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Revolve Group, Inc. (RVLV)·Q2 2025 Earnings Summary
Executive Summary
- Q2 2025 net sales rose 9% year over year to $309.0M, gross margin expanded slightly to 54.1%, and Adjusted EBITDA increased 12%; diluted EPS was $0.14, down from $0.21 in Q2 2024 due to a sharp swing in other income/expense and a higher effective tax rate .
- Management raised FY 2025 gross margin guidance to 52.1–52.6% (from 50.0–52.0%) and trimmed G&A guidance to $152–154M, citing successful tariff mitigation and margin initiatives; Q3 2025 margin guidance is 51.2–51.7% .
- July 2025 net sales grew ~7% YoY, indicating momentum into Q3 amid an uncertain tariff backdrop; CFO noted China’s incremental tariff has moved from 145% in early May to ~30% currently, improving visibility .
- Stock reaction catalysts: gross margin guidance raised, strong cash generation, accelerating owned brands mix and FWRD execution despite luxury softness, plus announced physical retail expansion (LA store opening in Q4) and AI-driven conversion gains .
What Went Well and What Went Wrong
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What Went Well
- Owned brands penetration increased within REVOLVE, contributing to gross margin outperformance; Adjusted EBITDA margin was the highest in three years and cash flow strong (Q2 free cash flow $9.6M; H1 FCF $52.4M) .
- FWRD delivered 10% net sales growth and 16% gross profit growth in Q2 within a challenged luxury market, adding coveted partners and exclusive capsules; management highlighted momentum and share gains .
- AI search enhancements moved into production and delivered a meaningful lift in conversion rate; management emphasized data science-driven improvements and R&D pipeline (personalization, voice-to-text, landing page optimization) .
- Quote: “We delivered strong second quarter results, highlighted by 9% growth in net sales…our highest Adjusted EBITDA margin in three years…” – Co-CEO Mike Karanikolas .
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What Went Wrong
- Diluted EPS fell to $0.14 from $0.21 YoY, driven by a $7.2M YoY swing in other income/expense (FX losses and a $2.4M non-cash disposal charge vs. a prior-year bargain purchase gain) and a higher 33.7% effective tax rate (discrete items) .
- Average order value declined 2% YoY to $300; CFO guided for flat AOV in H2 as category diversification (lower price points) offsets tariff-related vendor pricing .
- Fulfillment was slightly above guidance, and management flagged tougher return-rate comps in H2 after five consecutive quarters of improvements, tempering some operating leverage tailwinds .
Financial Results
Segment and Geography
KPIs
Consensus vs. Actual (Q2 2025)
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- “Our ability to deliver profitable growth and market share gains…while continuing to invest in exciting long-term growth drivers…is a true reflection of the platform we have built” – Co-CEO Michael Mente .
- “Biggest source of upside…was our gross margin performance…continued penetration of owned brands…tariff mitigation…enhancements to our markdown algorithms” – Co-CEO Mike Karanikolas .
- “We mitigated the significant majority of our tariff exposure…we now expect gross margin in Q3 of 51.2–51.7% and FY 52.1–52.6%” – CFO Jesse Timmermans .
- “LA store opening in Q4 in The Grove; physical retail is an important long-term opportunity” – Co-CEO Michael Mente .
- “AI search upgrades delivered meaningful lift in conversion; ongoing R&D across personalization, virtual try-on, and content” – Co-CEO Mike Karanikolas .
Q&A Highlights
- Tariff mitigation and margin durability: Team has mitigated the majority of tariff impacts; China’s incremental tariff moved to ~30%; pricing increases beginning to flow through in Q3/Q4 without early signs of customer resistance .
- AOV and merchandising: Category diversification (fashion apparel up 13% vs dresses up 5%) mixed with tariff-related vendor pricing leads management to model flat AOV in H2; markdown algorithms improved margin depth .
- Return rates and OpEx leverage: Return rate down >1.5 points YoY in Q2; tougher comps in H2 may limit further leverage in selling & distribution and fulfillment lines .
- FWRD and luxury: FWRD grew net sales 10% and gross profit 16%, adding exclusive capsules and brands; high-touch clienteling and assortment momentum support ongoing share gains .
- Inventory and cash flow: Inventory down 6% YoY with strong turns, driving cash conversion; both segments entering H2 with healthy, balanced inventory .
Estimates Context
- Q2 2025 results exceeded consensus across revenue, EPS, and Adjusted EBITDA, reflecting margin outperformance (owned brands mix, markdown optimization) and operating efficiency despite tariff headwinds .
- Near-term estimate revisions: Raised FY gross margin outlook and lowered FY G&A/marketing suggest upward revisions to profitability assumptions; H2 return-rate comps and evolving tariffs temper upside on logistics leverage .
Consensus vs. Actual (Q2 2025)
Key Takeaways for Investors
- Margin narrative improved: FY gross margin guidance raised; Q3 margin guide implies resilience despite tariff uncertainty; mitigation and owned brands mix are working .
- Strong cash generation and balance sheet: H1 free cash flow $52.4M; cash reached ~$311M; no debt—ample capacity for AI, owned brands, retail, and opportunistic buybacks/M&A .
- Growth drivers intact: AI-driven conversion gains, international expansion (China traction), and owned brands acceleration provide multi-year margin and share catalysts .
- Watch H2 dynamics: Tougher return-rate comps and evolving tariffs may cap further logistics leverage; management models flat AOV in H2 .
- FWRD execution in weak luxury backdrop is notable; continued brand additions and exclusives support mix and margin .
- Near-term trading: Positive setup from raised margin guidance, July +7% sales growth, and broad-based segment/geography strength; monitor tariff developments and tax rate trajectory (FY 28–29%) .
- Non-GAAP clarity: Adjusted EBITDA excludes equity-based comp, transaction costs, and non-routine items (e.g., legal accrual); reconciliation included in the release—important when modeling profitability .