Revolve Group Inc
NYSE:RVLV
Revolve Group Inc
Revolve Group Inc., a striking name in the world of online fashion retail, has carved its niche by blending the allure of digital engagement with a keen understanding of millennial and Gen Z shopping habits. Founded by Michael Karanikolas and Mike Mente in 2003, the company has grown from a modest e-commerce platform into a fashion powerhouse. Revolve operates through a unique blend of data-driven merchandising and influencer marketing, which sets it apart from traditional retailers. The essence of its business model resides in leveraging technology to target style-savvy consumers who crave instant access to trendy apparel. By tapping into the pulse of social media trends and maintaining close relationships with over 5,000 influencers worldwide, Revolve transforms digital buzz into tangible sales, creating a symbiotic relationship between fashion icons and their followers.
The company’s revenue engine is fueled by a carefully curated inventory that reflects the fast-paced evolution of fashion trends. Revolve's business thrives on an agile supply chain and the ability to respond swiftly to the consumer demands that shift like the sands of social media nuance. Its direct-to-consumer approach seamlessly connects the dots from style curation to checkout, driving customer loyalty with personalized online experiences. Furthermore, it garners significant profitability by minimizing the unsold inventory issues that often plague traditional retailers. With a pulse on the latest fashion and an adept handling of the global supply chain, Revolve not only embodies the spirit of contemporary e-commerce but also underscores the transformative power of digital innovation in retail.
Earnings Calls
Revolve's fourth quarter showcased an impressive 14% increase in net sales, reaching $294 million, alongside a substantial rise in net income to $12 million, more than triple last year's figures. Both segments returned to growth, with REVOLVE up 15% and FWRD up 11% year-over-year. Gross margins grew to 52.5%, exceeding expectations, aided by improved marketing efficiencies and reduced logistics costs. For 2025, Revolve anticipates gross margins between 52.4% and 52.9%, driven by higher full-price sales despite potential tariff impacts. They project continued strong growth, especially in international markets and expanding product offerings, while also focusing on enhancing AI capabilities for future growth.
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Hello. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's Fourth Quarter and Full Year 2024 Results Conference Call. [Operator Instructions].
At this time, I would like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin.
Good afternoon, everyone, and thanks for joining us to discuss Revolve's fourth quarter and full year 2024 results.
Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 2024 financial highlights to our Investor Relations website located at 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 in operating and innovation initiatives industry trends, marketing events and their expected impact our partnership and strategic acquisitions, 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 risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our quarterly report on Form 10-Q for the quarter ended September 30, 2024, and our annual report on Form 10-K for the year ended December 31, 2024, which we expect to file with the SEC on February 25, 2025, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information presented in prepared in accordance with GAAP. And our non-GAAP measures may be different from non-GAAP measures used by other companies.
Reconciliations of non-GAAP measures to the most directly comparable GAAP measures as well as the definitions of these measure, their limitations and our rationale for using them can be found in this afternoon's press release and in SEC filings.
Joining me on the call today are our 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.
Hello, everyone, and thanks for joining us today. We finished the year with an outstanding fourth quarter, highlighted by double-digit top line growth year-over-year and a more than doubling of net income and adjusted EBITDA year-over-year. Most importantly, we achieved these strong financial results while continuing to invest in key initiatives that we believe set us up well for profitable growth and market share gains over the long term.
I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2024 accomplishments and closing out with our key priorities of 2025. Starting with the fourth quarter recap. Net sales were $294 million, an increase of 14% year-over-year, driven by improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2024. In fact, net sales increased by a double-digit rate year-over-year across REVOLVE, forward, domestic and international for the first time in 2.5 years.
Net sales in the REVOLVE segment increased 15% year-over-year and net sales in the FWRD segment increased 11% year-over-year. Forward return to growth for the first time in 7 quarters as our investments begin delivering results within a luxury landscape that remains challenging. Gross margin increased by approximately 50 basis points year-over-year, well ahead of our gross margin outlook shared last quarter.
Net income for the fourth quarter of $12 million or $0.17 per diluted share was more than triple to $3 million in the prior year quarter. Adjusted EBITDA was $18 million, an increase of 114% year-over-year driving a 290 basis point expansion of our adjusted EBITDA margin. In addition to the gross margin expansion, contributing to our exceptional growth and profitability were significant marketing efficiencies and meaningful efficiencies in our logistics costs, which benefited from a more than 2-point decrease in our return rate year-over-year.
Beyond the numbers, I'm excited by our team's execution that has led to continued great progress on the strategic priorities we outlined on prior calls. I will now shift to a review of our performance and accomplishments for the full year 2024 before touching on our key areas of focus for the coming year.
Entering 2024, our most critical objective was to return to growth and meaningfully improve our net sales performance. We executed extremely well on this priority as our net sales growth rate improved measurably each quarter throughout 2024 and exiting with solid double-digit growth in the second half of the year.
Net sales growth in our core domestic market improved every quarter throughout 2024, and we exited the year with double-digit growth in the U.S. during the fourth quarter. International net sales increased 14% year-over-year, driven by growth across nearly all regions, but also improved as the year progressed. In 2024, we achieved record Net Promoter Scores in international markets, underscoring our successful investments to further elevate the shopping experience for our international customers. We continue to drive impressive net sales growth in adjacent product zones.
Sales of beauty, men's and home products each increased by a healthy double-digit percentage year-over-year more than tripling our consolidated growth rate on a combined basis and further validating our opportunity to expand our share of wallet. As a company focused on profitable growth, I'm very pleased that our 2024 profitability increased at a much faster rate than net sales. Net income and adjusted EBITDA increased 73% and 60% year-over-year, respectively.
Unpacking the drivers of profitability growth, reducing our global logistics cost was a top priority for us in 2024. We achieved a nearly 130 basis point reduction in our variable logistics costs as a percentage of net sales, driven by strong execution on initiatives designed to drive operating cost efficiencies and to reduce our return rate.
