Q2 2025 Revolve Group Inc Earnings Call
Well, good afternoon everyone and welcome to revolves. Second quarter 2025 results conference call.
After the speaker's remarks, there will be a question and answer session to ask a question during this time simply press star 1 on your telephone keypad. If you would like to withdraw your question, it's star 1. Again, at this time, I would like to turn the conference over to Eric Anderson vice president of investor relations at revolve Eric. You may begin.
Good afternoon everyone and thanks for joining us to discuss revolve second quarter, 2025 results. Before we begin. I'd like to mention that we have posted the presentation containing Q2 2025 financial highlights to our investor relations website, located investors revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory, balance our key, priorities and business initiatives industry Trends, the impact of tariffs. And our mitigation efforts, our marketing events and their expected impact. Our physical retail stores, and our outlook for net sales, gross margin operating expenses and effective tax rate.
These statements are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risk mentioned, in this afternoon's, press release as well as other risks and uncertainties, disclose them to the caption risk factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our annual report on form, 10K for the year, ended, December 31, 2024 and our subsequent quarterly reports on form 10q. All of, which can be found on our website at investors.com revolve.com, we undertake no obligation to revise or update any form. We're looking statements or information except as required. By law during our call today we will also reference certain non-gaap financial information, including adjusted Ava and pre-cast flow. We use non-gaap measures and 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 a substitute for for superior to the financial information presented and prepared in accordance with gap in our
As well as the definitions of each measure, their limitations, and our rationale for using them can be found in this afternoon's press release in our SEC filings. Joining me on the call today are our co-founders and co-CEOs, Mike Karanikolas, Nicholas, and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we will open the call for your questions. With that, I'll turn it over to Mike.
Hello everyone, and thanks for joining us today outstanding execution by our team within an incredibly Dynamic operating environment. Led to strong second quarter results in continued market, share, gains our net sales increased to 9% year-over-year outpaced by adjusted ibida increasing 12% year-over-year as we delivered, our highest adjusted Ira margin in 3 years. Despite pressure from increased tariff. Rates improved, inventory, Dynamics and our tariff, mitigation efforts drove a slight expansion of our gross margin year-over-year as well as healthy cash flow generation.
In fact, our 52 million in free cash flow generated. During the first 6 months of 2025 is nearly 3 times the free cash flow. We achieved for the full year in 2024
Looking beyond the numbers, I'm excited by the underlying drivers of our strong results that illustrate great progress in key areas of investment for long-term success.
Our customer base continues to increase. And on average, we are generating more Revenue per active. Customer helped by a lower return rate year-over-year and our successful efforts to capture a greater share of the consumer's wallet.
I'm also thrilled with our momentum and expansion within International markets and by the increasing mix of own Brands as a percentage of revolve segment. Net sales, that is secretive to our margins with. That is an introduction. I'll step back and provide a brief recap of our Q2 results before reviewing the progress on our longer term initiatives.
Starting with Q2 results as discussed on our q1 earnings call. Net sales for the second quarter of 2025 had a slow, start coinciding with the peak tariff uncertainty in April and historically low consumer sentiment.
encouragingly, our net sales growth rebounded, strongly from mid single digits in April 2025 into the low, double digit growth territory for the months of May and June
All told net sales for the full second quarter, increased to 9% year-over-year driven by domestic and international. Net sales increases of 7% in 17% year-over-year, respectively.
By segment revolved, net sales increased 9% and Ford. Net sales increased 10% year-over-year within a global luxury Market that declined year-over-year in the first quarter. According to research from Bain, Alder Gamo
The underlying forward metrics are very encouraging for their validating. The efficacy of our forward Investments over the past. Several quarters to capitalize on opportunities created by all the challenges among other luxury retailers.
The biggest source of upside for the second quarter relative to expectations was our gross margin performance.
Despite the Tariff pressures. We discussed at length, last quarter, we delivered a slight increase in Consolidated gross, margin year-over-year, significantly outperforming our guidance,
The contributors to our growth marketing outperformance in Q2 were continued penetration growth for our own brand offerings, which generate higher margins than third-party brands.
The teams outstanding work on tariff, mitigation relative to our prior assumptions, as well as the successful testing and rollout of enhancements to our markdown algorithms. That drove meaningful improvements in the depth of markdowns. In the second quarter relative to our recent performance on these metrics.
speaking of tariff mitigation while there is still a level of uncertainty thus far we have been able to successfully mitigate a significant majority of the Tariff impacts
Importantly, the severity and abruptness of the tariffs, served as a catalyst for mitigation efforts that should be favorable to our long-term margin structure, which is exciting.
Shifting to our bottom line results are operating discipline allowed us to achieve a 10% increase in operating income and a 12% increase in adjusted. Ebit a year-over-year outpacing, our net sales, growth of 9% year-over-year.
In addition to our top-line growth and increased gross profit, we discussed contributing to our profitability gains where our successful efforts to drive efficiencies in our Global Logistics operations. Notably, our product return rate decreased by more than 1 and a half points year-over-year in the quarter. Helping us to achieve nearly 60 basis points of Leverage in our variable cost line items of selling and distribution and fulfillment.
Most exciting. Is that our profitable growth once again, converted very strongly to cash flow generation that serves as a key competitive advantage.
It was our best second quarter performance for cash flow generation in four years, helped by meaningfully improved inventory dynamics.
As an illustration of our improved efficiency our net sales increased 9% year-over-year. While our inventory balance declined 6% year-over-year, notably for the first half of 2025, our free cash flow generation exceeded, our adjusted ibida profitability by 10 million.
Million as of June 30th, an increase of 27% year-over-year.
Now, I'll conclude by recapping our exciting progress against our strategic priorities and growth factors over the past few months.
