10-Q 1 rvlv-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission File Number: 001-38927

 

REVOLVE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-1640160

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12889 Moore Street

Cerritos, California 90703

(Address of principal executive offices) (Zip code)

(562) 677-9480

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s):

 

Name of each exchange on which registered:

Class A Common Stock, par value $0.001 per share

 

RVLV

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of April 30, 2024, 38,220,393 shares of the registrant’s Class A common stock and 32,597,119 shares of the registrant’s Class B common stock were outstanding.

 


REVOLVE GROUP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

7

 

 

 

Condensed Consolidated Balance Sheets

 

7

 

 

 

Condensed Consolidated Statements of Income

 

8

 

 

 

Condensed Consolidated Statements of Comprehensive Income

 

9

 

 

 

Condensed Consolidated Statements of Cash Flows

 

10

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

11

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

Item 4. Controls and Procedures

 

37

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

38

 

 

 

Item 1A. Risk Factors

 

38

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

72

 

 

 

Item 3. Defaults Upon Senior Securities

 

73

 

 

 

Item 4. Mine Safety Disclosures

 

73

 

 

 

Item 5. Other Information

 

73

 

 

 

Item 6. Exhibits

 

74

 

 

 

Signatures

 

75

 

 


 

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report titled “Risk Factors.” The following is a summary of the principal risks we face:

Economic downturns and other macroeconomic conditions or trends may adversely affect consumer discretionary spending and our business, operating results and financial condition.
If we fail to effectively manage our growth, our business, financial condition and operating results could be harmed.
We purchase inventory in anticipation of sales, and if we are unable to manage our inventory effectively, our operating results could be adversely affected.
Merchandise returns could harm our business.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely and cost-effective manner, our business, financial condition and operating results could be harmed.
Our business depends on our ability to maintain a strong community of brands, engaged customers and influencers. We may not be able to maintain and enhance our existing brand community if we receive customer or influencer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, operating results and growth prospects.
Use of social media and influencers may materially and adversely affect our reputation or subject us to regulatory and tax obligations, fines or other penalties.
If we fail to acquire new customers, or fail to do so in a cost-effective manner, our financial results may be materially adversely impacted.
If we fail to retain existing customers, or fail to maintain average order value levels, we may not be able to maintain our revenue base and margins, which would have a material adverse effect on our business and operating results.
Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing and warehousing.
We rely on third-party suppliers, manufacturers, distributors and other vendors and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.
Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.
Our industry is highly competitive and if we do not compete effectively, our operating results could be adversely affected.
Our quarterly operating results may fluctuate, which could cause our stock price to decline.
We may be unable to accurately forecast net sales and appropriately plan our expenses in the future.
Our past growth rates are not indicative of expected results in the near term.
If we do not successfully optimize, operate and manage the expansion of capacity of our fulfillment centers, our business, financial condition and operating results could be harmed.
Our failure to adequately and effectively staff our fulfillment centers, through third parties or with our own employees, could adversely affect our customer experience and operating results.
Increases in labor costs, including wages, could adversely affect our business, financial condition and results of operations.

5


 

Any failure by us or our vendors to comply with trade and other regulations including importation, exportation, product safety, labeling, labor or other laws, or to provide safe conditions for our or their workers, may lead to investigations or actions by government regulators, damage our reputation and brands and harm our business.
We have operations and do business in China, which exposes us to risks inherent in doing business there.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our operating results.
Failure to comply with federal, state and international laws and regulations and our contractual obligations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could harm our reputation or adversely affect our business and our financial condition.
Our use of artificial intelligence and machine learning could adversely affect our business and operating results.
If we cannot successfully protect our intellectual property, our business would suffer.
We have in the past and may in the future be accused of infringing intellectual property or other proprietary rights of third parties.
The dual class structure of our common stock concentrates voting control with our executive officers, directors and their affiliates, which may depress the trading price of our Class A common stock.

Our risk factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

6


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REVOLVE GROUP, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

273,416

 

 

$

245,449

 

Accounts receivable, net

 

 

14,929

 

 

 

12,405

 

Inventory

 

 

201,839

 

 

 

203,587

 

Income taxes receivable

 

 

 

 

 

1,625

 

Prepaid expenses and other current assets

 

 

78,555

 

 

 

65,523

 

Total current assets

 

 

568,739

 

 

 

528,589

 

Property and equipment (net of accumulated depreciation of $19,306 and $17,994 as of
   March 31, 2024 and December 31, 2023, respectively)

 

 

8,151

 

 

 

7,763

 

Right-of-use lease assets

 

 

36,819

 

 

 

36,440

 

Intangible assets, net

 

 

1,879

 

 

 

1,875

 

Goodwill

 

 

2,042

 

 

 

2,042

 

Other assets

 

 

2,398

 

 

 

2,172

 

Deferred income taxes

 

 

30,005

 

 

 

30,005

 

Total assets

 

$

650,033

 

 

$

608,886

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

56,000

 

 

$

47,821

 

Income taxes payable

 

 

1,248

 

 

 

 

Accrued expenses

 

 

48,479

 

 

