Sunglasses. What about you, Alex? Anthony De Rosa. Okay. Yeah. I like Lovers and Friends. Good. And Girlfriend. Yep. Girlfriend's really good too. I like the margins though. The margins. That's a good topic. Hi everybody. Thanks for joining today. I'm Oliver Chen, TD Cowen's retail, new platforms, and luxury analyst. I've known Jesse since the IPO of Revolve. We've had the joy of working together for many years. At TD Cowen, we rate Revolve by $21 price target. The company's been a leader in customer centricity. As you know, I love fashion, and this company has been at the forefront of really balancing magic and logic and weaving AI a decade ago into operations. We also appreciate your vote in the AI poll. If you can vote, please do. It really helps us do what we do here at TD Cowen. Jesse, thanks a lot. Yeah, thanks for having me. For those a little less familiar, although this room is very familiar, how is Revolve different versus peers? What are your core competencies? Yeah. No, thanks Oliver. It's great to be here. Thanks for all of your great content on Revolve. Even outside of Revolve, it's super helpful in the industry. Maybe if I step back, Revolve was founded over 20 years ago by Mike and Michael, who are still our co-CEOs today. They were not fashion guys back when they founded the business, so they relied on data to make their decisions, to drive the merchandise, buying, really build the whole internal structure, ERP, operating systems, marketing, everything. From day one, it's been data-driven and technology-focused. I think that's one big differentiator. It's really played to our advantage in this most recent era of AI, which is a huge benefit and something we're leveraging that I'm sure we'll get into. That's one. I think merchandise is also a key differentiator. I think being broad yet curated is really important. It's not the stale department store of the past, but it has that broad assortment. It also has the curation and kind of specialness of a boutique, but is able to serve customers around the world and really provide these great emerging brands to that customer. Merchandise is really important. That feeds into marketing and really having a voice and really speaking to this next-generation consumer. Being focused on this next-generation consumer is also important. The purchasing power is moving to this next generation. I say she a lot because that's still the majority of our customer. We do have a great men's business that's still in development, but I'll say she for now. She's looking for newness. She's looking for authenticity. That's something we provide her. I think just from a financial perspective, growing consistently and growing profitably has been a key differentiator. That has led to a really fortress balance sheet of over $300 million in cash, which is especially important in times like this where we can continue to invest and grow through cycles. Jesse, what are you seeing with the consumer today? During first quarter, average order values declined slightly. What are you seeing lately in terms of the health of the consumer? There's a fair bit of volatility month to month. Yeah, yeah, definitely volatility. It's really hard to pinpoint how the consumer's feeling. I think it's really confusing out there. There's a lot of volatility, a lot of uncertainty. We saw that coming out of Q4. We closed 2024 really strong with 14% growth in Q4. January softened with Los Angeles wildfires, during which time we paused social media. The conversation was really focused around the wildfires and in reverence to the victims of those fires. We saw a soft January. February and March picked back up closer to our Q4 levels. We were feeling really good about things. April started to soften again. We saw the decrease in AOVs a little bit in Q1, and that continued into April. April also slowed to the mid-single digit, right around Liberation Day. All the uncertainty and the macro and the headlines that were happening there. In the back week or two of April, it started to pick up again. That continued into May. I think, again, the theme is it's very uncertain, very volatile out there, but everything we can control is going really well. I think managing through this cycle and getting back to some kind of normal will come out stronger. Yeah. What drives? It feels like different things every time a little bit, but what do you monitor in terms of driving volatility? Yeah, I think for us, it's really been around the sentiment out there. That's really driven by the headlines. You see those when there's an abrupt change like we had on Liberation Day or back in kind of the mini banking crisis we had with the collapse of Silicon Valley Bank. There's an abrupt change. She starts to pull back. She's uncertain. It comes back a little bit. Where are you now with return rates? Because return rates also interplay with sentiment. Yeah, yeah. Maybe that's one difference is we did not see, different from times past when you have those abrupt changes where you see return rate hiccup. We did not see that this time. I think that's partly due to our effort on reducing return rates. We made a lot of great progress on reducing return rates. We saw almost a three-point reduction year on year in Q1. Yeah, I think we have to see how this plays out. With the balance sheet, we think we can continue to manage through it. You have a really loyal and large active customer base. Who is your customer? She's pretty wide-ranging, but what's the household income profile like? Yeah, yeah, it is wide-ranging. Again, I'll say she because that's the majority of our customer today. It's that 20-40-year-old customer really seeking emerging