a big margin driver.
Speaker Change: Our next question comes from Jay Soule from UBS. Please go ahead, your line is open.
Jay Soule: Great, thank you so much. Mike, you talked about investing in AI, and you mentioned how some of the newer investments are in AI innovations, helping with product and helping some, like, boost some sales. Could you just maybe elaborate a little bit on what you're talking about? Like, what exactly you're doing with AI to help the product assortment and help drive sales at a lower cost?
Mike Karanikolas: Yeah, definitely, you know, it's all about showing the right product to the right customer at the right time and AI has a huge long-term potential in terms of doing that well, and we've already found a number of areas that we can deploy it to you know, have you know, what is shown to us by A-B tests that we run to make significant improvements in the site experience and conversion rate. So you know, we talked about the search
Speaker Change: improvements in the search algorithm on you know kind of the broader site in terms of when customers are just you know browsing other pages there's some you know things that we've deployed within the past
Speaker Change: You know quarter in particular and then even several quarters before that are AI based that have helped improve conversion rates significantly So, you know, it's you know without getting into the very specific details of exactly what we do and how it's been very impactful and we think the
Speaker Change: Future is potentially huge there as far as the the further impact that it can make over time and then the other thing that we mentioned which is off-site is
Speaker Change: They're just deploying improvements to
Speaker Change: Our marketing approach, you know, and we did some great things with Quarter, some of which had nothing to do with AI, and some of which were AI-based, and so yeah, it's been very impactful to the business.
Speaker Change: Thank you. Thank you.
Speaker Change: Okay, thank you so much
Speaker Change: Our next question comes from Lorraine Hutchinson from Bank of America. Please go ahead, your line is open.
Lorraine Hutchinson: Thank you, good afternoon. Can you provide more context around the gross margin and what was different than your plan? Was it a fashion miss or pockets of excess inventory? And then what gives you the confidence in the return to growth in gross margin in 2025?
Speaker Change: Yeah, yeah it was, maybe I'll start with what it wasn't. It wasn't the breadth or kind of magnitude of markdowns. Our full price sales actually exceeded, full price sales growth exceeded markdown sales growth which led to an increase in the full price mix.
Speaker Change: Also, full price margin was strong, so it really comes down to deeper markdowns within our markdown inventory.
Speaker Change: And that's the case across both segments. On the revolve side, we are a little heavy on inventory as we communicated last quarter and still a little bit heavier than we would like, even though the differential between sales growth and inventory growth came down, but still a little heavier there.
Speaker Change: on Revolve. So algorithms kick in and mark down that inventory. And then on the forward side,
Speaker Change: We're just at the tail end of that kind of, you know, call it older markdown inventory that led to deeper markdowns. But the forward inventory is actually in a really good place in terms of the sales growth versus inventory growth differential.
Speaker Change: And again, Revolve is much easier and quicker to work through than the forward side. That's what gives us the confidence that we'll be in a good position as we enter 2025.
Speaker Change: and then the margin expansion in 25 coming from continued full price strength.
Speaker Change: Forward has a lot of room to go You know call it five points lower today than it was back in 2019 So that gives some context around the potential there and then as we mentioned own brands Own brand expansion starting to kick in kind of around the mid-year of 2025
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jim Duffy from Stiefel. Please go ahead, your line is open.
Jim Duffy: Thank you, impressive execution. Two lines of questioning for me, first on marketing, then on the deeper markdowns.
Jim Duffy: Key lever for the improvement has been the improved marketing efficiency. You guys listed off a number of factors contributing to this, though did so in fairly rapid-fire fashion.
Jim Duffy: Can you speak in more detail about some of the 3Q-specific bigger movers in marketing efficiency, maybe isolating on top of funnel strategy shifts and marketing drivers, and also speak in more detail on the use of AI to improve performance marketing and conversion? Thanks.
Speaker Change: Yeah, so high-level it was a mix of some top-of-funnel brand marketing improvements in terms of marketing spend that Michael can potentially add some more color to and then changes on the digital market.
Jim Duffy: our products to various marketing opportunities out there. And that led to some gains, too. So, you know, on the performance side, those were, you know, probably some of the more important improvements that we made. And then Michael can maybe talk a little bit about the brand marketing strategy and how that's evolved.
Speaker Change: Yeah, we're seeing that the brand marketing strategy, you know, all the, you know, channel differences, work with influencers, work with celebrities, you know, continually, continually evolving and looking, you know, back to a year ago with me.
Speaker Change: you know, outside looking it may be subtle but from the brand market lens internally, quite dramatic shifts in that you know the various levers that we have pulled if you know accelerated on as well as divested and such. So the shift in allocation is very helpful and I think will transition extremely well into the coming quarter, next year ahead, where there's a lot of potential in some of these channels that are so a little bit newer and a little bit
Speaker Change: That's historic investment for us, so feeling really good about things.