Importantly, many drivers of this lower return rate in 2024 even further elevate the customer experience, such as our size and fit initiatives. Marketing was also a powerful driver of our profitability in 2024. We achieved a nearly 130 basis point reduction year-over-year in marketing spend as a percentage of net sales, fueled by efficiency gains across both the performance and brand marketing channels.
Operating in a highly competitive environment, we successfully optimized spend across our marketing channels and leverage the strength of our brands to reduce our average cost to acquire customers year-over-year. Another key contributor to our improved profitability in 2024 is that our customer is increasingly spending with us at full price.
The percentage of our net sales at full price improved 3 points year-over-year to approximately 82%, which we believe is appreciably higher than the industry benchmarks. The increased percentage of net sales at full price helped to drive gross margin expansion of 65 basis points year-over-year. Cash flow generated from operations in 2024 further strengthened our balance sheet, all while deploying capital to reduce the number of shares outstanding through stock repurchases as part of our efforts to enhance shareholder value.
Finally, we've meaningfully advanced our AI technology and personalization capabilities, further elevating the customer experience and contributing to our strong financial results. Here are a few highlights. On our e-commerce websites, we launched AI-powered search algorithms for improved product discoverability. In product merchandising on our sites, we drove increased consumer engagement and conversion through AI-driven product recommendations and other site optimizations.
In marketing, our AI algorithms expanded the reach in 1 of our largest performance marketing channels. In operations, we created AI algorithms to intelligently route customer service inquiries and use our data and algorithms to intelligently balance inventory units across our multiple global locations. And finally, AI served an important role in reducing our return rate through a number of initiatives as a powerful illustration of our core competency in a variety of instances, our internal solutions handily outperformed AI solutions from third-party technology vendors.
I will wrap up with a discussion of our key priorities for 2025 as co-founders and the company's largest shareholders owning more than 31 million shares of REVOLVE common stock or approximately 45% of the total shares outstanding Michael and I are very aligned and focused on maximizing value over the long term.
Our strategic priorities for 2025 are guided by this long-term owner mindset. We are focused on extending our momentum in driving attractive top line and bottom line performance while continuing to invest in exciting growth opportunities imported to the long term, such as owned brand expansion, deploying AI technology and expiration of physical retail expansion.
As we look ahead, we see multiple levers for growth that we believe will enable us to gain market share for the years to come. First and foremost, we will continue to invest in expanding our brand awareness, acquiring new customers and strengthening our connection with the next-generation consumer. We will continue to focus on the core and invest in marketing, leveraging our brand strength and strong merchandising to acquire new customers, further engage with existing customers and expand our market share.
In addition, a new and exciting way we are increasingly engaging with consumers is through physical retail. Michael will talk more about these initiatives in his remarks.
Second, we will continue to build on the successful expansion of our assortment to gain a greater share of our customers' spending on apparel, beauty, footwear and accessories. We have earned our customers' trust and proven that with the right merchandising they are eager to expand their purchases with us. In fact, as just 1 example, revenue generated from our curated ski shop increased more than 850% year-over-year in the fourth quarter.
With the strength of our brands and our outstanding customer experience, we see an incredible amount of white space to deepen customer relationships in many zones beyond the core event dressing and going outwear often associated with REVOLVE, including beauty, men's, home and premium Essentials.
Third, we will further expand our international presence where we are investing in a market opportunity that is several times larger than the U.S., 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.
Finally, we will further enhance our technology stack and leverage AI and other technologies across our platform to drive growth and efficiency. Since our founding, our teams have operated with a data-driven mindset and culture of technology innovation, leveraging our proprietary technology stack that is ingrained in nearly all aspects of our operations. Our increasing success with AI technology in 2024 further confirms our competitive advantages and reinforces our commitment to invest as we expand the use of AI throughout the organization.
In short, we view our outstanding top and bottom line results in the fourth quarter as a direct outcome of our team's strong execution on our strategic priorities. I would like to thank our talented and passionate team for their incredible efforts, innovations, persistence and amazing ability to simply get things done that drove the strong execution in the fourth quarter. As our results of test, we believe we are gaining market share and further strengthening our foundation for future growth. I feel great about our current momentum and the exciting opportunities ahead in 2025 and beyond.
Now over to Michael.
Thanks, Mike, and hello, everyone. I'm proud of our strong results in the fourth quarter that were driven by our team's great execution across the business. Key contributors to our double-digit growth in net sales were vastly improved site merchandising and exciting gains in emerging product zones. The strong top line growth, combined with incredible efficiencies in our marketing and logistics costs that are more than tripling up net income year-over-year in the fourth quarter. With that as an introduction, I will focus my reports on the strategic areas we are investing in and that we are especially excited about. Merchandising and product assortment, brand awareness physical retail expansion and luxury and the high-end consumer.
First, merchandising and product assortment, meaningfully improved site merchandising and on point inventory advises were important contributors to our growth in the fourth quarter. Leveraging technology and data analytics. Our teams are doing an outstanding job of improving our assortment across a broader range of use cases and creating compelling merchandising to drive increased consumer engagement and conversion. I attribute much of the incredible growth in demand for our winter south that Mike mentioned, to our site merchandising improvements and assortments in front of our customers to optimize channel strategies.
Looking forward, one area that I'm truly excited about is premium Essentials. Our customers trust our brands and delighting our shopping experience, creating a strong point of leverage for us to capture a greater share of wallet. One of the first steps in this journey with the launch of the foundation shop on our REVOLVE site, featuring a selection of premium essentials through third-party and own brands. It's still early with the merchandise looks fantastic and has begun to fulfill our customers desire to shop on our valve for the everyday ware needs, including for fall fashion and colder weather valves that were strong growth drivers in the fourth quarter.