 

40,714

 

Returns reserve

 

 

84,396

 

 

 

63,780

 

Current lease liabilities

 

 

7,417

 

 

 

6,863

 

Other current liabilities

 

 

28,787

 

 

 

30,442

 

Total current liabilities

 

 

226,327

 

 

 

189,620

 

Non-current lease liabilities

 

 

33,823

 

 

 

34,126

 

Total liabilities

 

 

260,150

 

 

 

223,746

 

Stockholders’ equity:

 

 

 

 

 

 

Class A common stock, $0.001 par value; 1,000,000,000 shares authorized as of
   March 31, 2024 and December 31, 2023;
38,219,753 and 38,693,589 shares issued
   and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

38

 

 

 

39

 

Class B common stock, $0.001 par value; 125,000,000 shares authorized as of
   March 31, 2024 and December 31, 2023;
32,597,119 and 32,597,119 shares issued
   and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

33

 

 

 

33

 

Additional paid-in capital

 

 

119,127

 

 

 

116,713

 

Retained earnings

 

 

270,685

 

 

 

268,355

 

Total stockholders’ equity

 

 

389,883

 

 

 

385,140

 

Total liabilities and stockholders’ equity

 

$

650,033

 

 

$

608,886

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net sales

 

$

270,581

 

 

$

279,609

 

Cost of sales

 

 

129,079

 

 

 

140,389

 

Gross profit

 

 

141,502

 

 

 

139,220

 

Operating expenses:

 

 

 

 

 

 

Fulfillment

 

 

9,393

 

 

 

9,071

 

Selling and distribution

 

 

48,438

 

 

 

51,458

 

Marketing

 

 

41,379

 

 

 

38,343

 

General and administrative

 

 

32,964

 

 

 

28,092

 

Total operating expenses

 

 

132,174

 

 

 

126,964

 

Income from operations

 

 

9,328

 

 

 

12,256

 

Other income, net

 

 

(5,321

)

 

 

(6,585

)

Income before income taxes

 

 

14,649

 

 

 

18,841

 

Provision for income taxes

 

 

3,776

 

 

 

4,669

 

Net income

 

$

10,873

 

 

$

14,172

 

Earnings per share of Class A and Class B
   common stock:

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.19

 

Diluted

 

$

0.15

 

 

$

0.19

 

Weighted average number of shares of Class A and
   Class B common stock outstanding:

 

 

 

 

 

 

Basic

 

 

70,919

 

 

 

73,370

 

Diluted

 

 

71,523

 

 

 

74,379

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

10,873

 

 

$

14,172

 

Other comprehensive (loss) income:

 

 

 

 

 

 

Cumulative translation adjustment

 

 

(425

)

 

 

755

 

Total other comprehensive (loss) income

 

 

(425

)

 

 

755

 

Total comprehensive income

 

$

10,448

 

 

$

14,927

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9


 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net income

 

$

10,873

 

 

$

14,172

 

Adjustments to reconcile net income to net cash provided by operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,343

 

 

 

1,218

 

Equity-based compensation

 

 

2,559

 

 

 

1,278

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,524

)

 

 

(2,659

)

Inventories

 

 

1,748

 

 

 

25,072

 

Income taxes receivable

 

 

1,625

 

 

 

1,996

 

Prepaid expenses and other current assets

 

 

(13,032

)

 

 

(4,925

)

Other assets

 

 

(226

)

 

 

(442

)

Accounts payable

 

 

8,179

 

 

 

(1,690

)

Income taxes payable

 

 

1,248

 

 

 

2,368

 

Accrued expenses

 

 

7,765

 

 

 

(2,747

)

Returns reserve

 

 

20,616

 

 

 

10,544

 

Right-of-use lease assets and current and non-current
   lease liabilities

 

 

(128

)

 

 

534

 

Other current liabilities

 

 

(1,655

)

 

 

4,110

 

Net cash provided by operating activities

 

 

38,391

 

 

 

48,829

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,735

)

 

 

(1,148

)

Net cash used in investing activities

 

 

(1,735

)

 

 

(1,148

)

Financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options, net of
   tax withholdings on share-based payment awards

 

 

(145

)

 

 

161

 

Repurchases of Class A common stock

 

 

(8,119

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(8,264

)

 

 

161

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(425

)

 

 

755

 

Net increase in cash and cash equivalents

 

 

27,967

 

 

 

48,597

 

Cash and cash equivalents, beginning of period

 

 

245,449

 

 

 

234,724

 

Cash and cash equivalents, end of period

 

$

273,416

 

 

$

283,321

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Income taxes, net of refund

 

$

1,599

 

 

$

255

 

Operating leases

 

$

2,254

 

 

$

1,795

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

Lease assets obtained in exchange for new operating lease liabilities

 

$

1,994

 

 

$

20,452

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

10


 

REVOLVE GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Description of Business

Revolve Group, Inc., or REVOLVE, is an online retailer and fashion brand. Through our websites and mobile applications, we deliver an aspirational customer experience with a vast, yet curated, merchandise offering. Our dynamic platform connects a deeply engaged community of consumers, global fashion influencers, and emerging, established and owned brands. We are headquartered in Los Angeles County, California.

