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Revolve Group, Inc. (RVLV)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered margin-led performance: net sales rose 4% to $295.6M, gross margin expanded 347 bps to 54.6%, Adjusted EBITDA climbed 45% to $25.3M, and diluted EPS reached $0.29, including ~$0.05 from an insurance recovery .
  • Guidance raised: FY 2025 gross margin lifted to ~53.5% (from 52.1–52.6%), marketing expense lowered to ~14.6%, and effective tax rate trimmed to 27–28%; Q4 2025 gross margin guided to 53.1–53.6% with detailed OpEx parameters .
  • Mix and strategy: REVOLVE segment net sales +5% to $254.6M, FWRD +3% to $41.0M; international net sales +6% YoY as management prioritized margin (markdown optimization, higher full-price mix, owned-brand mix) over sales growth .
  • Liquidity and cash: cash and equivalents at $315.4M (debt-free), free cash flow of $6.6M; inventory down 1% YoY to $238.8M, with October net sales up mid-single digits YoY providing early Q4 read-through .
  • Catalyst: durable margin algorithm gains, owned-brand penetration (including SRG launch), international momentum (Mainland China +50% YoY in REVOLVE) and physical retail build-out (The Grove opening) position RVLV for margin resilience and multi-channel growth .

What Went Well and What Went Wrong

What Went Well

  • “Exceptional gross margin performance” drove an 11% YoY gross profit increase and a 45% rise in Adjusted EBITDA, with nearly 350 bps GM expansion validating “data-driven merchandising” .
  • International strength and China outperformance: Middle East and Europe led, while Mainland China REVOLVE net sales increased more than 50% YoY, underscoring local collaboration and livestreaming traction .
  • FWRD margin reset: gross profit +37% YoY with >11 pts GM expansion, reflecting disciplined promotions and strengthening luxury brand partnerships (e.g., Dries Van Noten launch) .

What Went Wrong

  • Net sales growth of 4% lagged longer-term aspirations as management consciously traded promos for margin, yielding sales deceleration while boosting gross profit dollars .
  • Return rates and shipping costs pressured selling & distribution; S&D rose 56 bps to 17.5% of net sales, and fulfillment ticked to 3.3% of net sales on slightly higher returns .
  • Category pockets of softness: handbags/shoes/accessories trended negative low single digits, impacted by markdown strategy shifts (more pronounced at FWRD), expected to rebound ahead .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($USD Millions)$297.0 $308.971 $295.631
Gross Margin (%)52.0% 54.1% 54.6%
Diluted EPS ($)$0.16 $0.14 $0.29 (incl. ~$0.05 insurance)
Adjusted EBITDA ($USD Millions)$19.0 $22.887 $25.347

Segment and Geography

MetricQ2 2025Q3 2025
REVOLVE Net Sales ($USD Millions)$268.421 $254.646
FWRD Net Sales ($USD Millions)$40.550 $40.985
United States Net Sales ($USD Millions)$241.623 $231.424
Rest of World Net Sales ($USD Millions)$67.348 $64.207

Key KPIs

KPIQ2 2025Q3 2025
Active Customers (TTM, ‘000)2,743 2,747
Total Orders Placed (‘000)2,424 2,300
Average Order Value ($)$300 $306

Notes:

  • Q3 GM +347 bps YoY on shallower markdowns, higher full-price mix/margin, and higher owned-brand mix .
  • Q3 EPS includes ~$0.05 per share benefit from insurance recovery (other income, net) .

Guidance Changes

FY 2025 Guidance vs Prior (from Q2)

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin (%)FY 202552.1%–52.6% ~53.5% Raised
Fulfillment (% of Net Sales)FY 20253.1%–3.2% ~3.2% Maintained (high end)
Selling & Distribution (% of Net Sales)FY 202517.2%–17.5% ~17.3% Maintained
Marketing (% of Net Sales)FY 202514.8%–15.0% ~14.6% Lowered
G&A ($USD Millions)FY 2025$152–$154 ~$153.5 Maintained
Effective Tax Rate (%)FY 202528%–29% 27%–28% Lowered

Q4 2025 Point Guidance

MetricPeriodCurrent Guidance
Gross Margin (%)Q4 202553.1%–53.6%
Fulfillment (% of Net Sales)Q4 2025~3.3%
Selling & Distribution (% of Net Sales)Q4 2025~17.6%
Marketing (% of Net Sales)Q4 2025~15.0%
G&A ($USD Millions)Q4 2025~$38.7

