Revolve Group, Inc. (RVLV) Earnings

Management highlights

- Customer Growth & Core Operational Metrics * Trailing 12-month active customers grew 11% year-over-year, accelerating from prior quarters and surpassing the 3 million active customer milestone, with a 115,000 quarterly increase in active customers (the highest in four years) * Product return rate decreased year-over-year for the second consecutive quarter, exceeding expectations, driven by favorable category mix shift and customer-friendly return-reduction initiatives * Total orders grew 11% year-over-year to 2.7 million; average order value (AOV) was $299, down slightly from $300 due to the lower price point of new GrowGood Beauty products; AOV would have increased slightly year-over-year excluding GrowGood - Geographic Expansion * International growth reached 16% year-over-year, with all regions posting growth; Mexico delivered exceptional continued growth, and the Middle East rebounded from a weak Q2 start to finish the quarter with strong double-digit growth after competitors pulled back investment in the region * International now represents 23% of total net sales, with significant remaining untapped growth opportunity in markets larger than the U.S. - Product & Category Expansion * Core fashion apparel outpaced overall net sales growth, with particular strength in wardrobe essentials (tops, pants, outerwear, intimates, shorts, jeans) * Emerging categories (beauty, men's) continue to outpace overall company growth * Owned brand penetration of the Revolve segment increased for the sixth consecutive quarter; early sell-through for the second drop of the new Revolve Los Angeles namesake premium label is stronger than the first launch, with a long-term plan to expand the label across all wardrobe categories * The GrowGood Beauty joint venture with Cardi B launched in Q2 to stronger-than-expected demand; nearly one-third of early July orders were from repeat customers, gross margins are highly accretive (similar to other owned brands), and nearly all GrowGood customers are incremental to existing Revolve/Forward customer bases - Luxury Segment (Forward) Progress * Forward's 11% net sales growth is ~4x the estimated 2026 growth rate of the global personal luxury goods market; handbag sales (including pre-owned Forward Renew handbags) rebounded strongly in recent months * Luxury brands are increasingly partnering with Forward for exclusive product distribution; the second annual Forward Summer Club Capsule (with exclusive styles from top luxury brands) grew net sales nearly 50% year-over-year, and iconic brand Christian Louboutin was recently launched on the platform - AI & Technology Innovation * A new AI-powered photo search feature, allowing customers to upload images to find matching or similar products, will begin testing on the Revolve site in the coming weeks to improve product discovery and engagement * AI has been deployed to enable plain English queries of the company's full data warehouse for faster internal analytics and decision-making; custom AI algorithms analyze real-time store visual feeds to track store traffic, conversion and performance metrics for physical retail locations - Physical Retail Expansion * The new Aventura (South Florida) store is upcoming, positioned in a high-traffic premium location with strong existing Revolve online customer density; the store will focus on experiential, shareable retail activations for millennial and Gen Z consumers, following successful learnings from Aspen and Los Angeles locations * The company is taking a deliberate, patient approach to building retail infrastructure and processes before accelerating rollout - Capital Return * The company repurchased nearly 500,000 shares of Class A common stock in Q2, reducing outstanding shares by more than 1% and returning ~$10 million to shareholders (less than one-third of year-to-date free cash flow generation)

Guidance

- Full-year 2026 net sales growth guidance is maintained, with management confident in achieving the target of double-digit full-year growth following 18% year-over-year net sales growth in July 2026 - Full-year 2026 gross margin guidance is maintained at 53.5% to 54% (implies ~25 basis points year-over-year increase at the midpoint of the range); Q3 2026 gross margin is expected to be 53.5% to 54.0%, with a difficult year-over-year comparison due to strong markdown algorithm-driven margin gains in Q3 2025 - Fulfillment cost guidance for full-year 2026 is unchanged at 3.2% to 3.4% of net sales, with Q3 2026 expected to come in at ~3.4% - Full-year 2026 selling and distribution cost guidance is maintained at 17.1% to 17.3% of net sales, with Q3 2026 expected to be ~17.5% (flat year-over-year) - Full-year 2026 marketing investment guidance is revised upward to 15.8% to 16.0% of net sales, reflecting higher Q2 investment in long-term growth initiatives; Q3 2026 marketing is expected to be ~15% of net sales, with Q4 2026 expected to be above 16% due to planned brand building investments - Full-year 2026 G&A expense guidance is revised upward to $170 million to $172 million, reflecting faster-than-planned progress on strategic growth initiatives (Revolve namesake label, physical retail, Cardi B joint venture); Q3 2026 G&A is expected to be ~$43.5 million - Full-year 2026 effective tax rate guidance is maintained at 24% to 26% - Management expects G&A leverage to appear in 2027 after the 2026 investment year, with marketing as a percentage of net sales expected to decline slightly in 2027 after 2026's elevated investments