fashion, really wants to look great. Historically, she's come to us for the occasion. We're making an effort to really increase our share of her wallet and get her to come to us for everything in her life, from beauty to basics to essentials to active to outerwear. I think, and I say 20-40, it does go outside of that range. We're really tapping into that younger customer and getting her early in the funnel. Beauty's a great product for customer acquisition, especially at that younger age and that lower price point. On the high end of that age range, being able to graduate her from Revolve up into FWRD and those higher price point handbags, shoes. Household income is higher than the national average, but not significantly higher. I think that's a surprise to many out there. She does dedicate more share of her wallet to fashion. She's going out and wants to look great and stay on trend. You also gave a really nice update, an early one. This is changing every hour, but on tariffs, 16% of inventory from China. Walk us through your guidance calculations and how you're feeling now with this dynamic situation. Yeah, back to the theme of uncertain. Still very uncertain out there. Maybe to rewind, at the time we gave guidance, that was at the point where China was at 145%. Everybody else was at 10%. Our guidance range for the full year was 50%-52%. At the low end of the range, that assumed that elevated tariffs were in place, so the 145% and the 10%, and our best estimation of our mitigation efforts, which we think we can make great progress on. At the high end of the range, and this was not any one scenario. There were literally dozens of scenarios that went into this range. At the high end of the range, that assumed tariffs were reduced to some level and/or mitigation played out greater than that low end of the range. It could be a combination of those. It was a dozen scenarios. It was China at 30, China at 50, China at 145, China at 10, everybody else. There are a lot of different moving pieces there. I think given that China's now at 30, at least for now, we do have Europe coming to 50 here in a few weeks. I think given where we're at now, it gives us a little more confidence in the range, but does not significantly change our mitigation tactics and how we're operating. Does it change in light of the 30, trying to acquire as much inventory as humanly possible within this window of time? Yeah, 30's still high. I think it's still kind of managing as we were at 145. It just is, I guess, easier negotiations at 30 than it was at 145. Now, if it goes down for a period of 24-36 hours last week where it went down to zero, that's at the point when we will really try to ramp and get inventory in as quickly as possible. Okay. What about elasticity in terms of as you approach pricing? How are you thinking about that? There are many approaches. Usually, people are trying to manage within a category. Of course, you're being surgical, and behavioral economics can play a role too. Yeah, yeah, definitely being surgical on this. It depends on the brand, the price point, and the product. We carry third-party brands. They're trying to maintain price equivalency across the board and manage their MSRPs. What we've found on own brands is there's pockets where we can increase price with zero impact to demand, just based on the quality relative to other products. That's not across the board. This gets back to the surgical nature of those price increases. Okay. Jesse, what about promotions and merchandise margins relative to how you're planning inventory relative to sales? Yep, yep. Promotions, we are not true promotions, we're not leaning into. We don't typically react with promotions to any cycle or competitive dynamic. We do our own thing. Now, on the markdown front, that's largely algorithm-driven. That will depend on inventory levels and demand. There is some human oversight there. We did see some shift from full price to markdown in Q1. That continued into April. I think it's just business as usual on that front and continue to manage to maximize margin dollars. Will you see higher markdowns than last year for the balance of the year? I think Q1 and Q2 have the tougher comps. We had really high full price mix last year. We are anniversarying that. It starts to lighten up in the back half of the year. I think outside of the year-over-year comps, the full price mix is better today than it was pre-COVID. I think it speaks to just continued improvement in merchandising, that broad yet shallow initial buy, and then reordering into the stuff that works. You're ahead of the curve with fashion product execution. What's happening now with dresses relative to wardrobing and what she cares about most? Yeah, yeah, dress is still an important piece of the business. And she still comes to us for that occasion. She needs to be able to buy multiple dresses, try them on, return them if they do not fit. That is still important to the business. That said, dresses grew 4% or 5% in Q1. Fashion apparel grew 14%. I think it speaks to the category diversification. She is coming to us now more and more for other products outside of dresses, which is really exciting for us. Yes, lifestyle building. Yep, yep. Outerwear was really great in Q4 and into Q1. I think the Aspen store helps with that and really gets exposure to those products, gets those products in front of her. What should we understand longer term for product mix? You have a great beauty assortment too. Yeah, great. Great accessory assortment, great handbag assortment. Yeah, great. Yeah, we are really excited about category diversification. I think if you use beauty as a case study, that's quadrupled