We have a lot of exciting initiatives in play and our team is doing an excellent job, executing on the set of initiatives that we believe can deliver value for shareholders over the long term.
First, we continue to invest to expand our brand awareness. Grow our customer base in strengthen our connection with the Next Generation consumer. We had an extremely active and impactful. Second quarter for brand marketing featuring Marquee events, such as revolve Festival revolving, The Hamptons and more, that Michael will talk about in his remarks.
Second, we continue to successfully. Expand our International penetration highlighted by 17% growth outside of the US in the second quarter.
Net sales increased nearly all regions including China which has become 1 of the top contributors for our revolve segment.
In fact, our Revolve segment sales in mainland China have more than doubled over the past two years after we invested in a team dedicated to the China market.
Their efforts have helped us to capitalize on exciting opportunities, including through successful Marketplace, Partnerships that appealed our growth acceleration.
Revolve was recently named the number 1 cross border store on the T-Mobile Marketplace, within the apparel category. And we recently launched a dedicated Revolt man store on the T-Mobile Marketplace to further, expand our reach, our International results underscore our Traction in the attractive growth opportunity overseas that has several times larger than the US market.
Third, we have continued to build on this successful expansion of our assortment to gain a greater share of consumer spending.
sales of fashion apparel Beauty men's and Home Products each increase by a healthy double digit percentage year-over-year, contributing to our reduced return rate, increased Revenue per active customer year-over-year,
For their validates, our opportunity to drive customer acquisition and expand our share of wallet. Among our loyal, existing customers, who trust in our brands and delight in our premium shopping experience.
Finally, We are continuing to leverage AI to drive growth and efficiency initiatives across the company, including to refine our shopping experience and personalization capabilities.
Building on our successful recent launch of internally developed AI search algorithms for consumer product. Discovery on our e-commerce sites during the second quarter we tested and launched into production enhancements to our AI search algorithms that are delivering great results, including a meaningful lift, in conversion rate for search queries, on our revolve site.
This exciting Innovation by our data science. Team is driving incremental conversion gains on top of the incredible lift and performance that we achieved last year by replacing third-party search technology with our internal developed AI search algorithms for on-site search.
To wrap up. I'm very proud of the team for delivering such strong second quarter results in great progress on longer term initiatives that are critical building blocks for continued profitable growth over the long term, particularly in such an uncertain environment. I'd like to thank our team for your incredible agility, Innovation, and commitment that has helped us to navigate through all the Tariff uncertainty, while remaining focused on delivering Excellence for our customers every day.
With our talented team, powerful Brands operational excellence data driven mindset and proprietary technology infrastructure. I'm confident that we have the ingredients to power profitable growth, and further market share gains in 2025 and Beyond.
now over to Michael,
Thanks Mike and hello everyone. The core competitive advantages. We have built over the last 20 years, continue to set us apart and together with our strong team, enable us to deliver strong results and market. Share gains in the second quarter. Demonstrating our ability to Now navigate through this, volatile period with huge changes in the effective tariff rates from day to day.
Even such a dynamic environment in 2025 with the wildfires tariffs and macro uncertainty. In the first half of the Year, our Revenue increased 10% are adjusted ibida, increased 25%. And our free cash flow was more than 5 times higher year-over-year.
With that. As an introduction, I will focus my remarks on some of the Strategic areas. We are investing in nwx specially excited about
Brand Investments, merchandising forward momentum within the luxury industry expansion of own Brands and physical retail exploration.
First brand building our brand elevating revolve Festival held in April set the tone for the second quarter by delivering significantly greater marketing impact on reduced spending year-over-year. Aspirational content from revolve Festival. In the Coachella Valley dominated. Social media feeds during the 1 week period around our events but we didn't stop there. We had a very active second quarter for brand building exciting and delighting our passion Community. Your consumers Brands, content creators and partners by helping impactful events in New York, Miami The Hamptons and that stage coach Festival in California.
With revolve summer activations attended by numerous a-listers, co-hosted the vibrant palm tree music festival and hosted an experiential, pop-up shop in partnership. With Revel that remains open through Labor Day,
All told it was our most efficient second quarter for brand building in 4 years, based on the estimated value of Impressions generated by our brand marketing Investments.
Second merchandising a key highlight from Q2 was our strong cash flow generation which benefited from higher inventory, turns year-over-year. The fact we achieved the highest second quarter inventory, turns ratio for full price merchandise on revolve in 4 years
The underlying drivers are exciting as well. Our vastly improved merchandising on the site and other consumer touch points in recent quarters is a key contributor to our improved inventory, efficiency while also driving increased consumer engagement and category expansion.
For instance, net sales from our Festival shop in revolve, nearly tripled the year-over-year in the first half of 2025,
On top of a very significant growth. Last year, our fashion and the editorial merchandising are making it easier than ever for our customers to fund. What they're looking for, driving improved inventory, efficiency.
Our merchandising is also helping to generate increased demand and fashion and apparel offerings outside of our historical core of event dressing.
There is a shorts have incredible in the first half of 25. Also contributing to our improved inventory turns year-over-year leveraging. Our data driven approach, our merchandising team identified, the shortest Trends, very early and we capitalized by highlighting the perfect short selling for the boho look, or for wearing at the beach. I truly believe the combination of our merchandising editorial and photography that seemingly feeds into our brand marketing messaging, a second to none and continues to improve.
Third forward.
Our forward segment delivered impressive, second quarter results. That further validate our strategy on investing through the cycle while the luxury industry continues to face near-term challenges.
While many luxury players have reported declining revenue forward, net sales increased 10% year-over-year, and increased margins as forward gross profit increased by 16% year-over-year in the second quarter.
And at a time when some of the largest luxury retailers are delaying payments to luxury brands for merchandise, received Ford continues to attract covered luxury brands with new partners.