Speaker Change: Okay, thank you. And Jesse, can you comment on the extent to which the deeper markdowns may have influenced revenue or active customer figures? I think you mentioned still a healthy mix of full-price sales.
Speaker Change: As you look at the active customers, is there any evidence that that was flattered by engagement with more price-sensitive customers?
Jesse Timmermans: Yeah. No, thanks, Jim. And, no, it was really isolated to margin. We saw full-price sales increase in excess, significantly in excess of the markdown sales. And then on a new customer basis as well, full-price customers grew far in excess of the markdown customer growth as well. So, you know, I think it is isolated to margin and really good underlying customer growth from full-price customers, which, as you know, tend to perform better over time.
Jim Duffy: Great to hear. Thank you.
Speaker Change: Our next question comes from Dylan Carden from William Blair. Please go ahead, your line is open.
Dylan Carden: Thank you. Curious on the international side of the business, you know, it's getting to a relatively decent scale, accelerated nicely in the quarter. It sounded like you're prepared to march.
Dylan Carden: We're putting some marketing dollars behind it and the experience improving. From here, do you expect kind of this level of accelerated growth and can you maybe speak to regions or initiatives underway as far as sort of how
Jim Duffy: that might rule us.
Jim Duffy: Thanks.
Jim Duffy: and many more. Thank you. Thank you.
Speaker Change: Pretty much every region internationally grew in the quarter, which is pretty rare to happen because there's always something going on in some region of the world. And so it's pretty rare to see that. And I think it's certainly a combination of things, you know, certainly rebound in some markets from, you know, more difficult economic conditions in
Jim Duffy: the previous year and also we continue to invest in improving service levels worldwide and in being able to get the benefit of some of those service enhancements that we've been doing and then increased market investments you know we're able to leverage that
Jim Duffy: level of increased experience and invest a bit more in marketing and we saw some nice gains from that too. You know the other thing I'd mentioned kind of specifically from a regional standpoint
Jim Duffy: is, you know, China, particularly for Revolve, we saw some really nice growth in. And, you know, long-term we continue to think that's a humongous opportunity for us. You know, it's one of our top markets, but it's certainly nowhere near what it could be if we execute really well there. And if you recall, around a year ago, we brought in a new director of that region to focus just on that region. And, you know, it's still very early stages, but we think we're starting to get some benefit of those investments of increased focus we've had in the region. And, you know, hopefully some nice growth drivers in there for the quarters and years to come.
Speaker Change: And how do you control, I guess, the margin dilution from that?
Speaker Change: I know you've put some measures in place from an efficiency distribution standpoint, but you know, if there's a sort of disconnect between domestic and international growth that you're seeing now, you are making some nice improvement on fulfillment in particular, but how do you kind of think about how to control that looking into the financing process?
Speaker Change: Thank you for watching!
Speaker Change: and many more. Thank you.
Speaker Change: Yeah, I mean, you know, it's always a balance, you know at the end of the day
Speaker Change: In general, and this is true for our international regions, we invest in areas that have positive incremental margin.
Jim Duffy: you know, differences. You know, there's some benefits as well. The return rate is a bit lower in a number of international regions. And, you know, long-term as we grow the international business, it gives us the opportunity to gain efficiencies within that business because we can more smartly distribute and optimize our inventory. Right now, at the current scale of the international business, we're able to put very little
Jim Duffy: inventory on the ground in key international regions like
Jim Duffy: the European region, or kind of the Asia-Pacific region. You know, we've recently started putting a bit of inventory on the ground in the European region. It's still quite small. We think there's opportunities to start doing similar, quite small things in the Asia-Pacific region. If we can scale those businesses in a much bigger way over time, there's opportunity for really big efficiency gains.
Speaker Change: Thank you for watching!
Speaker Change: Our next question comes from Trevor Young from Barclays. Please go ahead, your line is open.
Trevor Young: and many more. Thank you. Thank you.
Trevor Young: Great, thanks. Just first one from me, just to clarify on the acceleration throughout the quarter. Would that imply that October at that up below double digits is a deceleration from September? And then second question, just any comments on appetite from M&A here and what you're seeing in terms of opportunities on that front?
Speaker Change: Yeah, I'll start with the first one. You know, I would call it...
Speaker Change: closer to the same zone as exit rate. Not necessarily a deceleration, but keep in mind that low double digit per October is low double digit closer to 10% and, you know, exercising some caution as we get into November and December.
Jim Duffy: We're live at the University of Washington, D.C. I'm Jessica Fuller. We'll be right back. This is WKYT News at Noon. I'm Jessica Fuller. We'll be right back. This is WKYT News at Noon. I'm Jessica Fuller.
Speaker Change: And then the second part of the question, M&A, you know, as we've talked about on previous calls, you know, we're always actively considering possibilities, you know, if there's opportunities that make strategic sense, financial sense, etc. And so, you know, it's the kind of thing where we're investing resources, actively looking, and if something interesting comes our way, you know, we'll certainly consider acting on it.