over the last five years. Some really great brand additions to the roster. Still a lot of work to do on presenting that product, merchandising the product, and marketing that product. Still at 4% or 5% of the business. We think based on relative comps, whether you pick a department store or another multi-brand retailer, that can be double-digit percentage of the business. If you think about men's, men's is sub 3% of the business, sub 4% of the business. That theoretically can be half of the business. Half of the purchases out there for a male come from a female. We have a very engaged and active female audience. A lot of opportunity there. Probably most exciting is just, again, within that core demographic, getting her to come to us for everything, for active, outerwear, essentials, basics. We launched our foundation shop in January. That is kind of the more foundational everyday items. That has had great feedback from brands and customers. We continue to test into that. I think over time. Interesting. Yeah, timelessness. What should we understand about the margin mix? Certainly, own brands are higher, but between, say, beauty versus dress versus fashion. Yeah, yeah, those do carry lower initial product margins than a dress does. But when you work down to contribution margin, it starts to wash out where fashion apparel has a lower return rate than dresses. And then beauty, for example, significantly lower at a low single-digit return rate versus the dresses that are higher than our overall return rate. So, I think managing to that contribution margin and bottom line profitability. Is comparable across those. Yeah, yeah. Own brands are better contribution margins. Yep, yep. Yeah, and then I think if you look at the customer LTV, having those other product categories gives her more opportunity on order frequency over time. Coming back. Engagement. Yep. It has multiplicative positive effects on lifestyle. I'm a big guy, physical plus digital. What's happening now? I think you can have a lot of stores, but you've been very disciplined. Yes. Yeah, I think that's the key. I think going back to the long-term mindset of Mike and Michael still owning just less than half of the company, we are always trying things, always testing, but also being very disciplined and listening to the data. This being no different. We have Aspen, which is about a year old. We will open The Grove in Los Angeles later this year in the fall. We really want to get these two stores right, read the data, make sure they're operating to our high level of standards before we start rolling out a bigger strategy on physical. That does not take away our optimism on physical. We think it's a massive opportunity. Still, two-thirds of the dollars out there are going through a physical door. We think we have a great brand and the scale. This is a great time for us to leverage that brand into stores and make them an experience. I think different from, again, the typical stale department store, these will be experiences for the customer. What have you learned so far from Aspen, by the way? Yeah, what got us excited about physical and Aspen was, one, new customers. We saw new customers over index in the store. Even in L.A., which is our hometown at The Grove when we had this holiday pop-up, we saw new customers over index, which was surprising. Anecdotally, we had one of our team members following a couple of girls that looked like core Revolve girls walking up or riding up an escalator and saw a Revolve ad. The girls were talking like, "What's Revolve? Have you heard of Revolve? That sounds familiar." The other girl said, "I think it's a fashion company." Just to have that anecdotal. Awareness build, yeah. Yeah, it kind of made us acknowledge what a great opportunity we have out there, even in our own backyard. New customers. We also saw a halo effect even in L.A. It was small, but there still was a halo effect even from a temporary pop-up. That gave us greater confidence in the physical opportunity. Own brands outperformed in store relative to online. Own brand sales outperformed the inventory levels. Really great sell-through on the own brands, which, back to the margin potential on own brands, gave us a lot of excitement. Back to the experience. We had a lot of activations within the stores. Aspen, we had a New Year's Eve activation. The videos posted from that activation averaged 400,000 views each, which were far higher than other activations we've had. We need an activation here next year. Yep, we're working on it. We're working on it. That's really exciting. I do know you do a great job managing. Well, how many SKUs do you have around? We'll have around 100,000 on the site at any given point over 1,000 brands. Very, very, there's a lot available. How did you decide what should go in stores? Yeah, right now that is primarily driven by our merchandising team and optimizing the store assortment for what we think is happening in that market. I think longer term, back to the data-driven merchandising, there's opportunity to leverage AI and our data to figure out what to optimally source in the stores. Aspen's going to be different than the Grove. The Grove's going to be different than the next store. To your point, the challenge and the opportunity is getting 100,000 styles into a store. And which of those 100,000 go in the store? Again, challenge and opportunity. I think the other great thing about the stores is it's Revolve and Forward under one roof. A lot of cross-sell opportunity. Then you've got anywhere from a $20 tube of lipstick to a $60,000 handbag under one roof. It's a great kind of customer draw, both on the high and the low end. Everyone