Response from our brand partners has been incredible, with 2 covered forward brands choosing across this unrevolved after hearing about our foundation shop strategy that we expect to build on in the coming quarters. We're also continuing to see exciting gains in new areas like beauty, which has more than [indiscernible] size in the past 5 years. In fact, our beauty, men's and home costs all achieved by the sales in the fourth quarter. This valid is our ability to tap into our customer loyalty to drive adoption in adjacent products. Through further product expansion and site merchandising improvements, we see a great deal of opportunity to both acquire new customers and capture more share of our existing customers' wallet.
Helping us to capitalize on these efforts, our new AI algorithms developed by our internal teams to recommend complementary items in adjacent product zones after the purchase transaction is complete. We are also very excited about the progress we made with in own brands last year. Our goal coming into the year was to create a solid foundation for future growth and expansion. We did just that. Our own bed mix of REVOLVE segment net sales of 18% for the full year in 2024 is well below its long-term potential, and we believe the underlying foundational metrics are better than ever, setting us up well for 2025 and beyond. We are very excited about the pipeline of new events in development this year.
Second, brand awareness. Our marketing efficiency meaningfully outperformed our outlook for the fourth quarter, contributing significantly to our outstanding results. Total marketing investment in the fourth quarter represented 14.8% of net sales, a decrease of approximately 170 basis points year-over-year. Our teams deserve a lot of credit for being very nimble in evolving our marketing events and partnerships with content creators to maximize returns on our investments and increase our brand heat. This innovation of working strategies continues to elevate and further differentiated brands resonating with consumers and deliver great results on the KPIs we're focused on.
We hosted several inpatients at our holiday shop in Los Angeles and in [ Aspen, ] many in partnership with brand partners. We have found these events to be highly efficient for building our brands and acquiring new customers. In fact, our new deactivation in Ascent was the most successful and productive event of 2024 based on the number of views generated per video posted on our social media channels. And notably, this event was produced at a modest investment.
Each video produced in connection with assets in use was viewed an average of nearly 400,000 times, substantially outpacing the content, but for our other marketing activations. Another way we are expanding our brand reach is by capitalizing on shift in culture that have created new types of influencers. We were early to recognize a powerful intersection of fashion sports, including collaboration with WNBA and Fashion [indiscernible] was recently featured on the cover of vote. More recently, we are partnering with a new women's professional viable League where our evolved logo is primarily featured on the back of every player's jersey and our brand is featured throughout the arenas.
As newly as online fashion retail partner, we are collaborating with the least stars, including former U.S. sale and big Metals. On a different more somber note, as a company found in Los Angeles, Mike and I and the team are devastated by the physical and emotional damage caused by the lira impacted many of our employees and partners. In January, we were able to leverage our influence for the benefit of our local community with the opening of the Revolve free shop, a temporary shop in downtown Los Angeles to support hundreds of members of our local community directly impacted by the wildfires.
We provided a broad selection of free clothing, shoes, beauty and hygiene products and blankets to support those most indeed. I have also personally donated $1 million to several charities and causes, including the Los Angeles Fire Department Foundation, the World Central Kitchen and many individuals directly impacted by the wildfires.
Third, physical retail expansion. I am very excited about the long-term growth opportunity in physical retail. We recently crossed the 1-year mark in our successful Aspen store and are busy preparing for the opening of our Las Angeles store, which will be our first permanent retail destination in the major metropolitan area. The temporary revolved holiday shop discussed last quarter was an excellent and well-executed preview of our future of retail located within the high-end retail entertainment district of the global Los Angeles.
And one of the most visited holiday shopping destinations in L.A., we created incredible buzz and excitement by hosting a dozen of impactful marketing events featuring VIP appearances from Kendle Gener, Card B, Megan Fox, Dan way, McCoig, Elsas and [indiscernible] Michel. Of note, even on our home turf of Los Angeles for our brands are most well known, more than 1/3 of the customers transacting at the [indiscernible] HolidayShop were unified. This reinforces the magnitude of opportunity to increase our brand awareness, expand our customer file and increase our market share.
We also saw early indications of lift in e-commerce and the local communities surrounding the growth, particularly among new customers. confirming the physical retail can be extremely complementary and provide a favorable halo effect on our core e-commerce operations.
Also very encouraging is that the Revolve holiday shop has generated a significantly higher mix of net sales from own brands than we generate online. While it's a small sample size, this reinforces the exciting opportunity ahead of us to drive much higher owned brand penetration and corresponding gross margin at is retail. We are very early in our fiscal retail journey, and we are continuing to test and iterate with the invaluable earnings gain so far, I am confident that we have a clear path for improvement as we pursue our fiscal strategy.
We intend to hire a senior leader with deep industry experience who will help us maximize this growth opportunity over the long term, beginning with our Los Angeles store. Speaking of which, I [indiscernible] share the details of our premier store in Los Angeles slated to open in the fall. We will occupy the exact same location as the Revolve holiday shop at the group. We believe our incredible permanent destination will elevate our brands with an essential and high-traffic location in the growth, providing great exposure and exciting those opportunities for years to come. We expect to break ground on construction next month, and I can't wait for everyone to see our brands comply.
Finally, luxury and the high-end consumer. In early 2024, we talked about the disruption of the luxury e-commerce market on the heels of 2 distressed sales of large competitors in late 2023. As a profitable company with consistent cash flow generation, we saw an opportunity to benefit from this industry turmoil by investing in the luxury segment while others singly had no choice to to cut back. Capitalizing on the opportunity, last year, we made key investments in talent work, particularly [indiscernible] the high net worth segment of consumers that drive the disproportion of share of the luxury industry revenue.
Our fourth quarter results are a powerful indication that our forward investments are paying off, particularly in key customer electrics. For instance, our average revenue generated per forward active customer increased by a double-digit percentage year-over-year. We believe our investments were a key contributor to or 11-point improvement in top line growth year-over-year compared to the prior quarter.