Segment performance

Total company net sales for Q2 2026 were $347 million, a 12% year-over-year increase. The Revolve segment (which includes the new GrowGood Beauty business) delivered 13% year-over-year net sales growth, and accounted for the majority of total revenue. The Forward (Ford) luxury segment delivered 11% year-over-year net sales growth. By geography: Domestic net sales increased 11% year-over-year, while International net sales grew 16% year-over-year, with International accounting for nearly 23% of total net sales (the highest geographic revenue contribution percentage in company history). Gross margin expanded to 56.6% overall, including a 160 basis point benefit from IEPA tariff refunds; excluding the refund, gross margin increased 90 basis points year-over-year across both segments, driven by AI-driven markdown algorithm improvements. Net income was $19 million, with diluted EPS of $0.26 (including a $0.06 gain from tariff refunds), up from $0.14 in Q2 2025. Adjusted EBITDA was $27 million (including a $5.6 million tariff benefit), up 17% from $23 million in Q2 2025.

Risks & headwinds

- Elevated logistics and international shipping cost headwinds, driven by variable fuel and other surcharges in international markets affected by ongoing geopolitical instability - Higher input costs, including increased prices for petroleum-based synthetic fabrics, mill and factory costs, and transportation costs, which have been factored into guidance but remain a gradual margin pressure point - Slightly lower full-price sales mix compared to the exceptionally strong results in 2025, with continued expected pressure on full-price mix through the second half of 2026 - Potential additional tariff impacts from pending Section 301 trade policy changes, which have not been fully factored into guidance due to uncertain timing - Inventory is slightly higher than management's target range (though still normal, and net sales growth outpaces inventory growth on a two-year stacked basis) - Early-stage long-term investments carry uncertainty around timing of future revenue and profit contribution - AI token costs represent a small but non-negligible contributor to higher G&A, though management is actively optimizing cost efficiency for AI initiatives

Analyst Q&A

• Q: The July 2026 net sales growth accelerated to 18% year-over-year. How much of this acceleration comes from strong consumer demand versus timing of company initiatives, and how durable is this growth through the second half? Also, what geographies, categories, or channels are driving strong new customer acquisition? /

  A: Management attributes the acceleration to investments made in Q2 that are now paying off, rather than broad industry-wide consumer trends. The company expects to maintain better growth in Q3 than the already strong Q2 growth rate. New customer growth is broad-based across geographies (with international particularly strong), domestic product categories, and new marketing channels. While some new channel experiments will not work out short-term, the investments have meaningfully improved the company's marketing capabilities.

• Q: What is the ramp-up trajectory for GrowGood Beauty, when will it become material to overall results, and what lessons are being applied to the broader owned brand strategy? /

  A: Early GrowGood launches have performed extremely well, and growth is currently limited primarily by inventory availability. Additional inventory is expected to arrive in fall 2026 to drive more meaningful top-line growth, which will continue into 2027. Management expects to provide more granular disclosures once the business reaches material size, likely by the end of 2026.

• Q: Higher full-year G&A guidance reflects continued double-digit growth. Where is this investment going, what is the stage of the investment cycle, and what is the outlook for G&A leverage? Also, what is the outlook for input costs and gross margin differentials between the Revolve and Forward segments? /

  A: Higher G&A is driven by the three major long-term growth initiatives: Revolve Los Angeles, physical retail, and the GrowGood joint venture. 2026 is the primary investment year, and management expects meaningful G&A leverage starting in 2027; excluding these investments, G&A would already show healthy leverage this year. Higher input costs (petroleum-based fabrics, mill, transportation) have been fully factored into guidance, with gradual rather than abrupt pressure. Management expects the gross margin differential between Revolve (supported by growing owned brand penetration) and Forward to expand over time, as higher-margin owned brands grow on the Revolve side.

• Q: What is the expansion plan for the Revolve Los Angeles namesake label, and should we expect marketing as a percentage of sales to decline next year after this year's heavy investments? /

  A: Revolve Los Angeles launched initially as a premium pinnacle label, similar to Ralph Lauren Purple Label, and over time will be expanded across all wardrobe categories to capture share across the entire customer closet. Early performance has been very strong, giving the company confidence to expand the label broadly. Marketing investments are elevated in 2026 to support new initiatives and new channel tests, and management expects marketing as a percentage of net sales to decline slightly in 2027 after this year's investment phase.

• Q: How has AI improved the company's demand forecasting and inventory planning, and how are you managing AI token costs? /

  A: AI has meaningfully improved inventory optimization, category demand forecasting, and product mix alignment with customer demand, which has contributed to the past four quarters of strong results, alongside front-end personalization improvements. AI token costs are a small but non-negligible contributor to higher G&A. The company actively optimizes costs by routing appropriate tasks to lower-cost open source models (already a large part of the company's AI mix) and is seeing the cost gap between frontier and open source models shrink over time, while allowing limited innovation space for employees to test higher-cost frontier models for new use cases.