Illustrating our brand assortment momentum, our recent Launches on forward, by covered the luxury Brands, including Phoebe Philo, Victoria, Beckham Beauty, Ralph, Lauren, and the launch of skims X, Roberto kavali collaboration.
Finally luxury brands have also been creating in demand products that are exclusively available on Ford. In June we launched our Ford summer Club Council that features exclusive to the forward styles for summer gateways from hot Brands including Christopher esber and same consumer demand for the capsule has been outstanding resulting in a very positive feedback from other luxury Brands who are eager to partner with us more closely going forward.
Fourth own Brands where our team has been incredibly agile in navigating the evolving tariff landscape, despite all the uncertainty. I am pleased to share that our momentum and owned Brands. Continue to build strongly. In fact year-over-year growth of our own brand net sales improved for the fifth consecutive quarter in Q2 and is outpacing. Our overall growth leading to increased penetration of own brands.
The increased own brand mix of revolved step and net sales. Year-over-year was a key contributor to our better than expected growth. Margin as own Brands generate much harder growth margins than third party brands.
And since our own brand collections are exclusively available through evolving forward, home brands are a key driver of traffic, new customer acquisition, and net sales at full price.
With their underlying metrics for own brands performing better than ever, and continuing to outperform comparable metrics for third-party brands, we are investing with confidence ahead of the launch of some exciting new home brands in the next few quarters. I look forward to sharing more on next quarter's conference calls.
Finally physical retail. We continue to be very excited about the growth opportunity in physical retail over the long term.
We are making significant progress developing our retail muscle, as we continue to build out a team that continues to raise the bar, on our go to market strategy and operations that are asked in store resulting in conversion, Gaines, net sales growth and phenomenal customer feedback.
Our Brands have taken notice of our apps and success and executive from an iconic, Italian luxury brand that we've targeted for years to care in. Our Ford assortment visited, our Aspen store. Recently was so impressed by our merchandising service and overall aesthetic that we have begun discussions about carrying their iconic brand as part of our in store, assortment
All of this is further validation of the attractive long-term opportunity ahead in physical retail and will be an important driver of success at our soon-to-be-open store in Los Angeles.
We are on track to open our permanent store in Los Angeles in the fourth quarter. Just in time, for the holiday season, the store design looks incredible inside and out and will beautifully showcase Our Brands. And our Prime space within the quintessential shopping destination at the Grove, Los Angeles,
This strategy will manage gives us the capacity to invest in the long-term success in initiatives that we believe we will continue to drive profitable growth for many years to come. Now, I'll turn it over to Jesse for a discussion of the financials.
Thanks, Michael. And hello everyone, our ability to deliver profitable growth again in the second quarter. While continuing to invest in long-term growth drivers. And at the same time further building our already, strong balance sheet is a true reflection of the platform. We have built our operating excellence and the team's ability to execute
I am proud of the team for delivering strong second quarter results, particularly considering the volatile macroeconomic environment, and our slow start to the quarter amidst, all the uncertainty around, the Tariff policy announcements in early April.
I'll start by recapping our second quarter results, then I will summarize our great progress on navigating tariffs before closing with updates on recent Trends, in the business and guidance for the balance of the year.
Starting with the second quarter results, net sales were $309 million, a year-over-year increase of 9%, representing an exciting milestone of delivering more than $300 million in quarterly revenue for the first time.
Revolved segment that sales increased 9% and forward segment, that sales increased 10% year-over-year in the second quarter.
My territory domestic net sales increased 7%, and international net sales increased 17% year-over-year.
In 12-month measure increased 6% year-over-year.
To orders placed were 2.4 million, an increase of 7% year-over-year.
Average order value was $300. A decrease of 2% year-over-year that was primarily due to a shift in product mix.
Consolidated gross margin was 54.1%, an increase of 4 basis points year over year and well above our guidance range.
Contributing to the slight margin expansion year-over-year with a higher mix of own Brands as a percentage of revolved segment. Net sales partially offset by a lower but still very strong mix of net. Sales at full price
Now, moving on to operating expenses.
Fulfillment costs were 3.2% of net sales, representing a decrease of 10 basis points year-over-year, albeit slightly higher than our guidance.
The year-over-year efficiency reflects a decrease in our return rate partially offset by a lower aov year over year.
Selling and distribution cost efficiency outperformed our guidance at 17.4% of net sales, a decrease of 45 basis points year-over-year.
The strong result reflects a continued decrease in our return rate year-over-year, as well as our team's successful execution in driving logistics cost efficiencies, partially offset by a lower AOV year-over-year.
Sales, essentially flat your rear and well below, our average marketing investment for the second quarter's over the past 4 years.
General and administrative costs were $38.3 million, outperforming our guidance of $39 million. However, this represents an increase of 55 basis points year-over-year as a percentage of net sales.
The increase in net sales and gross profit year-over-year and improved efficiency in our Logistics costs. Help us to achieve solid growth in operating profitability. Our Gap income from operations increased 10% year-over-year in the second quarter.
Now below the operating income line, there was a big swing year-over-year in other income expense that I will walk you through next.
In the second quarter of this year, we recorded other expense of 2.9 Million. A decrease from recording other income of 4.3 million. In the second quarter of 2024,
This $7.2 million decrease in other income year-over-year is primarily attributable to a $2.8 million increase in unrealized foreign currency exchange losses year-over-year.
As.
As compared to a bargain purchase gain of 1.9 million related to the acquisition of the same subsidiary in the second quarter of 2024.
Now.
Let me provide some background on the disposal of a subsidiary charge in the second quarter of 2025 and the related, bargain purchase gain in the second quarter of 2024.