Another key driver of Forward's improved growth in the fourth quarter is our offering of preowned handbags. -- renew sales continue to gain scale and nearly doubled year-over-year in the fourth quarter. To map up -- we are thrilled with our win in delivering strong growth and profitability and excited about the potential of the long-term initiatives and investments as we pursue significant market opportunities that lie ahead.
Now I'll turn it over to Jesse for the financials.
Thanks, Michael, and hello, everyone. I am extremely pleased with our fourth quarter results, highlighted by double-digit net sales growth across segments and geographies and a more than doubling of our net income and adjusted EBITDA year-over-year.
I'll start by recapping our fourth quarter results and then close with updates on recent trends in the business and commentary on our gross margin and cost structure for 2025.
Starting with the fourth quarter results. Net sales were $294 million, a year-over-year increase of 14% and a 4-point improvement from our net sales growth in the third quarter of 2024. REVOLVE segment net sales increased 15% and FWRD segment net sales increased 11% year-over-year in the fourth quarter. By territory, domestic net sales increased 11% and international net sales increased 29% year-over-year. Active customers, which is a trailing 12-month measure, grew to $2.7 million, an increase of 5% year-over-year. Total orders placed were $2.2 million, an increase of 7% year-over-year and our highest order growth in more than a year.
Average order value was $301, a decrease of 1% year-over-year that was due to lower AOV in the FWRD segment driven by product mix. Consolidated gross margin was 52.5% and came in well above our guidance range. The increase of 53 basis points year-over-year primarily reflects meaningful margin improvement in our Forward segment and an increased mix of net sales from the higher-margin REVOLVE segment, supported by strong full price mix in both segments.
Moving on to operating expenses. A high-level summary is that much better-than-expected efficiency in marketing, selling and distribution and fulfillment expenses in the fourth quarter was partially offset by higher-than-expected general and administrative expenses. Fulfillment costs were 3.2% of net sales, a decrease of 27 basis points year-over-year and slightly better than our guidance. Selling and distribution costs were 16.5% of net sales, a decrease of 129 basis points year-over-year and outperforming our guidance by roughly 80 basis points. This impressive result reflects outstanding execution by our teams to drive efficiency in our logistics costs as well as a meaningful decrease in our return rate year-over-year.
Our marketing investment came in much more favorable than expected, representing 14.8% of net sales, a decrease of 168 basis points year-over-year, which reflects efficiency gains across both the brand and performance marketing channels. General and administrative costs came in $6 million higher than our guidance, although most of the overage reflects costs that are excluded from adjusted EBITDA.
First, there were $2.7 million in nonroutine costs that were not factored into our outlook and are excluded from adjusted EBITDA. Second, also contributing to the higher G&A costs is that stock-based compensation came in much higher than expected and increased $1.7 million year-over-year. These noncash costs are also excluded from adjusted EBITDA. In addition, we continue to invest in many longer-term initiatives that we believe set us up for profitable growth well into the future.
Our tax rate was 20% in the fourth quarter, down from 28% in the prior year. The decrease was primarily due to excess tax benefits realized as a result of the exercise of nonqualified stock options. The meaningfully increased net sales and gross profit year-over-year, the improved marketing efficiency and great progress driving efficiencies in our logistics costs resulted in an exceptional growth on the bottom line.
Net income more than tripled to $12 million or $0.17 per diluted share from $3 million or $0.05 per diluted share in the fourth quarter of 2023. Adjusted EBITDA was $18 million, an increase of 114% year-over-year. For the full year 2024, a adjusted EBITDA was $70 million, an increase of 60% year-over-year.
Moving on to the balance sheet and cash flow statement. We delivered improved net cash provided by operating activities and free cash flow in the fourth quarter compared to the prior year period, further strengthening our balance sheet. Comparisons were less favorable for the full year 2024, however, is our net cash provided by operating activities of $27 million, and free cash flow of $18 million decreased 38% and 54% year-over-year, respectively.
Our much higher net income year-over-year was more than offset by unfavorable changes in working capital. including our investment in inventory during the year. Importantly, we exited the fourth quarter of 2024 with inventory growth much more balanced, which we believe positions us to generate increased cash flows in 2025.
Inventory at December 31, 2024, was $229 million, an increase of 13% year-over-year, which was slightly outpaced by our 14% net sales growth for the fourth quarter. demonstrating the important progress we have made in rebalancing our inventory. As of December 31, 2024, cash and cash equivalents were $257 million, an increase of $11 million or 5% year-over-year and we had no debt. Since the end of 2019, we have increased our cash balance nearly fourfold, an increase of $191 million in 5 years while returning more than $40 million to shareholders through stock repurchases over the last 18 months, approximately $58 million remained available in our $100 million stock repurchase program at year-end, unchanged from last quarter.
Now let me update you on some recent trends in the business since the fourth quarter ended and provide some direction on our cost structure to help in your modeling of the business for 2025. Starting from the top. Our net sales through the first 7 weeks of the first quarter of 2025 have increased by a high single-digit percentage year-over-year.
In terms of linearity, month-to-date sales trends in February have been very solid, helping to offset softer net sales growth in January when the Los Angeles wildfires temporarily impacted demand in our largest region of California and during which time, we paused social media activity to focus on our relief efforts and in reference to those impacted by the wildfires. For modeling purposes, for the balance of the first quarter of 2025, remember that February 2025 has one less day than the prior year comparison due to leap year in February 2024. This uneven calendar year-over-year creates an approximately 1 point headwind to net sales growth in the first quarter of 2025.