Note 2. Significant Accounting Policies

Basis of Presentation

Our unaudited condensed consolidated interim financial information has been prepared in accordance with Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by generally accepted accounting principles, or GAAP, in the United States can be condensed or omitted. These financial statements have been prepared on the same basis as our annual audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any other interim period or for any other future year. All intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on December 31 of each year.

The accompanying unaudited condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2023 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on February 27, 2024.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include: the allowance for sales returns, the valuation of deferred tax assets, inventory, equity‑based compensation, valuation of goodwill, reserves for income tax uncertainties and other contingencies, and breakage of store credit and gift cards.

Net Sales

Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue. We recognize revenue through the following steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. A contract is created with our customer at the time the order is placed by the customer, which creates a performance obligation to deliver the product to the customer. We recognize revenue for the performance obligation at the time control of the merchandise passes to the customer, which is at the time of shipment. In addition, we have elected to treat shipping and handling as fulfillment activities and not a separate performance obligation.

We have a Loyalty Club program within the REVOLVE and FWRD segments. Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $20 reward once they earn 2,000 points. We defer revenue based on an allocation of the price of the customer purchase and the estimated standalone selling price of the points earned. Revenue is recognized once the reward is redeemed or expires or once

11


 

unconverted points expire. Rewards generally expire 90 days after they are issued and unconverted points generally expire if a customer fails to engage in any activity that generates points for a period of one year or if their participation in the program is otherwise terminated.

In accordance with our policy on returns and exchanges, effective May 1, 2024, merchandise returns are accepted for full refund if returned within 30 days of the original purchase date and merchandise may be exchanged up to 60 days from the original purchase date. At the time of sale, we establish a reserve for merchandise returns, based on historical experience, merchandise mix and expected future returns, which is recorded as a reduction of sales. Accordingly, cost of sales is also reduced and an offsetting asset is recorded within prepaid expenses and other current assets for expected merchandise to be returned.

The following table presents a roll-forward of our sales return reserve for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

63,780

 

 

$

63,381

 

Returns

 

 

(374,513

)

 

 

(368,175

)

Provisions

 

 

395,129

 

 

 

378,719

 

Ending balance

 

$

84,396

 

 

$

73,925

 

 

We may also issue store credit in lieu of cash refunds and sell gift cards without expiration dates to our customers. Store credits issued and proceeds from the issuance of gift cards are recorded as deferred revenue and recognized as revenue when the store credit or gift cards are redeemed or upon inclusion in our store credit and gift card breakage estimates. Revenue recognized in net sales on breakage on store credit and gift cards was $0.8 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively.

Sales taxes and duties collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We currently collect sales taxes in all states that have adopted laws imposing sales tax collection obligations on out-of-state retailers and are subject to audits by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes, whether for prior years or prospectively. No significant interest or penalties related to sales taxes are recognized in the accompanying condensed consolidated financial statements.

We have exposure to losses from fraudulent credit card charges. We record losses when incurred related to these fraudulent charges as amounts have historically been insignificant.

See Note 9, Segment Information, for disaggregation of net sales by reportable segment, by geographic area and by major product category.

Accounting Pronouncements Not Yet Effective

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. ASU 2023-07 is effective for us for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances income tax disclosures, primarily through changes to the rate reconciliation and disaggregation of income taxes paid. ASU 2023-09 is effective for us for annual periods beginning after December

12


 

15, 2024, with early adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures.

Note 3. Line of Credit

On March 23, 2021, we amended and restated our existing credit agreement to, among other things, extend the expiration date from March 23, 2021 to March 23, 2026. On May 11, 2023, we amended the credit agreement to replace the LIBO reference rate with a term SOFR reference rate and made conforming changes throughout the credit agreement. The line of credit provides us with up to $75.0 million aggregate principal in revolver borrowings, based on eligible inventory and accounts receivable less reserves. Borrowings under the credit agreement accrue interest, at our option, at (1) a base rate equal to the highest of (a) the federal funds rate, plus 0.50%, (b) the prime rate and (c) an adjusted term SOFR rate determined on the basis of a one-month interest period, plus 1.00%, or (2) an adjusted term SOFR rate, subject to a floor of 0.00%, in each case, plus a margin ranging from 0.25% to 0.75% per year in the case of base rate loans, and 1.25% to 1.75% per year in the case of term SOFR rate loans. No borrowings were outstanding as of March 31, 2024 and December 31, 2023.

We are also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee. The credit agreement also permits us, in certain circumstances, to request an increase in the facility by an additional amount of up to $25.0 million (in an initial minimum amount of $10.0 million and in increments of $5.0 million thereafter) at the same maturity, pricing and other terms. Our obligations under the credit agreement are secured by substantially all of our assets. The credit agreement also contains customary covenants restricting certain of our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness, repurchase stock or grant liens or negative pledges on our assets, make loans or make other investments. Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock. We were in compliance with all financial covenants as of March 31, 2024 and December 31, 2023.