Both relate to a very small acquisition. We closed in the second quarter of 2024. We made the difficult decision to cease, funding the operations of, our majority owned foreign subsidiary that had acquired the business of French designer alexand botier for approximately 400,000 in the second quarter of 2024.
Our disciplined approach to Capital, allocation guided, our decision to move on and shift our Focus to other initiatives with higher Roi, that we believe will maximize the overall Returns on our investments over the long term.
Sent in the second quarter as compared to 25.7% in the prior year.
The higher than expected effective tax rate is primarily due to certain discrete tax items recorded in the second quarter of 2025.
That we previously expected to be reflected in the third quarter of 2025.
Net income was 10 million or 14 cents per diluted share compared to 21 cents per diluted share in the second quarter of 2024.
This decrease was primarily due to the significant year-over-year decrease in other income and the increased effective tax rate I just mentioned.
Adjusted evadell is 23 million, a year-over-year, increase of 12%, which outpaced our net sales, growth of 9%.
Adjusted de Del margin was 7.4%. Our highest quarterly margin in 3 years.
Moving on to the balance sheet and cash flow statement. We delivered, strong cash flows. In the second quarter free cash flow was 9.6 million for the quarter and 52.4 million for the 6-month year period.
A year-over-year increase of 42.4, million, or 424% compared to the 6-month year date period in 2024.
Improved inventory. Dynamics was a key driver of our strong cash flow generation as net sales increased 9%. While our inventory declined 6% year-over-year
inventory at June 30th, 2025 was 221 million, a decrease of 13 million year-over-year
We are entering the third quarter with inventory that is healthy and clean featuring, newness that is resonating with our core customer.
As of June 30th, 2025 cash and cash, equivalents were 311 million an increase of 10 million during the quarter, and growth of 66 million or 27% year-over-year, and we continue to have no debt.
Our strong balance sheet and cash flow gives us capacity to continue to invest in the business to drive long-term growth, including physical retail and AI. While at the same time, opportunistically evaluating strategic m&a and repurchasing class a common shares to enhance shareholder value.
During the second quarter, we repurchased approximately 93,000 shares of Class A common stock at an average price of $18.78.
Approximately 56 million remained under our $100 million stock repurchase program as of June 30th 2025.
Now, a brief update on tariffs. Over the past few months, our cross-functional team has made excellent progress on tariff mitigation.
Working closely with our partners and Brands to drive a successful outcome. As a result in the second quarter, we estimate that we mitigated, the significant majority of our terrific exposure.
We expect that our diversification initiatives will enable us to slightly reduce our sourcing exposure to China for our own Brand Products, starting in the second half of this year and into 2026.
We remain thoughtful in our approach, however, keeping a close eye on where the tariffs across regions. May ultimately land amidst, all the continuing uncertainty,
to illustrate the volatility. We are dealing with when we announced our first quarter results and gave guidance in early May
The incremental tariff for China was 145%.
By comparison. Today, the incremental tariff for China is 30%
While still high, we view the current China tariff level, as much more manageable, particularly with our great progress on tariff, mitigation achieved in the past few months.
Importantly, looking beyond the current tariff challenges that we will continue to navigate for the balance of the year and into 2026.
We believe our team's great work on tariff mitigation initiatives has the potential to improve our gross margin over the long run.
So while the tariff landscape remains very uncertain, we feel much better today about our ability to navigate through the tariff landscape than we did just three months ago, and this is reflected in our improved gross margin outlook. I will discuss shortly.
Now, let me update you on some recent trends in the business since the second quarter ended and provide some direction on our cost structure to help in your modeling of the business for 2025.
starting from the top, our net sales in the month of July increased by approximately 7% year-over-year,
Now, before we get into guidance, let me caveat that our Outlook is based on the current status of tariffs. As of today, August 5th, 2025.
And our estimate of the impact of potential, mitigating activities that are currently underway.
Our outlook for gross margin is especially susceptible to variability.
Given the uncertainty surrounding the timing and level of tariffs that will ultimately be in effect as well as the timing and magnitude of the potential impact resulting from our mitigation efforts.
We expect gross margin in the third quarter of 2025 of between 51.2 and 51.7% which at the midpoint implies a slight increase year-over-year.
For the full year 2025. We now expect gross margin of between 52.1 and 52.6% which is considerably higher than our prior guidance. At the midpoint the new Range implies a slight decrease year-over-year.
but there are a lot of moving pieces and a considerable amount of uncertainty That Remains
Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.2% for the third quarter of 2025, a slight decrease year-over-year.
For the full year 2025, we expect fulfillment to represent between 3.1% and 3.2% of net sales.
selling and distribution, we expect selling and distribution costs as a percentage of net sales of approximately 17.5% for the third quarter of 2025
and a range of 17.2 to 17.5% for the full year 2025 unchanged from last quarter.
Embedded in our assumptions is the expectation that we will face more difficult return rate comparisons going forward. After five consecutive quarters of year-over-year decreases in our return rate,
Marketing. We expect our marketing investment to be approximately 14.5% of net sales in the third quarter of 20125.
And between 14.8% and 15% of net sales for the full year 2025, a slight decrease from our prior guidance.
General. And administrative, we expect GNA expense of approximately 38.5 million in the third quarter of 2025
And between 152 million and 154 million for the full year 2025 also lower than our prior full year guidance range.
and lastly, we now expect our effective tax rate to be approximately 28 to 29% for the full year 2025
As previously mentioned, the higher-than-expected tax rate in the second quarter is primarily due to certain discrete tax items that we had previously expected to be reflected in our tax provision in the third quarter of 2025.
For the second half of 2025, we expect our effective tax rate to be approximately 27%.
To recap, we delivered strong Q2 results during what continues to be a challenging and fluid environment.