Shifting to gross margin. We expect gross margin in the first quarter of 2025 of between 52.2% and 52.7%, which implies an increase of 15 basis points year-over-year at the midpoint of the range. For the full year 2025, we expect gross margin of between 52.4% and 52.9%, which also implies a year-over-year increase of around 15 basis points at the midpoint of the range. Embedded in our 2025 expectations for gross margin are higher net sales at full price year-over-year and notable margin improvement in the FWRD segment, which we expect to be partially offset by the new China tariffs that are most relevant to our REVOLVE segment.
Also important to the discussion of potential tariff impact in supply chains is that we have extremely limited sourcing exposure to Canada and Mexico.
Fulfillment. We expect fulfillment as a percentage of net sales of approximately 3.2% for the first quarter of 2025, a decrease of approximately 30 basis points from the fulfillment efficiency ratio in the first quarter of 2024. For the full year 2025, we expect fulfillment costs of between 3% and 3.2% of net sales, a decrease of approximately 20 basis points year-over-year at the midpoint of the range.
Selling and distribution. We expect selling and distribution costs as a percentage of net sales of approximately 17.4% for the first quarter of 2025, which implies a year-over-year improvement of approximately 50 basis points. For the full year 2025, we expect selling and distribution costs of between 17% and 17.2% of net sales, a decrease of 20 basis points year-over-year at the midpoint of the range.
Marketing. We expect our marketing investment in the first quarter of 2025 to be approximately 14.9% of net sales, a decrease of around 40 basis points year-over-year. For the full year 2025, we expect our marketing investment to represent between 14.9% and 15.1% of net sales, an increase of approximately 20 basis points year-over-year at the midpoint of the range, as we expect continued efficiencies in marketing to be partially offset by continued investments to support brand building and customer acquisition.
General and administrative. We expect G&A expense of approximately $39.5 million in the first quarter of 2025 and between $155 million and $158 million for the full year 2025. This implies a 10% year-over-year increase in G&A costs for the full year 2025 at the midpoint of the guidance range as we continue to invest in longer-term growth initiatives such as the launch of several exciting owned brands, and further expansion of AI technology throughout the organization. It also includes a full year of investment in the Alexandre Vauthier fashion house we acquired in the second quarter of 2024.
And lastly, we continue to expect our effective tax rate to be around 24% to 26% for the full year 2025.
To recap, I am very encouraged by our fourth quarter and full year results. highlighted by an inflection in our top line growth and more than 70% growth in net income for the full year 2024. Most importantly, we achieved these strong results while investing meaningfully in growth and efficiency initiatives that we believe position us well to continue to gain market share over the long term in pursuit of the very large opportunity ahead of us.
Now we'll open it up for your questions.
[Operator Instructions]. Your first question comes from Randy Konik of Jefferies.
I guess, Jesse, a question for you, really more color on the gross margin outlook, great performance in the quarter. Just curious, you talked about the ability to kind of even increase the amount of full price proportion of sales in the business and I guess, in REVOLVE, give us some perspective on what drive that thought process going forward?
And then on FWRD actually, maybe give us some perspective of just how much lower the gross margins are at this point in time and where you can see those margins going ahead?
Yes, sure. And yes, definitely a great quarter, and good to see that forward margin starting with a 4 again. We still see opportunity there especially on a full year basis. Again, a reminder, in the first half of the year was more challenged than the back half of the year. So we're entering 2025 in a really good place in terms of inventory on forward and expect that full price to continue.
On the overall full price landscape, I think it's a couple of things. One, styles continue to expand. The team gets better and better at bringing those new styles. The merchandising is really resonating, so we do see further opportunity there for full price even on top of the really healthy full price we exited 2024 on. And again, a reminder, the first half of 2024 was more pressured than the back half. So we see a good full year 2025 ahead.
And one last question. Just on the outlook on the outlook for logistics, especially internationally, where does that sit right now? I'm sure the international margins, I don't know if it's the case, but I'm sure they're a little bit lower domestic margins. Maybe give us some perspective of where those margins sit internationally relative to the domestic piece of the business evolve and kind of how that journey will unfold in the years ahead.
Yes. Yes. From a gross margin perspective, it's relatively in line. There's always some product mix differences there, but call it in line. And then when you work down to contribution margin, call it neutral. It is more expensive to ship internationally, but that's offset by a lower return rate internationally than we see domestically. So there's some puts and takes throughout, but it's comparable to that of domestic.
The next question comes from Oliver Chen with TD Cowen.
Mike and Jessie, great results. As we look forward, the comparisons get a little tougher in terms of the revenue growth as we go throughout the year. What are your thoughts in terms of average order value relative to number of orders and how that may manifest as well as are you expecting a better first half versus second half, given the nature of the comparisons?
Secondly, as we think about physical retail, what are just some key things you're thinking about longer term with physical and stores.
Yes. Yes, I'll take that first one and then pass it along. In terms of orders versus AOV and customers, we expect strong growth in that customer and orders. With a slight increase in AOV again, going back to the full price mix with a higher full price mix assumed, we should see a slight uptick in AOV, but nothing meaningful. So most of the growth coming from orders and customers.
And then in terms of physical retail and thinking about it, it's a huge long-term opportunity. We're really excited about our experiences there thus far, the Aspen store are entering its second year now. And then the growth pop up, which was a great success and really excited to put our heads down and get that store open for the fall this year. We think it's a great location. There is phenomenal interest in traffic and turn out at our pop-up and really excited to see what we can do in the fall. And again, long term, you get a massive opportunity, half of the apparel market or more is still offline. And so we're putting the pieces in place to go after that.
Okay. And on return rates, which have trended better. What should we know about what you're seeing now with return rates? And any implications that has for the nature of the health of your consumer. When we do model revenue growth in the year ahead, do you think it will be pretty bumpy or just consistently positive ideally.
Yes. Really hard to say what the cadence of revenue growth will be over the course of the year. I think 1 thing to hit on maybe seasonality. Because seasonality has been so volatile over the last few years and then this past year with a lot of our initiatives kicking in, in the back half of the year, we did see that revenue in absolute dollars increased sequentially each quarter.