Note 4. Equity-based Compensation

In 2013, Twist Holdings, LLC, or Twist, and Advance Holdings, LLC, or Advance, which subsequently became part of Revolve Group, Inc., adopted equity incentive plans that we refer to collectively as the 2013 Plan, pursuant to which the board of managers could grant options to purchase Class A units to officers and employees. Options could be granted with an exercise price equal to or greater than the unit’s fair value at the date of grant. All issued awards have 10 year terms and generally vest and become fully exercisable annually over five years of service from the date of grant. Awards will become fully vested upon the sale of the company. The then-outstanding options to purchase Class A units were converted into options to purchase shares of our Class B common stock in connection with our corporate conversion in June 2019.

In September 2018, the board of directors adopted the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective in June 2019. Under the 2019 Plan, a total of 4,500,000 shares of our Class A common stock are reserved for issuance as options, stock appreciation rights, restricted stock, restricted stock units, or RSUs, performance units or performance shares. Upon the completion of our IPO, the 2019 Plan replaced the 2013 Plan, however, the 2013 Plan continues to govern the terms and conditions of the outstanding awards previously granted under that plan. The number of shares that will be available for issuance under our 2019 Plan also will increase annually on the first day of each year in an amount equal to the least of: (1) 6,900,000 shares, (2) 5% of the outstanding shares of all classes of our common stock as of the last day of the immediately preceding year and (3) such other amount as our board of directors may determine. Our board of directors determined not to increase the number of shares reserved for issuance under the 2019 Plan as of January 1, 2024. As of March 31, 2024, approximately 9.0 million shares of Class A common stock remain available for future issuance under the 2019 Plan.

13


 

Option activity for the three months ended March 31, 2024 under the 2013 Plan and 2019 Plan is as follows:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual
Term
(years)

 

 

Aggregate
Intrinsic
Value
(thousands)

 

Balance at January 1, 2024

 

 

5,229,440

 

 

$

15.62

 

 

 

8.0

 

 

$

18,882

 

Granted

 

 

67,615

 

 

 

17.82

 

 

 

9.9

 

 

 

 

Exercised

 

 

(30,619

)

 

 

6.33

 

 

 

 

 

 

 

Forfeited

 

 

(12,663

)

 

 

27.56

 

 

 

 

 

 

 

Expired

 

 

(4,901

)

 

 

15.41

 

 

 

 

 

 

 

Balance at March 31, 2024

 

 

5,248,872

 

 

 

15.67

 

 

 

7.9

 

 

 

39,893

 

Exercisable at March 31, 2024

 

 

1,552,398

 

 

 

15.21

 

 

 

5.5

 

 

 

13,758

 

Vested and expected to vest

 

 

3,672,616

 

 

 

16.79

 

 

 

7.2

 

 

 

27,109

 

 

RSU award activity for the three months ended March 31, 2024 under the 2019 Plan is as follows:

 

 

 

Class A
Common
Stock

 

 

Weighted
Average
Grant Date
Fair Value

 

 

Weighted
Average
Remaining
Contractual
Term
(years)

 

 

Aggregate
Intrinsic
Value
(thousands)

 

Unvested at January 1, 2024

 

 

33,136

 

 

$

19.91

 

 

 

0.4

 

 

$

549

 

Granted (1)

 

 

32,092

 

 

 

22.70

 

 

 

0.0

 

 

 

 

Released

 

 

(40,494

)

 

 

24.61

 

 

 

 

 

 

 

Forfeited (2)

 

 

(437

)

 

 

26.82

 

 

 

 

 

 

 

Unvested at March 31, 2024

 

 

24,297

 

 

 

15.64

 

 

 

0.2

 

 

 

514

 

(1)
Includes an adjustment of 6,847 shares underlying performance-based RSU awards made during the three months ended March 31, 2024. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.
(2)
Includes an adjustment of (437) shares underlying performance-based RSU awards made during the three months ended March 31, 2024. The vesting of such RSUs is based upon the Company’s current performance against predefined financial targets.

There were 67,615 options and 25,245 RSUs granted during the three months ended March 31, 2024. The weighted average grant-date fair value of options granted during the three months ended March 31, 2024 was $9.72. The weighted average grant-date fair value of RSUs granted during the three months ended March 31, 2024 was $21.59 per share.

As of March 31, 2024, there was $15.7 million of total unrecognized compensation cost related to unvested RSUs and time-based options granted under the 2013 Plan and 2019 Plan, which is expected to be recognized over a weighted average service period of 3.4 years.

2023 Performance Option Awards

On September 15, 2023, the Company granted an aggregate of 1,701,479 performance-based options to certain members of management with an exercise price of $13.05 and a grant-date fair value of $6.79. In addition, on November 3, 2023, the Company granted 49,971 performance-based options to a member of management with an exercise price of $13.35 and a grant-date fair value of $6.94. Collectively, we refer to these option awards as the 2023 Performance Option Awards. The 2023 Performance Option Awards are subject to multiple vesting tranches that vest upon achievement of certain predefined financial milestones. As of March 31, 2024, we had $1.0 million of total unrecognized stock-based compensation expense for the financial milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 2.8 years. As of March 31, 2024, we had unrecognized stock-based compensation expense of $10.7 million for the operational milestones that were considered not probable of achievement. During the three months ended March 31, 2024, we recorded stock-based compensation expense of $(0.1) million related to the 2023 Performance Option Awards.