Speaker Change: Thank you.
Speaker Change: Great, thank you.
Speaker Change: Our next question comes from Janine Stichter from BTIG. Please go ahead, your line is open.
Janine Stichter: Hi, thanks for taking my question, and I'll add my congratulations. I wanted to ask about the long-term EBITDA margins. I think in the past you've talked to getting to about 15% or mid-teens, and you've been close to that in the past, so anything structurally changing that would prohibit you from getting there? And then as a follow-up, just wanted to get more color around some of the smaller opportunities. Beauty, men, I think you've also talked about home and more basics, just where we are in that and how you see the opportunity. Thank you.
Speaker Change: Yeah on the long-term EBITDA margin you know the call it 14% is still our long-term target now you know that's going to take a little bit more time than we initially anticipated given all of the macro challenges that we've experienced over the last couple years but we do still think that's achievable over the long term.
Speaker Change: But more near to midterm, the goal is to get into that mid to high single digits consistently. And we think we can bridge to that – I wouldn't say easily, but it's a fairly easy bridge to build, especially with some of the efficiencies we gained this past quarter. So number one is margin. We talked about that earlier on the call, a lot of opportunity there with own brands over time.
Jim Duffy: Fulfillment, Selling, and Distribution with Return Rate Reduction Initiatives and
Speaker Change: The efficiency gains that the team has achieved there. Marketing, you know, not communicating any leverage on that point because we do want to keep investing. There's still a massive opportunity out there.
Jim Duffy: and then G&A. G&A is a significant leverage point if we can maintain that double-digit sales growth. Right now, we're investing in the business in excess of kind of a normal G&A run rate, so really investing ahead of that growth. That will normalize over time, and then again, with sales in the double-digit, again, over time.
Jim Duffy: that provides a significant lever point.
Jim Duffy: Continue, continue progress, super early innings, you know, growth rates in all of those segments is higher than our core growth rates.
Jim Duffy: And the intention, the plan, the journey that we've seen is a steady compounding year after year, quarter after quarter. It really begins to add up. I think it's, you know, at the scale now where it's still smaller on the percentage of overall sales. But as things continue to accelerate.
Jim Duffy: Those will be even more stronger, meaningful drivers of top bank growth in the years to come. So, very excited. There are a lot of learnings, a lot of progress, and a lot of...
Jim Duffy: learning the interplay between the, you know, on learning each of the segments that drives, you know, accelerated growth in the less developed segments and such. So feeling really good about that multi, multi, multi-year journey, but long-term well on our way.
Jim Duffy: Great, thanks so much.
Speaker Change: Our last question will come from Janet Kloppenberg from JJK Research Associates. Please go ahead, your line is open.
Janet Kloppenberg: Hi everybody, congrats on a good quarter.
Janet Kloppenberg: Just two questions from me.
Janet Kloppenberg: Maybe the younger aspirational customer, you know, started to resurface and, you know, did you do anything in terms of pricing architecture to drive the new customer acquisition?
Janet Kloppenberg: And then, just lastly, on the inventory.
Jim Duffy: You know, I think the spread is wider than it was in the second quarter sales inventory. And I'm just wondering at Revolve if there's some inventory balancing going on that's pushing the markdown levels up and you need to work through that. And where should we expect to see, when should we expect to see inventories be better aligned with sales growth? Thank you.
Speaker Change: Yeah, so I'll start by talking about the demographic change question. You know, we didn't make any changes to pricing architecture to try to go after a different demographic. You know, that said, we think we have a nice assortment of merchandise that appeals to both Millennials and Gen Z, and of course other demographics as well. I do think some of the site merchandising improvements that we've made over the past couple quarters, and the most recent quarter in particular, have helped our merchandise resonate better overall, including with Gen Z. So you know, we're very happy about the progress that we've made there.
Speaker Change: And then in terms of, you know, inventory, you know, you know, kind of
Janet Kloppenberg: inventory levels and inventory you know markdowns you know we we would expect to see inventory growth or decrease in Q4 exiting the year and as Jesse mentioned we expect to see margins grow in 2025 so you know certainly we have a little bit more inventory than
Janet Kloppenberg: then we would like at this point, but I think overall the problem is fairly moderate in nature and the impact should be muted over just a couple quarters here.
Jim Duffy: okay yeah the differential did get better it was about nine points in Q1 then it was up to 11 points in Q2 and then down to eight points in Q3 so some progress made there
Jim Duffy: Okay, good. I'm sorry about that mistake.
Speaker Change: Oh no, all good.
Jim Duffy: Thank you for watching!
Speaker Change: That's all the time we have for questions today. I will turn the call back over to management for closing remarks.
Speaker Change: Hey guys, thanks for joining us. It's been a solid quarter, a lot of great progress all across the board of efforts that have been taken many, many quarters, and we still have a lot, a lot of exciting things in the work, which we're excited to share next quarter and the year beyond. So we'll see you guys soon. Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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