So I think if we look ahead to 2025, absent any bigger macro factors. We expect seasonality to return closer to where we were back in the pre-COVID era with Q2 being the highest in 1Q and 4Q being a little bit lower, but more muted than it has been in the pre-COVID period, just given the great success we've had in other product categories outside of that core kind of event, kind of festival going out apparel that we've had in the past.
And then return rate, where for modeling purposes, we're modeling in a flat return rate for 2025. Now that's not to take away from the optimism we have in in generating further gains there. But from a modeling perspective, we're still modeling a flat return rate with more opportunity to beat that in the first half of the year than the second half given the progress we made in 2024.
The next question comes from Jim Duffy of Stifel.
Really nice quarter, guys. I want to ask on Q1, no doubt a challenge for the team operating this wildfires. Are you able to size the January impact of the disruption from both the customers in the area and the pause you had in performance marketing to the January figures.
Yes. Yes, it definitely had an impact. It's hard to give an exact number there because there were a lot of factors at play, but we definitely saw depressed sales specifically during that time period. And from a couple of different perspectives. One, in that core market of California and then more specifically around L.A., and you could really see that at the growth store.
And then second, which impacted more kind of nationwide sales was our pause on social. And then also just a lot of the social attention was focused on wildfires, there was also a lot of kind of weather challenges, especially on the East Coast. And then also a lot of, call it, noise from administration change tariffs, et cetera. So January was challenging from a number of perspectives.
But to our point in the prepared remarks, February really picked up and is -- it performed solid through that first couple of weeks of February. So feeling optimistic about the progress despite the challenge we had in January.
Okay. And then on the merchandising, can you put a little more color on broader use cases you gave the ski were example, which drove really impressive growth in the fourth quarter. Are there others like this that you would point to, which are tangible drivers in 2025? And then maybe like within that, if you could speak to the own brands that you're most excited about?
So I think Michael is having trouble with this line. Normally, Michael would answer these questions.
Yes. Can you anti me?
We got you, Michael.
Sorry, yes, I get going to get interest with a lot off and muting from the operator. But yes, the CSP has been incredible and that's something we continue to expand. But water cold weather has been very, very strong for us over the past 20-some years. we've been known for a lot more warmer weather. But with the absent with merchandising focus, we've been able to connect really on an outerwear sweaters in this past cold weather season.
We're also seeing a lot more tailoring and sophisticated kind of styles, which can translate to a more accent customer as well as kind of workwear, which has been super exciting for us. long-term right also we think that foundational basics and essential things that our customers necessary historically too has gone quite well. The foundation hope see that as a long-term journey. So we really see a lot of traction in all aspects of reward rope long-term-wise, even more. There's other things that we haven't even yet attacked yet, but those are 3 huge areas that we know our customers shop for and is now really shopping with us for. So the team has done an incredible job there.
The next question comes from Nathan Feather of Morgan Stanley.
Really encouraging to see forward return to double-digit growth here. I guess, do you feel you're back to sustainable positive growth in that segment absent additional macro volatility there? And then can you give us an update on the inventory situation? How far would you say you are from normalized levels, specifically forward?
Yes. So with regard to FWRD, we feel great about the progress in the fourth quarter. FWRD has been a little bit more volatile business. So you don't want to kind of refrain from commenting on precise projections going forward, but we're continuing to see some positive momentum there. We feel that we made great investments last year, really tapping into the higher net worth customer segment, as Michael mentioned.
Also, we feel like we're starting to see some signs luxury market is a bit. We're certainly optimistic we're going to see positive growth there in the quarter to come. But we'd like to see a couple more months of progress before putting anything to firm out there.
With regards to the inventory situation, we're definitely seeing progress on inventory, still a bit more heavily inventory than we'd like. So continue to work our way through. There are some signs of recovery, really great results in Q4, and we're looking to strength through a couple of of nice quarters in a row before we get too bullish on that segment.
The next question comes from Michael Binetti with Evercore ISI.
It's great quarter, great holiday. Jesse, would you just kind of put a final stamp on the question earlier, would you say the February run rate or whatever the run rate is since you went back to restarted social media is back to levels similar to 4Q, just so we can understand that that's kind of the normal rate here given the volatility.
And then I'm curious on the gross margin outlook for the year, what -- what should we think about as the inputs that dictate the high end, up 40 basis points versus the low end, down 10 basis points, so I understand some of the puts and takes. And then one last one on the -- really impressed to hear the variable costs better by 130 basis points. I know that took a lot of work for you guys, very impressive especially as more of the orders coming from international, which I think has always been harder to serve. When do you get to that run rate? And what are the incremental drivers from here? Are there other projects that can drive that higher from here?
Yes. Okay. I'll try to hit all those. So maybe starting with February and the growth rate there, it did bounce back really nicely, and it was really solid. And I'd say, I'd put it in the zone of that Q4, which helped offset some of the January softness that we saw. So hard to say what happens from here, but our hope is that, that continues.
On the puts and takes on gross margin, there's a couple of things. I think the things we called out, how successful we are in driving that full price mix, which we're confident in. The other probably bigger factor that's more somewhat out of our control is just what exactly happens with tariffs when that comes in play, timing of inventory receipts and then our mitigating factors. We have a number of mitigating factors in the works, which is why we're not getting too precise on specifying that tariff impact. But that is definitely a variable we feel good about the inventory as we head into the year, as Mike called out. So that definitely gives us a good start to 2025.