With our highly capable team healthy, cash flow and Rock Solid balance sheet. We are well, positioned to navigate. The current uncertainty while continuing to invest in the exciting longer-term, growth opportunities ahead of us. Now, we'll open it up for your questions.
Thank you, sir. And I would like to remind everyone. It is star 1. If you would like to ask a question today, we'll take the first question from Nathan, feather, Morgan Stanley?
Hey everyone, thanks so much for the question, and congrats on the strong results. You mentioned in the prepared remarks that some of the tariff mitigation efforts you have put in place so far should help the margin structure long term. Can you help out and dig in on what's happening there and the potential magnitude of the benefits? Thank you.
Yeah, definitely. So without getting into specific details uh the the pressure of the tariffs opened up a lot of opportunities for us to partner with our brands at a deeper level uh to come up with win-win solutions that apply in this increased tariff world as well as world without the increased tariffs. So we think those Partnerships and changes will provide long term benefits for us. And then with regards to the margins impact of the tariffs themselves we believe that over time, uh, that the pressure from the chair increases will start to flow through prices over the longer term and we'll see base margins, we normalize while still reaping the benefits of those long term partnership opportunities.
Great, that's helpful. And then I guess how should we think about the, the pricing path when it comes to tariffs and and when you might see some of those increases come through, both in the own Brands, and on the partner side,
Yeah, sure. So
We are starting to see more impacts from price increases over time. So, in Q3, we're seeing about a new single period.
A broad-based price increase.
Um, and then with Q4 the data is still early, but we're starting to see a bit of an
I think we will start to see price increases flow through.
Over time.
Increase cost pressure and then with regards to own brand, our strategy on the own brand side is just to stay with the market.
so, whatever the market
is doing, we'll generally be
Adjusting prices alongside with.
Is doing.
Okay, helpful. Thank you.
The next question today comes from Oliver Chen from TD securities.
You're seeing in terms of the the plus 7 within the US and and categories that have been stronger versus weaker would love color on dresses as well. Uh and then as we think about the margin, Jesse you called out a lower mix of full price sales, is that, is that up against a tough full price comparison, will that Trend continue uh, in terms of that being a a headwind. Um,
And then lastly the own brand capabilities and you've been through different versions of this. It sounds like it's much more broad-based now and you're seeing good momentum, but it might be helpful to contrast like your what you like your capabilities and owned Brands, you know, versus the past. I know it's evolved. Um and and and a really positive way. Thank you.
Yeah, maybe I'll start.
Price.
Full price. Mix was really healthy in Q2 was lower year over year, but still very healthy. And, and generally in line with what we were seeing in 2019. So very happy with where everything out. Um, we are up against from last year in the back, half of the year, you know, it's probably plus or minus in the same Zone as we saw last year. So feel good about the mix of inventory, the mix of full price and then also the, uh, great Congressman that I'm Mark on margin. So it's kind of a cross. The different cuts of margins seeing really good health there.
And then just with regards to US versus International comment a bit there and then maybe turn it over to to Michael for comments on fashion and known Brands. So, yeah, International, we saw particular particular strength in in Q2 was was very broad-based. Uh, almost all major regions were up by double digits, um, with just a couple exceptions. Notably, as we mentioned, uh, in the earlier remarks China has been a great story for us as we invested a couple years ago in in a more localized team to in leadership in that area to really help develop that market for us. And over the past 2 years, we've more than doubled that business. So we're really uh for on the revolve side of things, so we're really starting to see the efforts of that payoff as well as a lot of our efforts and other regions. So very happy with those International trends.
Well thanks, this is Justice. Continues to be a strong category for us. We continue to grow. We're growing actually faster. This quarter than this quarter last year, so there's a little acceleration there, the super proud of our progress across all other categories, as we mentioned, the short student quite well, intimate jewelry pants. So, there's a mix. So we're getting a lot of students there that has been driven by, you know, partner Brands. But also has been driven by home Brands home Brands, even investing for a year to really diversify our product offering. And we're having great steady success. I think this is, I think 5 quarters of steady year of your growth and, you know, more Diversified penetration ultimately, you know, offering.
Uh addressing more needs for our customer across the board versus just that going out. Just categories and feeling really great there. Also noting that it's still quite brilliant in that journey and that there is still a lot of opportunities to own Brands can you to expand across categories across many uses? And you know, other aspects of our
Lives.
Our next question, today comes from Anna, Andrea from Piper Sandler.
Uh, great. Thanks so much and uh, congrats guys, nice results on. Uh, July up 7. Should we think for an international outpacing revolve and domestic any other color you could share. Uh I remember last quarter, you talked about the shift to more accessible price points. Uh I don't think we heard that uh this time around uh did that continue in 2 Q or a quarter to date and then we had a follow-up as well.
Yeah.
On July, we're not going to get too specific there, just because on a monthly basis, there's a lot of volatility, there was a little more pressure, um, on the account basis on the international side of the business. But again, just hit the months. We don't want to get into too much there on the, uh, kind of accessible price point. Know, we had comments in the last quarter, we were seeing pressure on aov and that started to improve kind of as we exited April and into May June, and that was the case. Um, but we are seeing great progress out of our category diversification. So fashion apparel was up 13% versus dresses, kind of that event where which was at 5%. So there is some impact there and just product categories notification.
Which is a good thing in part of the strategy.
Okay. Okay that's perfect. That's very helpful. Uh and just as a follow-up on gross margin uh did you say what was the impact of tariffs in the second quarter and 3? Q guide is based on gross margin of only slightly despite that easy to compare uh and inventories look very clearly. So should we think tariffs uh will be a greater impact? Both mitigation in 3Q?