14


 

Equity‑based compensation cost included in general and administrative expense in the accompanying condensed consolidated statements of income amounted to $2.6 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively. There was an excess income tax benefit of $0.1 million recognized in the condensed consolidated statements of income for equity‑based compensation arrangements for the three months ended March 31, 2024. The amount of excess tax benefit for the three months ended March 31, 2023 was insignificant.

Note 5. Commitments and Contingencies

Contingencies

We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although we cannot predict with assurance the outcome of any litigation or tax matters, we do not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on our operating results, financial position and cash flows.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.

Tax Contingencies

We are subject to income taxes in the United States and the United Kingdom, or UK. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. Our provision for income taxes does not include any reserve provision because we believe that all of our tax positions are highly certain.

Legal Proceedings

In March 2022, we received a cease and desist letter alleging copyright infringement and related claims. During 2022, we accrued $6.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims and during the three months ended March 31, 2023, we accrued an additional $0.3 million for estimated legal fees. In February, 2023, we entered into a final settlement agreement with the claimant and paid approximately $1.5 million in settlement costs and legal fees related to this matter, net of insurance proceeds. The related insurance proceeds of $5.1 million were recorded within other income, net in the accompanying statements of income.

In March 2023, we received a separate cease-and-desist letter alleging copyright infringement and related claims. During 2023, we accrued $7.3 million to general and administrative expenses for estimated losses and legal fees that we expected to incur in connection with these claims. In November 2023, we entered into a final settlement agreement with the claimant and paid $7.3 million in settlement costs and legal fees related to this matter. During the three months ended March 31, 2024, we received $2.8 million in insurance proceeds related to this matter. We record insurance proceeds related to legal matters within other income, net in the period in which they are received.

In February 2024, the U.S. Fish and Wildlife Service served us with a notice of violation and proposed civil penalty, alleging that we have violated certain administrative requirements under the Endangered Species Act and the Lacey Act in connection with our export and import of certain items of merchandise. During the fourth quarter of 2023, we accrued $2.8 million to general and administrative expenses for estimated losses and legal fees related to this matter, which remains pending as of the date of this report. While we believe the amount accrued is adequate

15


 

based on the information available to us as of the date of this report, the ultimate loss and associated legal expenses may differ from the amount accrued.

Note 6. Income Taxes

The following table summarizes our effective tax rate for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Income before income taxes

 

$

14,649

 

 

$

18,841

 

Provision for income taxes

 

 

3,776

 

 

 

4,669

 

Effective tax rate

 

 

25.8

%

 

 

24.8

%

 

The increase in the effective tax rate for the three ended March 31, 2023, as compared to the same period in 2023, was primarily due to an increase in state income taxes.

In October 2021, the Organization for Economic Co-operation and Development issued a statement updating and finalizing the key components of the two-pillar plan on global tax reform, intended to be effective on January 1, 2024. Pillar One focuses on nexus and profit allocation. Pillar Two provides for a global minimum effective corporate tax rate of 15%, applied on a jurisdiction-by-jurisdiction basis. While the US has not yet adopted the Pillar Two rules, various other governments around the world are enacting legislation. As currently designed, Pillar Two will apply to our worldwide operations. However, given that we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two model rules in the jurisdictions in which we operate.

 

Note 7. Stockholders’ Equity and Stock Repurchase Program

Changes in stockholders’ equity for the three months ended March 31, 2024 and 2023 were as follows:

 

 

 

Three Months Ended March 31, 2024

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Total
Stockholders’

 

 

 

Number

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

 

 

(in thousands, except share data)

 

Beginning balance

 

 

71,290,708

 

 

$

72

 

 

$

116,713

 

 

$

268,355

 

 

$

385,140

 

Issuance of Class A common stock from exercise of
   stock options and vesting of restricted stock units

 

 

56,171

 

 

 

 

 

 

(145

)

 

 

 

 

 

(145

)

Repurchases of Class A common stock

 

 

(530,007

)

 

 

(1

)

 

 

 

 

 

(8,118

)

 

 

(8,119

)

Equity-based
   compensation

 

 

 

 

 

 

 

 

2,559

 

 

 

 

 

 

2,559

 

Cumulative translation
   adjustment

 

 

 

 

 

 

 

 

 

 

 

(425

)

 

 

(425

)

Net income

 

 

 

 

 

 

 

 

 

 

 

10,873

 

 

 

10,873

 

Ending balance

 

 

70,816,872

 

 

$

71

 

 

$

119,127

 

 

$

270,685

 

 

$

389,883

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Total
Stockholders’

 

 

 

Number

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

 

 

(in thousands, except share data)

 

Beginning balance

 

 

73,363,629

 

 

$

74

 

 

$

110,338

 

 

$

269,161

 

 

$

379,573

 