On the variable, really good work by the team in 2024 with outside of the return rate impact, which I'll get to, but we had 20, 20-plus specific initiatives and different size and scale that were in play that helped that selling and distribution efficiency gain in 2024. If you look at the combination of selling and distribution and fulfillment, there was about 160 basis point improvement, about 2/3 of that was due to return rate and a lower return rate year-over-year. So that definitely has a significant impact. And we're optimistic we can continue to drive those gains. So that will be 1 factor. And the team continues to work on other efficiency gains. They've already identified a number of things as we head into 2025, not to get specific on those, but we're optimistic we can continue to manage those variable line items.
And thank you for calling out the international, too. That is a factor. So even with that international pressure in international growing at 29%, being able to get those logistics efficiencies down was really impressive.
The next question comes from Mark Altschwager with Baird.
You called out the reduction in your customer acquisition costs I was hoping you could contextualize how much of that improvement is your internal initiatives and marketing approach versus perhaps a more favorable backdrop on the performance marketing front.
And then separately, Jesse, just G&A, I think you're guiding to about 10% growth in G&A dollars in 2025. It's, I think, a higher leverage point than you communicated in the past. And maybe I'm missing some one-timers in that calculation, but maybe just unpack that a little bit and help us understand the G&A investments.
Yes. So on the marketing side, in terms of the marketing efficiencies we saw during the year, it was largely driven by internal team indicative. There are a number of really nice things the team was able to do in terms of expanding our reach and efficiency with the performance marketing, some of them actually related to some of those AI initiatives that we talked about. Of course, there were any in beyond that.
And then on the brand marketing side, really phenomenal work by the team, structuring our brand marketing events in a way that was much more efficient but also more impactful than the previous year. So a tremendous job by the team on the marketing side.
Yes. And then on G&A, in 2024, there were meaningful amounts of, call it, nonroutine costs that were included in G&A to the tune of about $4 million. So hard to predict those going forward, but assume those go away in 2025. Stock comp is also higher in 2024, so expecting that to normalize as we get into 2025. So -- that 10% is really core G&A growth plus investments that we continue to make, expecting additional investment in physical. We've got a number of owned brand launches planned that we're really excited about, and that takes upfront investment in team and infrastructure there. And then Vauthier will have a full year of cost impact versus the half year of 2024. So those are a couple of the kind of outliers outside of the 4 G&A growth.
The next question comes from Anna Andreeva with Piper Sandler.
Great. And let me add my congrats as well. great end to the year. Just a follow-up on the quarter-to-date. Great to hear that February improved so nicely. Just what are you seeing across the 2 brands and also international versus U.S.? And any particular categories you call out that are driving the business? And then we had a follow-up as well.
Yes. No additional color on the 7 weeks in part because it's only 7 weeks, so we don't want to give too much there. Other than to say we did see growth across both segments and both domestic and international. So optimistic that the growth is coming from all aspects of the business.
Okay. That's perfect. And just on marketing. You've been getting really nice efficiencies all of last year. Just curious, can you talk about how you approach the Revolve Festival coming up in April? You got some pretty nice marketing efficiency last year, already with [indiscernible]. Just how do you think about that this year?
This year, from an investment perspective, we're looking at the same range. But of course, we're always challenging the team to do better and better. So it's not an optimistic that we can continue to improve on our investments in these areas. But from a dollars perspective compared to last year, it will be quite similar.
The next question comes from Jay Sole of UBS.
My question is for you. You talked a lot about AI in the prepared remarks about all the different ways the company has utilized it to impact the business, but AI seems to be changing so fast. Can you just talk about maybe in the last 90 days, how you see new opportunities emerge just based on AI technology getting better? And what might you -- what new things you're working on to maybe help having the business forward using AI?
Yes, 100%. That's what's so exciting about it. We've gotten some much in terms of incredible results in the past year and is changing so fast, and the team is working on new things every day. So we've got several really exciting projects in the -- I think it's a bit too early to share them yet. One of the things I'm particularly excited about, I think generally kind of taps into newer ways of product discovery and I think that one will take a little bit of refinement anytime you're introducing a new way of shopping to customers and new interfaces, it can take some time for consumers to adapt. But really excited about that one.
We're continuing to leverage ML and AI against all facets of our business to efficiency, improve our existing algorithms. We made huge gains in terms of site merchandising search product recommendations last year. The team is continuing to tap into some of those same areas with the improved technology. So yes, -- it's exciting. I'm excited to see what the year comes and what comes with year I think the nature of R&D type developments it can come in spurts, right? So you don't say know what's going to hit until you fully validate everything, but there's a number of projects in the works that we're excited about.
The next question comes from Dylan Carden with William Blair.
Any -- just kind of a follow-up to that question. The comments about the expanded reach on sort of the performance channels via AI. Anything you can provide there as far as -- is that a proprietary versus third-party initiative? What are you seeing there?
Yes. So that used our own proprietary technology. And we don't want to get too much into the details of what exactly we did. But we were able to employ the technology in an effective way to expand our reach. And it was -- among many things that helped our margin in the 5G and during the quarter.
Fair. All right. And then just 2 quick ones here. Are you seeing any meaningful impact on the return rate deleverage or decline as it relates to product or category mix, men's, beauty home? Or is it too early for that?
So with regards to return rate reductions, you're just kind of wondering if we're seeing it sort of more broadly across the board or some categories are more impacted than others. Is that the question?
You're getting bigger in categories that are theoretically lower return, right? Is that too small at this point to be showing up more meaningfully in that return rate on any given quarter?
Yes. So category mix shift, including -- I include in that sort of geographic shift the meaningful impact in the return rate reduction that we saw in 2024. It wasn't the largest area of impact, but it had a meaningful impact.
Within that, I'd say domestic and international was a bigger impact than the individual category shift. But individual product categories did have some level of impact.
The next question comes from Ashley Owens with KeyBanc Capital Markets.
Great. So I wanted to dig further into the gross margin guidance a little bit. I know you gave tidbits on tariff versus higher full price sales and then recovering forward. Maybe just help us quantify the tariff impact you're assuming for Revolve and would love to share color around your assumptions for own brands penetration given the launch of several new brands this year.