The improvements we made on the markdown margin markdown, um, algorithm, and then also the great expansion we saw on own Brands and that led to the year-over-year increase in growth margin. Um, and then if you look at the back half of the year and our guidance there, um, a slight increase in Q3 and then, um, you know, for the full year about 30 basis points below where we were at the beginning of the year, so that does reflect some negative tariff impact greater than it was in Q2. But again, some of the great, um, progress we've made both on own Brands and now that down margin
our next question.
Just from UBS.
Great, thank you so much. Um, 2 part question 1 is just talk a little bit about the progress. You can continue to make in, lowering the return rate, um, and and maybe talk about prospects for seeing that return rate continued to improve as we go through the rest of the year into next year and then Mike just on AI. Um, just want to, you know, follow this thread. It's been a topic of conversation on the calls for the last few calls. Can you talk about the progress you made in the last 90 days? If you're seeing still good opportunities in AI or if you're starting sort of stumbling blocks and and roadblocks and hurdles that maybe would prevent, you know, utilizing the opportunity to maybe the way you envisioned before. Thank you. Yeah, definitely. So on return rates we feel great about
All the targets we've made and initiatives over the past year as as we get in the back half of the year is tougher, Compares as, as Jesse mentioned. So, uh, so you know, we would caution, uh, moderation. As far as expectations there, we saw the number of projects in the pipeline.
um, including some, uh, where they require a bit more partnership with the brands that with just everything going on with with,
The tariffs right now, it's just, you know, the the brands have their, uh, have their hands full. So, uh, you know, we also want to be, uh, just smart about how we go about things in terms of the timing of driving improvements there. But a lot of stuff in the R&D phase, um, I think probably more limited impact in terms of new things in the back half of the year. But I'm hopeful as we enter H1, uh, 2026, we'll start start to see some acceleration there in terms of, uh, you know, kind of projects and initiatives that can uh, bear fruit on that side.
And then, in terms of AI, um, yeah, I think 2024 was an incredible year for us in terms of delivering AI enhancements. Uh, we still have a lot in the works this year, including continued improvements on the AI search, uh, which was exciting for us. Our original AI search Rd, beat the sort of third-party market leader for 1 of the market leaders, in, in, in that space. Um, and then we appreciate you and further with further conversion rates, the most recent quarter, we've deployed voice to to text technology recently on the customer service side to help us out there. Um, you know, we have some great things in the R&D phase across the board on the marketing side.
Uh, we've had some early success with landing page optimization that's driven by Ai and that AI really enables in a way that wasn't possible before. So we're seeing some nice early results there. Continuing to experiment with AI content in terms of videos imagery on the marketing side,
Um so I think a lot of nice things there continued to upgrade, to personalization recommendation, algorithms on the website, you utilizing Ai. And then, of course, some some bigger things that are more in the art and in the type based.
Could be a bit more transformational just in terms of how consumers shop the website and including something that are early stage in terms of testing out with with consumers, like virtual Tryon and things of that nature. So, yeah, I think we're just scratching the surface, but the nature of anything R&D is, you know, you'll have some
Some big wins, 1 quarter and and then maybe some some more incremental wins in other quarter. Uh, but uh, you know, when, when those R&D projects, see if they can hit in a big way, so we're uh, continually, uh, you know, very excited with with what, what we're working on there.
Up next is Dylan carton from William Blair.
Curious on the inventory.
Initiatives, if you can share anything there, people that discrepancy in sales growth versus inventory growth, which is clearly a positive. I'm curious, then, sort of trickling it down to the gross margin.
Line, how much of that is the upside? There kind of on the guide is, is more tariff related in that sort of swing in China and how much is sort of just better Inventory management.
The best full price uh terms we've seen in over 4 years and if you pull out kind of that coid postcovid Peak, you know, it's the best we've seen in plus ten years. So really good, Inventory, management. If you've been doing a great job there,
I know you don't want to get into it as far as sort of the quarterly Del, but any contact you can give I know comparisons. Get harder is where I'm going with this. Anything you can kind of provide stack Trends or you know, kind of how things might progress.
Yeah, yeah. I yeah, again, not much to get into their, um, to your point, the comps you get tougher, um, in the back half of the quarter based on what we said last year, um, and into the fourth quarter. But, you know, I think really good performance in Q2 and continue to just drive and, and manage student environments.
Thanks.
The next question is Rick Patel from Raymond James?
Uh, thank you and well done on, uh, on the great execution in a tough environment. Um, I had a follow-up question on International performance, so any updates to share in terms of anti-American, uh, sentiment that could be holding back even stronger growth in international markets. Uh, and then how do we think about the durability of of the international growth rate going forward?
Yeah. So we've seen uh those effects moderate but I wouldn't say they've completely gone away. Uh and you know, I called out almost every region is is growing and double digits, but 1 notables, it's moderated from from from its peak which, which I think is a great sign. Um, and then in terms of the durability, we feel great about the international roadmap and, and and the growth durability and, you know, China is, is in the very early stages, uh growing at uh, very significant, double digit growth rates right now. Um and so as that region becomes larger and more important to revolve, of course the, you know,
Effective.
High growth rates uh, you know, can have an even bigger impact on International. So, you know, uh, I think, uh, we have a lot of good things going for international over the longer term, a lot of untapped opportunities and and feel great about our road map there.
Can you also expand on the enhancements? And the markdown Ark algorithms that are benefiting gross margins now, sounds like it was a material Tailwind. So just you know, any way to frame how much it benefited, gross margins this quarter and how do we think about the ability to drive uh further improvement from here?
So, I'll get to Jesse any commentary on.