can walk out with something. I love watching FWRD continue to innovate. That's about 15% of the mix. It's your luxury division. You've had two quarters of revenue growth and margin expansion. What's happening with this business now in terms of parts of the aspirational consumer are there. It's been a volatile market for luxury as well. Yeah, yeah, we are, I'll say we're excited about a lot of things. We're excited about this as well. Yeah, a lot of challenge out there in luxury, but we see it as an opportunity. Again, back to the balance sheet, the long-term focus of Mike and Michael. We are continuing to invest in the business while others are pulling back. If you look at Matches going completely away, Hudson's Bay going away, Saks and Neiman having their challenges, Farfetch being acquired by Coupang. There is just a lot of disruption out there, which has enabled us to acquire some great talent. We have added some great talent to the FWRD business recently. Also, adding brands to the roster, some brands that we've been after for quite a while, being able to add those. And then getting also better allocations from existing brands to the FWRD assortment. I think leveraging AI and everything Revolve is good at into that Forward business has been super beneficial. A lot of cross-sell opportunity and engaging that 2.6 million active customers on the Revolve or on the Forward platform. It's still sub 5% overlap. Using the loyalty program and the websites to kind of complement each other. Great. International also, there's a lot of demand here. It's 20% of your sales. It was 16% prior. I'm sure you can offer more service internationally. What's stopping you? What are your thoughts for global expansion? Yeah, yeah, a lot of opportunity there as well. International market is four times the size of the U.S. market, lower penetration for us in those international markets. Every market is different, but I think the theme is the same. First, get the customer experience right and get it to the level of our domestic customers. That is all-inclusive pricing, fast and free shipping. We can reach 80% of our international customers in two to three business days, which is really compelling for that customer. The next step, once we get all of that service right, is really marketing and merchandising specific to that customer in those markets. Really exciting most recently is the Revolve business in China. Historically, China has been more of a FWRD business and more of a brand name business. We're seeing really great growth coming out of China on the Revolve platform, thanks in part, in large part, due to a team we put in place there that's really starting to work with the local marketing channels and marketing in a way that really connects with that consumer. On RED, Douyin, Tmall, and then having the right merchandise on the right marketing channel to really drive sales there. That's kind of the next step in this evolution of international is really the merchandising and marketing to get that customer engagement. What percentage of total China could be massive for you? Yeah. What's stopping you from doing this more quickly? Yeah, I think we want to do it at the right pace. There are a number of regions that are performing well. It is just resource allocation and making sure, again, we do it at the right pace and do it at the right time. We do not want to market ahead of the assortment. We do not want to assort ahead of the customer experience. It is just a lot of blocking and tackling. Very, very optimistic over the long term. Okay. I've always been excited on AI. I teach a class in AI at Columbia Business School. What are some of the key pillars of how you're using this? You're using it in a few different ways. We'd love you to speak to that. Yeah, no, we are very excited about AI as well. I think what goes underappreciated, undervalued is the data-driven, the technology culture that we have. Mike is the man. Yeah, yeah, he's hardcore engineer. I think just having that culture of embracing data and technology that we've had for 20 years now gives us the ability to really move fast on AI. It's not just a buzzword. It's real for us. We think it can touch all aspects of the business. If we start maybe with the more kind of fun, front-facing, customer-facing AI initiatives, one great example is developing our own internal search algorithm on the site. Historically, that was provided by a third party that's arguably the best in search in the world. Our data science team was able to develop our own that outperformed that third-party technology, leading to what we estimate seven-digit revenue lift from that, also saving hundreds of thousands of dollars because we're not paying the third party for that search functionality. We own the algorithm and the technology. We can continue to iterate and make it better and better. We are also using AI to reduce the return rate. A lot of return rate initiatives leveraging AI. We are using it to expand our reach in digital performance marketing. That has been a great efficiency driver on the digital performance marketing side. On the site, a lot of customization, personalization, product assortment on the site, leveraging that and creating good edits on the site, which leverages into email. Email has been performing very well over the last couple of quarters. A lot on kind of size, fit, experience. Using video on the site, using the AI within the reviews to better sort and filter reviews and bubble up the best reviews and allow the customer to sort on those reviews. A number of other things that I'm forgetting on the site specifically. In the back office and kind of operations, leveraging