Issuance of Class A common stock from exercise of
   stock options and vesting of restricted stock units

 

 

36,144

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Equity-based
   compensation

 

 

 

 

 

 

 

 

1,278

 

 

 

 

 

 

1,278

 

Cumulative translation
   adjustment

 

 

 

 

 

 

 

 

 

 

 

755

 

 

 

755

 

Net income

 

 

 

 

 

 

 

 

 

 

 

14,172

 

 

 

14,172

 

Ending balance

 

 

73,399,773

 

 

$

74

 

 

$

111,777

 

 

$

284,088

 

 

$

395,939

 

 

16


 

Stock Repurchase Program

In August 2023, our board of directors authorized a stock repurchase program of up to $100 million of our outstanding Class A common stock. The timing and amount of any stock repurchases is determined based on market conditions, stock price and other factors, and the program does not require us to repurchase any specific number of shares of Class A common stock. The program has no expiration date but it may be modified, suspended or terminated at any time. The stock repurchase program is funded from available cash and cash equivalents. All repurchased shares under the share repurchase program will be retired. During the three months ended March 31, 2024, we repurchased and retired 530,007 shares of Class A common stock for a total cost of $8.0 million, exclusive of broker fees and excise taxes, at an average price of $15.17 per share. Broker fees and excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as part of the cost basis.

 

Note 8. Earnings per Share

Basic and diluted earnings per share is presented in conformity with the two-class method required for multiple classes of common stock. The rights of the holders of Class A and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.

Basic earnings per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share represents net income divided by the weighted-average number of shares of common stock outstanding, inclusive of the effect of dilutive stock options and RSUs. The undistributed earnings are allocated based on the participation rights of shares of Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical for both classes, the undistributed earnings are allocated on a proportionate basis.

The calculation of diluted earnings per share for Class A common stock assumes the conversion of Class B common stock, while diluted earnings per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock. Similarly, outstanding options to purchase Class B common stock and RSUs that are dilutive are included in the calculation of diluted earnings for both Class A and Class B common stock.

In August 2023, our board of directors authorized a stock repurchase program of up to $100 million of our outstanding Class A common stock. Repurchases during any given fiscal period under the repurchase program reduce the weighted-average number of shares of common stock outstanding for the period.

17


 

The following table presents the calculation of basic and diluted earnings per share:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

 

(in thousands, except per share data)

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,875

 

 

$

4,998

 

 

$

7,876

 

 

$

6,296

 

Reallocation of undistributed earnings as a result of conversion of Class B to Class A common stock

 

 

4,998

 

 

 

 

 

 

6,296

 

 

 

 

Reallocation of undistributed earnings to Class B common stock

 

 

 

 

 

50

 

 

 

 

 

 

107

 

Net income attributable to common
   stockholders — diluted

 

$

10,873

 

 

$

5,048

 

 

$

14,172

 

 

$

6,403

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used
   to compute earnings per
   share — basic

 

 

38,322

 

 

 

32,597

 

 

 

40,773

 

 

 

32,597

 

Conversion of Class B to Class A
   common stock outstanding

 

 

32,597

 

 

 

 

 

 

32,597

 

 

 

 

Effect of dilutive stock options
   and RSUs

 

 

604

 

 

 

604

 

 

 

1,009

 

 

 

1,009

 

Weighted average number of shares
   used to compute earnings
   per share — diluted

 

 

71,523

 

 

 

33,201

 

 

 

74,379

 

 

 

33,606

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.15

 

 

$

0.19

 

 

$

0.19

 

Diluted

 

$

0.15

 

 

$

0.15

 

 

$

0.19

 

 

$

0.19

 

 

The following have been excluded from the computation of basic and diluted earnings per share as their effect would have been anti-dilutive (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Stock options to purchase Class A
   and Class B common stock, and RSUs

 

 

1,735

 

 

 

658

 

 

Note 9. Segment Information

We have two reportable segments, REVOLVE and FWRD, each offering apparel, shoes, accessories, and beauty products available for sale to customers through their respective websites and mobile applications. Our reportable segments have been identified based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our chief operating decision makers are our co-chief executive officers. We evaluate the performance of our reportable segments based on net sales and gross profit. Management does not evaluate the performance of our reportable segments using asset measures. During the three months ended March 31, 2024 and 2023, no customer represented over 10% of net sales.

The following tables summarize our net sales and gross profit for each of our reportable segments (in thousands):

 

 

 

Three Months Ended March 31,

 

Net sales

 

2024

 

 

2023

 

REVOLVE

 

$

229,589

 

 

$

231,653

 

FWRD

 

 

40,992

 

 

 

47,956

 

Total

 

$

270,581

 

 

$

279,609

 

 

Gross profit

 

 

 

 

 

 

REVOLVE

 

$

127,672

 

 

$

120,236

 

FWRD

 

 

13,830

 

 

 

18,984

 

Total

 

$

141,502

 

 

$

139,220

 

 

18


 

The following table presents net sales by geographic area (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

United States

 

$

219,133

 

 

$

226,716

 

Rest of the world (1)

 

 

51,448

 

 

 

52,893

 

Total

 

$

270,581

 

 

$

279,609

 

 

(1) No individual country exceeded 10% of total net sales for any period presented.