Impact level, you know, to the extent that we to close it disclosed it. But, uh, but yeah, I would, I would say it's a meaningful impact. It was definitely more than just at the margins and um, you know, I think it goes back to how we are constantly investing in improving our Systems and Technology and processes to get better and better over the long term. And and we think that'll continue to be a long-term gross margin. And, and yet had a very meaningful impact on the quarter. And, you know, we're excited as we continue to make upgrades in that area and and deploy improvements. Particularly, as AI becomes more important.
Area that there's a lot more to come there as we continue to make investments.
Yeah, no specific, um disclosure on the impacts. Um, you know, other than you know what, we've disclosed in the margin did increase and that offsets some of the Tariff impact and this only took place you know, call it, you know, Midway through the quarter. Um, so just in the early stages of seeing the impact there and that's reflected in the full year guidance.
Thanks very much.
Moving on to Trevor young with Barkley's.
Great, thank you. Uh Michael just back to the comments on own Brands is the potentially lower tariff environment. Changing, how you're thinking about investing behind some of those upcoming launches in the back half, maybe allocating greater portion of marketing budget behind those. And also, how is it influencing? How you think about um own brand mix and how quickly that could?
Ramp here, medium-term some of the, you know, comments in the prepared, remarks sounded incrementally, more confident around that own brand initiative. And just, lastly, any implications for inventory growth from some of those efforts to push own brands.
Inventory will be steadily increasing. There have been a lot of investments, both in terms of new brands as well as new capabilities. So, there will be a steady ramp-up there. I think we've been past the point where, you know, being too aggressive could be challenging or a little bit too risky. So, we see a nice, slow progression. The one thing that could really enhance our own brands is our physical stores, and we're seeing our physical stores really, really perform well. The brands' products in physical stores are performing exceptionally well, of course, off the small basin in terms of the small sources, but we're seeing the integration there to be quite natural, quite synergistic, and super exciting.
Great. Thank you.
The next question is Ashley Owens. Keeping Capital markets.
Great, thank you so much for taking your questions, so quickly just on own Brands. Again, in tariffs know, if you look to make price increases in line with the broader Market, just how are you thinking about balancing those actions with Amanda elasticity to sustain the momentum within our own Brands? And then with the mitigation measures in place? How is your view on the need for additional pricing? Shifted compared to 3 months ago?
We're looking at our own brand product. We're really Compares comparing to just the broader, third party mix. And when we've done some blind tests where we're moving tax and testing things against luxury and seeing that home brand pricing is, you know, magnitudes for, you know, greater, you know, on the lower side, but seeing quality very, very very comparable. So long time, super optimistic, super excited that as we invested better higher quality.
Quality product, the customer, you know, buys our higher price points but also still feels that they are very accessible and quite you know, value compared to the luxury Marketplace. So I think that there's a huge huge opportunity there of course, as we invest into world class, you know Talent as well as you know, world class brand. We think we're giving a luxury proposition at a premium price point and a customer has uh has really connected with it, so a lot of a lot of ramp there and uh yeah can't be more proud of the team in the execution there.
And then just a follow-up.
M&a.
Speaking opportunistic around some of the future. Acquisitions in the prepared, remarks. What are you looking for now? Is you evaluate the market? And how do you think about the right type of opportunities that could complement the broader portfolio.
I see that there's big gaps in our merchandising mix still. So we're really strong in certain areas, but we know our customers shop for other needs and other zones. So I think that the right M&A opportunity could really integrate with what our customer comes to us for, but also we're not necessarily providing just yet. We could really accelerate things in that sense. I'm excited to explore. I think our customer has a deep trust in us, and we ultimately have to give her a broader opportunity of a more diverse offering. Ultimately, we can gain greater share of wallet, greater, you know, bigger share of closet, and more mind share as well. It also unlocks, you know, other marketing opportunities and such. So that's the primary thing where we can leverage our scale and distribution and expertise into strategic zones that we know are synergistic with our customers.
Customer base.
The next question is Matt, kuranda Ross. Capital partners.
or clarifying question on the gross margin for the third quarter is that guidance range taking into account the full impact of tariffs and vendor price increases, or is there still some benefit of sort of inventory, Broad, and prior to price increases from vendors,
Yeah, I know that factors in everything and that's our best estimate. Um, not only of the Tariff rates and where they ultimately land because there's still some uncertainty there but also our best estimate of our mitigation efforts and uh, pricing that we're seeing
Okay, and then uh just on the offex I guess it implies some reinvestment um given some of the line items that you got there, Jesse for the second half of the Year especially on marketing and and selling and distribution. Can you guys maybe just address either specific marketing campaigns or or just um additional expenses that are impacting snd? Um in the second half of the year that caused the deal? Leverage
Yeah. On selling distribution first um this compares to last year, Q3 and Q4, where we saw the meaningful decreases in return rate. So we're up against those comps and we're factoring that in. As we look ahead, we're still optimistic over the long term that we can continue to work return rate down. But we are up against those tough times, where we saw that great benefit, uh, from the return rate reduction,
Um, and then on marketing, um, just continue to invest, you know, in the core continue to acquire customers continued to retain our existing customers. And importantly, in the back half of the year, we have the uh, own brand launches, coming up in the next couple quarters that will invest ahead of and then also the opening of the Growth Store um in La that will that will take some marketing dollars.
Our next question will come from Peter McGoldrick from Steeple.
Hi everyone. Thanks for taking my question. Uh active customer growth accelerated, year-to-date verse 2024. I was hoping you could quantify the areas where you're picking up new customers. Whether it be from Kate category, expansion luxury, retail International or picking up, elapsed revolve customers, anything you can help with sizing there.
Yeah, I think if you look at relative strength, it um, you know, broadly lines up with the relative, net sales growth that we saw. Um, and then, um, and then sorry the second piece. Oh, on the existing customers really exciting to see the productivity from those existing customers. So it increased both sequentially in your rear and the revenue per active customer and then a sequential increase in the order for active customer. So really good results from the existing customer. Then continue to acquire those new customers.