And then 2, just on the assortment in physical retail, you called out that within the pop-ups, you've carried a higher mix of that owned brand penetration. So just -- anything you've done from a merchandising standpoint to really highlight these brands? Is it upfront to the customers immediately gravitate towards it? Is it the majority of inventory? Or what do you think is driving the higher mix there?
Yes, I'll take that first one and then pass it along. So on the gross margin, no further specificity on the tariff impact other than to say that the margin improvement that we do see is largely coming from the FWRD segment and bringing that back into a more healthy zone. On REVOLVE, you're planning essentially flat, maybe a little bit of an increase there. So most of the margin improvement is coming from the FWRD segment.
We do anticipate, call it, slight to moderate increase in owned brand mix in 2025. That is helping offset some of the tariff impacts. Most of the own brand launches that we're working on really take hold in the back half of the year, so more of an impact in 2026 and 2025, but we still do anticipate a mix expansion on own brands this year.
And regarding the physical store is part of why I'm so to about physical retail that we're far from optimal in many areas, one of those, including our own brand [indiscernible] with in-store. I believe we actually have less 1 brand product on a percentage basis on the -- in the store compared to the penetration of the site, but those styles are just performing incredibly well without massive optimization and visibility and a lot of the owned brand section is actually upstairs in a markable locations.
So I think when the customer is in person encounters this product, she's de loving it. So as we focus long term, I think that there's huge upside potential from where we are to where we can be, it's great to see those initial results being awesome.
The next question comes from Lorraine Hutchinson with Bank of America.
On last quarter's conference call, you talked about 15% to 16% marketing for 2025, and now you're guiding it to $15 million -- can you talk about the drivers that caused that change? Was it just the efficiencies in 4Q? Or are there other initiatives in place to help bring that down?
Yes. It was really just the continued efficiencies that we're seeing in both channels, both in brand and performance that gave us the confidence to guide to that 15% in 2025.
The next question comes from Janine Stichter with BTIG.
Congrats on the momentum. Two questions for me. Purchase on product categories, you mentioned a lot of success with some of the more everyday essentials and some of the newer categories. Could you elaborate on what you've seen within the core business, particularly in dresses. And then just on the cash balance to be commuted quite a nice balance of cash here. Any thoughts on go-forward use potential acquisitions.
Yes. On the first part, dresses performed well. We saw great growth in some of those other categories, but dresses was up, I think, 10% in 4Q. So a little south of the overall growth rate, but still very healthy double digit.
And the cash balance, we're continuing to look at a number of opportunities and continue to be opportunistic there. So not much more to say other than that. We have the buyback plan in place and then, again, just continuing to look at strategic opportunities.
The next question comes from Matt Koranda with ROTH Capital.
I just had 2, I guess. It sounds like a decent portion of the higher G&A guide is related to the store build-out. So maybe just if you could help us understand how we should interpret that in the context of the one permanent store that you're adding in L.A? Is there more to come in '26? How do we assess success there?
And then just on the message for overall margin expansion that we should take away from this, I guess, look at the full year guide, it looks like maybe contribution margin a little bit better, but operating margin potentially kind of flattish depending on what we plug in for sales growth. So wanted to maybe see if you could put a little bit of a finer point on how we should think about the opportunity for margin expansion over the next year or 2?
Yes. Maybe on the first one, store build-out and the costs associated with stores in this upcoming year is a factor. I wouldn't say it's the most significant factor in that G&A increase. There's other investments there, including the owned brand expansion and some other things we're working on. So it's a factor, it's not the leading factor in the G&A increase. And the overall margin expansion, I think you're in line there, and it's largely dependent on the top line growth. But we do see margin expansion as a scenario. But again, depending on where top line shakes out.
The next question comes from Simeon Siegel with BMO Capital Markets.
Mike or Michael, just do you think your customers know that your own brands are yours? I'm curious if you think there's different customers that come exclusively for third-party or for own brands or if it's really just not that segmented.
And then, Jesse, can you just remind us the gross margin differential for own brands? And then I have a follow-up after.
I don't think our customer really knows the own brands are ours. I think they really shop the brand. really for the merits of their design at quality and such like that. It's really -- we really drive our merchandising mix to put the best product in front of our customers. And a lot of times, that's our own brand, but we this great year party product, we put that aggressively as well. So I think it really shows that teams really work required to make sure that we do have amazing product in generally.
Yes. And then on the gross margin differential, I guess the reminder is that we don't disclose that other than to say that it is meaningfully richer than the third-party margin. But maybe 1 additional kind of note there is that the own brand margin is healthier today than it was back in 2019. So that differential has increased.
The underlying fundamental metrics that we're looking at on owned brands are really healthy. That was our goal as we kind of went into 2023 and 2024. So really good to see that checking and that gives us, again, the confidence to really really push here and launch those own brands we talked about this year.
All right. That's great. And so then on the back of that and on the OpEx improvements you've been seeing and guiding to, just any thoughts on your thinking about maybe the long-term EBIT margin opportunity? It looks like the margin is really moving in the right direction.
Yes, definitely moving in the right direction, made a lot of progress in 2024, again, entering the year with a focus on efficiency in those variable costs, getting our return write-down, while making investments in AI and other areas. So to see that come through while making investments and delivering those results was great. So over the long term, we do see opportunity in EBITDA margin expansion. Our goal is to get into that high single digits and ultimately into the double digits.
That's all the time we have for questions today. I will turn the call back to management for closing remarks.
Really proud of the fourth quarter and really proud of really the steady progress over all of 2024, great progress operation, do and do all aspects of the organization. all while making aggressive investments to the future that have potential transformational outcomes. So really proud of the team through and through all across the board and we said for all that we're working on this coming year.
This concludes today's conference call. You may now disconnect.