 

The following tables summarize net sales (in thousands) and percentage of net sales by product category for the three months ended March 31, 2024 and 2023:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net Sales

 

 

 

 

 

 

Fashion Apparel

 

$

121,787

 

 

$

126,236

 

Dresses

 

 

78,893

 

 

 

80,013

 

Handbags, Shoes and Accessories

 

 

55,967

 

 

 

62,486

 

Beauty

 

 

12,437

 

 

 

9,290

 

Other (1)

 

 

1,497

 

 

 

1,584

 

Total net sales

 

$

270,581

 

 

$

279,609

 

 

 

 

 

 

 

 

As a percentage of net sales

 

 

 

 

 

 

Fashion Apparel

 

 

45

%

 

 

45

%

Dresses

 

 

29

%

 

 

29

%

Handbags, Shoes and Accessories

 

 

21

%

 

 

22

%

Beauty

 

 

5

%

 

 

3

%

Other (1)

 

 

0

%

 

 

1

%

Total net sales

 

 

100

%

 

 

100

%

 

(1)
Includes deferred revenue, shipping revenue and other revenue.

 

Note 10. Detail of Certain Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Expected merchandise returns, net

 

$

34,400

 

 

$

26,127

 

Advanced payments on inventory to be delivered from vendors

 

 

11,408

 

 

 

10,306

 

Other

 

 

32,747

 

 

 

29,090

 

Total prepaid expenses and other current assets

 

$

78,555

 

 

$

65,523

 

 

19


 

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Marketing

 

$

17,406

 

 

$

14,113

 

Sales taxes

 

 

5,840

 

 

 

5,332

 

Salaries and related benefits

 

 

5,421

 

 

 

6,683

 

Selling and distribution

 

 

5,199

 

 

 

3,927

 

Other

 

 

14,613

 

 

 

10,659

 

Total accrued expenses

 

$

48,479

 

 

$

40,714

 

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Store credit

 

$

13,372

 

 

$

13,389

 

Loyalty Club liability

 

 

5,882

 

 

 

5,530

 

Gift cards

 

 

4,307

 

 

 

4,489

 

Other

 

 

5,226

 

 

 

7,034

 

Total other current liabilities

 

$

28,787

 

 

$

30,442

 

 

20


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Information

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, net sales or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate,” “predict” or any other similar words.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission, or the SEC. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

economic conditions and their impact on consumer demand and our business, operating results and financial condition;
our ability to effectively manage or sustain our growth and to effectively expand our operations;
our ability to retain our existing customers and acquire new customers;
our ability to sustain and expand our gross margin and Adjusted EBITDA margin, a non-GAAP financial measure;
our ability to respond to changing consumer demand, spending and tastes, and our ability to accurately and effectively engage in predictive analytics;
our ability to retain existing vendors and brands and to attract new vendors and brands;
our ability to obtain and maintain differentiated high-quality products from appropriate brands in sufficient quantities from vendors;
our ability to obtain and maintain sufficient inventory at prices that will keep our business model profitable, and of a quality that will continue to retain existing customers and attract new customers;
our reliance on overseas suppliers and manufacturing partners, particularly in China;
our ability to expand our operations in an efficient and cost-effective manner;
our ability to maintain and enhance our brand;
our ability to optimize, operate, manage and expand our network infrastructure and our fulfillment center and delivery channels;
the growth of the market for premium lifestyle and luxury products, and the online market for premium lifestyle and luxury products in particular;
our ability to accurately forecast demand for our products and our results of operations;
seasonal sales fluctuations; and
our ability to expand our product offerings, including our owned brands.

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in this report, including under the headings “Risk Factors” and “Management’s Discussion and Analysis of

21


 

Financial Condition and Results of Operations” and in our condensed consolidated financial statements and the related notes thereto.

Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference speak only as of the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In this report, “we,” “our,” “us,” “Company” and “Revolve” refer to Revolve Group, Inc., and where appropriate its subsidiaries.

Overview

REVOLVE is the next-generation fashion retailer for Millennial and Generation Z consumers. As a trusted premium lifestyle brand and a go-to online source for discovery and inspiration, we deliver exceptional service and an engaging customer experience with a vast yet curated offering totaling over 100,000 apparel and footwear styles, as well as beauty, accessories and home products. Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers and over 1,200 emerging, established and owned brands. Through more than 20 years of continued investment in technology, data analytics and innovative marketing and merchandising strategies, we have built a powerful platform and brand that we believe is connecting with the next generation of consumers and is redefining fashion retail for the 21st century.

We sell merchandise through two complementary segments, REVOLVE and FWRD, that leverage one platform. Through REVOLVE, we offer an assortment of premium apparel, footwear, beauty, accessories and home products from emerging, established and owned brands. Through FWRD, we offer an assortment of curated and elevated iconic and emerging luxury brands. REVOLVE has historically been focused on the discovery of trend-driven, ready-to-wear styles, while FWRD has been more heavily weighted toward the statement pieces in our customers’ wardrobe, such as shoes and handbags. We believe that FWRD provides our customer with a unique destination for luxury products as our customers’ spending power increases and their desire for fashion and inspiration remains central to their self-expression.