Very good. And then fashion apparel plus 13% year-over-year. That's the largest dollar contributor to revenue growth. Can you parse the contribution from expanding assortment from the underlying growth within the core product categories?
Yeah, I think it's hard to uh get 2 specific on on person it out but uh, category expansion and and just investments in the categories that we have historically been known for as much, uh, play played a big role in the, uh, you know, in the growth and, and fashion apparel. But, uh, you know, it's always going to be a mix between just
A nuances of fashion trends changing over time, in terms of where the dollars go, but 100% are are continued investment in other categories of starting to play dividends and I think we're in the very early stages there. Um, and the long-term opportunities is quite big. If we can make a mark outside these areas, we've been traditionally known for
All right. Thank you very much.
The next question is Janine sticker from p b. D, b, b, b, t.
Hi, thanks for taking my question. Um, can you talk a little bit more about Forward? It's really impressive the results you've had there, just given how tough luxury has been. So maybe speak about some of the investments you're making there and how you see the share gain opportunities going forward, if you go to the next year.
Over look forward to getting to know really good about, you know, the execution really cross the board. It's not necessarily 1 thing. I think the buying merchandising mix has been awesome. The ability to add new brands, especially in a time, when some of our most, you know, direct competitors. Especially in the US Marketplace are increasingly weaker and weaker. But also there's been a lot of Everson. Um, higher touch consumer sales that's been an early early area for us. So, we're seeing great, great progress there. So, of course, being like smaller business, there are still lots of untapped zones for us to invest in, you know, kind of uh, drafting behind what we do, learn from revolve and what are aspects there. So great progress by the team but also a long way to go really, really great. Um, you know improvements and a number of areas across the board
Great. And then maybe just a follow-up curious. What you're seeing on beauty. What you've been seeing in that category and how you see the the opportunity there to go forward as well.
Great progress on beauty but also still early, I know we're seeing, you know, good Healthy Growth there, but also knowing that there are a lot of blocking and tackling a lot of nuts and bolts that need to improve basic sight experience. And of course, you know, Big Marketing, we have enough to invest in much of the walking sign at all. It's really been driven by assortment, you know. The next kind of phase that we think will be you know game changing will be a site experience along with the go there. But see you know, the initial progress there being you know quite satisfying and ultimately when we feel that the merchandising mix is you know, world class and our satisfaction world class, then we can really unleash marketing. So early stages, steady steady progress and growth growing faster than the core business but also
So, a long long way to go in a big attractive Market.
Great. Thanks. Much.
Next up is Michael benetti evercore isi.
Hey guys, it's Carson from Michael first off, congrats on a nice quarter. Could you break down the merchandising strategy for the rest of the year to help us? Think about aov? And what does the updated Outlook embed for markdowns in the second half?
Mix and the forward versus revolve mix. So but our internal modeling is about flat.
And as far as merchandise and strategy, I think it's you know back half of your kind of mirrors are long-term. Strategy is really enhanced. The core really be the best at what we're really known for as well as expand, you know, the fronts really make progress in areas that we're not necessarily known for last year. We had great progress in sweaters, and knits outwear ski kind of cold weather things that were historically not in our La nature and we're anticipating more of the same but overall feel good about that. Continue to expand expansion of Brands and launched a new own Brands, which should be very, very exciting for us. So looking forward to the back half of the year.
Great. Thanks guys.
Our final question today comes from Janet kloppenburg jjk
Hi. Um, hi everybody. And congrats on a nice quarter. Um,
I I had a question on on pricing, uh, and on and on mix. And I I don't know if I'm right on mixed but it seems to me that the way you're sorting the website and the categories you're invested in um a dragging down, the average price point and I I'd love you to clarify that for me and then, secondly, I was just wondering that as you passed
Higher prices along in July. Have you seen because of the Tariff impact? Um, have you seen um, some resistance or any resistance from your core customers? Thank you.
Yeah, so so I'll start with the July question. Uh, the early read is we aren't seeing
Significant signs of resistance from customers on on some of the pricing because as we've seen but uh you know the the the data is still early uh I'd say the sample set is not large enough to draw a conclusion and also as we mentioned the price increases that we're seeing from third-party vendors, do you do, do you tick up a bit as we enter into Q4? So I think the early read is positive but we have to see how things continue to to play out over the course of the year. And then in terms of uh,
The price point and how the merchandising mix can be affecting things, I think it's a combination. Uh, so for Q2, it was a bit of a tale of two halves. In the front half, we did see some impact.
Particularly low on the pricing side of things, and that played a role. Um, and then I think on the other front, uh, you know, you're right that there was a bit of a...
Of a mix from a merchandising assortment, which can vary quarter to quarter as we make investments in areas.
Opportunity. Um, so uh, you know, I I think we'll see that.
Moderate, uh, you know, significantly through the back half of the year, uh, you know, just from a strategic standpoint, and then also, you know, with those vendors starting to price, uh, pass through those price increases as well. So, uh, you know, we shouldn't, we don't expect to see the same trend there in the back end.
Here.
Okay, thank you very much.
And everyone that's all the time we have for questions today, I will turn the call back to management for closing remarks.
Thank you guys for joining us for the quarter. And thank you, most importantly, to our team, really proud of, you know, all the work that's been done. We agree. It's been a nice quarter of solid quarter but it doesn't really select all the hard work that really sets. The foundation for a great quarters ahead, the macro and, you know, macroeconomic uncertainty really is, you know, requires a lot of hard work, but also allows us to really invest in separate ourselves, strategically become more competition. So excited for the events that we have excited for the future and excited for you guys to join us, uh, for the journey ahead.
This does conclude today's conference call, you may. Now disconnect
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