AI to intelligently route customer service inquiries to the best equipped agent. Also translating voice calls from customers into text, so we can better data mine all of the customer inquiries and better serve the customer and modify our processes and respond to customers better on an already best-in-class customer service customer satisfaction score. On the inventory side, intelligently placing inventory around the world in our different distribution centers based on algorithms determining how probable is that item to sell within a region. For example, if we ship something to a customer in the U.K. or Europe, she returns it, how likely is that product to resell? If it's likely that it's going to resell in the U.K. or Europe, keep it there. Don't ship it across the Atlantic again all the way back here just to ship it to another customer. A lot of efficiency gains there. Then starting to use it kind of in the back office, accounting, AP processing. Most of this stuff, we're leveraging third parties to some extent, but a lot is internally developed. We have a really great data science and business intelligence team that's on the website. Sounds like you can open a consulting firm too. I think, yeah. B2B. Yeah. What about AI creatively? Because you've spoken to that too. Yeah, yeah, starting to leverage that creatively on the site and editorial. Yeah, continued kind of we have a team of two or three that specifically works on creative and editorial for product images. As we link AI to our models, how do you think it will, what impact might it play on revenues and margins or the bigger drivers? You have so many. Yeah, yeah, yeah. I think revenue and contribution margin probably the first two and the biggest. I think AI driving better conversion on the site. We're paying for less traffic or less traffic converts to more revenue. I think it gets down to the just blocking and tackling, leveraging it in the back office. That leads to efficiencies over time. The ones we're most excited about is that kind of customer-facing development. Yeah, for sure. What is the toughest part of your job? Oh, you know, I think today it's probably tariffs. Again, we see this cycle as an opportunity. We'll get through it. Great team really engaged on managing through that. That's pretty tough right now. I think maybe back to your point on what's holding us up on international, why don't we move faster? I think it's resource allocation, optimizing the people and the resources to the right opportunity because there is a lot of opportunities out there. Prioritization is really important. Yeah. You have a loyal customer. Eventually, she doesn't go to music festivals every year. In your brands like Helsa, what are you thinking about as your customers get a little bit older? Yeah, yeah, I think FWRD is a great opportunity for that older customer. Even I think maybe she doesn't go to Coachella, but she'll go to Stagecoach the following weekend with that older crowd. I think there's still opportunities out there for that older customer to really engage with the brand. I think this is my opinion, but I think 50 is the new 30. Yeah, for sure. Customers are, I think, people are kind of younger by nature, which we see as an opportunity as well. Okay. We are asking all C-suite this. How would you rate the health of the customer, Jesse, on a scale of 1 to 10? Oh, I'm guessing I can't say 5 and cheat. I'll say a 6. 6. Okay. Yeah. I think just a lot of confusion out there and kind of what's going on. With the uncertainty, I think she's trying to figure out kind of how she feels. Yeah, for sure. If you had to bet on one consumer behavior shift that will define the next five years, what have you spotted? Consumer behavior shift. I think post-COVID, we did see people wanting physical interaction, connection. That could mean going into stores and experiencing brands more. I think that's one element that led us down this testing of physical retail. I think that connection with brands is going to be really important and something we've done well over time. I think puts us in pole position to capitalize on that going forward. Yeah, you've been able to perpetuate relevance over many years. What's your secret to success to staying cool and relevant? Yeah, I think it comes down to people and data. Reading the data, the data will tell us where to go. It also includes people. Having a team that's engaged and passionate about fashion and is out there in the market and living the brand is really important so they can bring that back to whether it's the branding, the brand marketing, the merchandising. It's really important to have a group of young, passionate people. TikTokification of retail, big theme for us and me. What's happening with social platforms next and some volatility in TikTok as well? Yeah, yeah, yeah, it'll be interesting. I think moving to video, which is a little bit aged at this point, but there continues to be more engagement on video, whether that's on Instagram, TikTok, or YouTube, has been great for us recently in that longer format video, really engaging for the customer. Especially on things like beauty, where you can have a longer form video around a beauty application. What's next? We'll see. We'll follow where the customer goes. We've followed the customer from when it was the early days of blogs into early days of Facebook, into Instagram, into TikTok. We'll continue to adapt. Jesse, it's been a pleasure to see this journey. Also, Revolve's been at the forefront of magic and logic, relevance, and technology, and also the best experiential events in the industry and quality, great fashion. Thank you. Yeah, thanks, Oliver. Thank you.