We believe our product mix reflects the desires of the next-generation consumer and we optimize this mix through the selection of established brands that resonate with our consumer, the identification and incubation of emerging brands and the continued development of owned brands. The focus on emerging and owned brands minimizes our assortment overlap with other retailers, supporting marketing efficiency, conversion and sales at full price.

We have invested in our robust and scalable internally-developed technology platform to meet the specific needs of our business and to support our customers’ experience. We use proprietary algorithms and more than 20 years of data to efficiently manage our merchandising, marketing, product development, sourcing and pricing decisions. Our platform works seamlessly across devices and analyzes browsing and purchasing patterns and preferences to help us make purchasing decisions, which when combined with the small initial orders for new products, allows us to manage inventory and fashion risk. We have also invested in our creative capabilities to produce high-quality visual merchandising that caters to our customers by focusing on style with a distinct point of view rather than on individual

22


 

products. The combination of our online sales platform and our in-house creative photography allows us to showcase brands in a distinctive and compelling manner.

We use social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences to attract and retain next-generation consumers, and these efforts have historically led to higher earned media value than competitors. We complement our social media efforts through a variety of brand marketing campaigns and events, which generate a constant flow of authentic and inspiring content. Our social media and brand marketing strategy is combined with robust and sophisticated digital performance marketing activities and our proprietary brand ambassador program. Once we have attracted potential new customers to our sites, our goal is to convert them into active customers and then encourage repeat purchases. We acquire and retain customers through paid search/product listing ads, affiliate marketing, our brand ambassador program, paid social, retargeting, personalized email marketing and mobile “push” communications through our mobile applications.

We have developed an efficient logistics infrastructure, which allows us to provide free shipping and returns to our customers in the United States. We support our logistics network with proprietary algorithms to optimize inventory allocation, reduce shipping and fulfillment expenses and deliver merchandise quickly and efficiently to our customers. We continue to modify and expand our fulfillment network to support our growth and the demand for our products.

To date, we have successfully expanded internationally with limited investment and physical presence. Our ongoing initiative to elevate the international service levels and customer experience has been a key contributor to our growth, enabling us to offer express shipping and hassle-free returns at no cost (for international orders valued at $100 or more) in most of our major international regions. We also offer REVOLVE products on two large international marketplaces, Tmall Global in China and Nykaa Fashion in India, to expand our distribution reach in these key geographies. We intend to continue to invest in and develop international markets while maintaining our focus on the core U.S. market.

Key Operating and Financial Metrics

We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess the near-term and longer-term performance of our business.

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands, except average order value and percentages)

 

Gross margin

 

 

52.3

%

 

 

49.8

%

Adjusted EBITDA

 

$

13,267

 

 

$

15,010

 

Free cash flow

 

$

36,656

 

 

$

47,681

 

Active customers

 

 

2,551

 

 

 

2,424

 

Total orders placed

 

 

2,223

 

 

 

2,278

 

Average order value

 

$

299

 

 

$

288

 

 

Adjusted EBITDA and free cash flow are non-GAAP measures. See the sections captioned “—Adjusted EBITDA” and “—Free Cash Flow” below for information regarding our use of Adjusted EBITDA and free cash flow and their reconciliation to net income and net cash provided by operating activities, respectively.

Gross Margin

Gross profit is equal to our net sales less cost of sales. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of our purchase price of merchandise sold to customers and includes import duties and other taxes, inbound freight costs, receiving costs, defective merchandise returned from customers, inventory valuation adjustments, and other miscellaneous shrinkage.

Gross margin is impacted by the mix of brands and categories of styles that we sell on our sites. Gross margin on sales of owned brands is typically higher than that for third-party brands. Gross margin is also affected by the percentage of sales through the REVOLVE segment, which consists primarily of emerging third-party, established third-party and owned brands, compared to our FWRD segment, which consists primarily of established third-party

23


 

brands. Merchandise mix will vary from period to period and if we do not accurately forecast demand, our growth, margins and inventory levels may be adversely affected.

We review our inventory levels on an ongoing basis to identify slow-moving merchandise and use product markdowns to efficiently sell these products. We have maintained a high percentage of sales that occur at full price, which we believe reflects our data-driven merchandising strategy, customer acceptance of our merchandise and the sense of urgency we create through frequent product introductions in limited quantities. Gross margin is impacted by the mix of sales at full price and markdowns, as well as the level of markdowns.

Certain of our competitors and other retailers report cost of sales differently than we do. As a result, the reporting of our gross profit and gross margin may not be comparable to other companies.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this report Adjusted EBITDA, a non-GAAP financial measure that we calculate as net income before other income, net; taxes; and depreciation and amortization; adjusted to exclude the effects of equity-based compensation expense and certain non-routine items. We have provided below a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
Adjusted EBITDA does not reflect certain non-routine items that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate Adjusted EBITDA different