Earnings Call Themes & Trends

TopicQ1 2025 (Previous Mentions)Q2 2025 (Previous Mentions)Q3 2025 (Current Period)Trend
AI/TechnologyTesting AI virtual styling; CS voice-to-text; personalization roadmap AI search upgraded; conversion lift; landing page optimization; content experiments AI in owned-brand design (renderings) and AP workflow automation Broadening scope; shifting to operational automation
Tariffs/MacroElevated and volatile tariffs; mitigation plan; modeled lower GM; China incremental tariff at 145% earlier China incremental tariff at ~30%; majority mitigation achieved; raised FY GM range Majority mitigated; monitoring variability; potential China tariff cut (IEEPA) could reduce from 30% to 20% Improving outlook; mitigation durable
Owned BrandsPenetration increased YoY for first time in 2.5 years; strong margins Fifth consecutive quarter of owned-brand growth; higher penetration Penetration up for third consecutive quarter; SRG launch achieved highest owned-brand collab week-one sales ever Accelerating; a key gross margin lever
International/ChinaInt’l +12% YoY; Canada softness; service enhancements Int’l +17% YoY; China business doubled over two years Europe/Middle East standouts; Mainland China +50% YoY in REVOLVE Sustained growth; localized initiatives effective
Physical RetailGrove build-out; cautious expansion; Aspen lower returns Grove opening planned Q4; Aspen success; brand interest Aspen owned-brand mix higher than e-commerce; The Grove opening imminent; disciplined rollout Scaling capabilities; synergistic with owned brands
Brand/MarketingREVOLVE Festival (#1 EMV during Coachella) Hamptons/NYC activations; efficient brand spend Lakers partnership; triple-digit growth in TikTok/YouTube views; Q4 activation planned Strong brand heat with efficient spend

Management Commentary

  • “Particularly in the current tariff environment, I am extremely pleased by our nearly 350 basis point increase in gross margin year-over-year… on track to expand our gross margin and Adjusted EBITDA margin in the full year 2025 for the second straight year” – Co-CEO Mike Karanikolas .
  • “Our healthy cash flow and rock-solid balance sheet, highlighted by a cash balance of $315 million, enables us to continue to invest in… international expansion, new owned brands, AI technology, and physical retail” – Co-CEO Michael Mente .
  • AI-driven design and AP process automation are scaling internally, compressing development cycles and boosting back-office efficiency – Co-CEO Mike Karanikolas .
  • Forward strategy prioritized margin reset; luxury brand additions and exclusive capsules advancing share capture – Co-CEO Michael Mente .

Q&A Highlights

  • Gross margin drivers: largest impact from the optimized markdown algorithm; promotional pullback added to margin; higher full-price mix and owned-brand penetration also contributed .
  • October trends: net sales up mid-single digits YoY despite tougher comps; early price increases approaching double-digits into Q4 on new product inflows .
  • Forward focus: gross profit accelerated as the team reset margins; aim to sustain margin level and layer growth on top over time .
  • Returns: return rate up modestly YoY; channel-specific elevation under review; handbag/shoes/accessories softness tied to markdown algorithm impact at FWRD with rebound expected .
  • Tariffs outlook: majority mitigation achieved; potential China tariff cut under IEEPA could be net beneficial; mitigation initiatives can structurally improve margins .

Estimates Context

Consensus vs Actual (S&P Global; asterisk denotes SPGI values)

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus ($USD)$297,836,640*$297,626,510*$297,727,290*
Revenue Actual ($USD)$297,000,000 $308,971,000 $295,631,000
Outcome vs ConsensusIn line/BeatBeatMiss (small)
Primary EPS Consensus ($)$0.14667*$0.13244*$0.12833*
Diluted EPS Actual ($)$0.16 $0.14 $0.29
Outcome vs ConsensusBeatBeatBeat (incl. ~$0.05 insurance)
EBITDA Consensus ($USD)$15,300,200*$15,100,960*$14,268,060*
Adjusted EBITDA Actual ($USD)$19,000,000 $22,887,000 $25,347,000
Outcome vs ConsensusBeatBeatBeat

Notes:

  • Q3 EPS beat partly reflects ~$0.05 from insurance recovery in other income .
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin algorithm gains are durable and, alongside owned-brand mix and tariff mitigation, underpin continued gross margin expansion into Q4 and FY 2025 .
  • Management is prioritizing margin quality over promotional revenue, evident in Q3’s modest sales growth but outsized gross profit and EBITDA gains .
  • International remains an important growth vector (Europe, Middle East; China REVOLVE +50% YoY), diversifying demand and supporting mix .
  • Physical retail is strategically synergistic with owned brands and customer acquisition; Aspen outperformance and The Grove opening represent incremental levers .
  • Forward’s margin reset in a disrupted luxury landscape points to sustainable profitability and brand partner traction (e.g., Dries Van Noten) .
  • Liquidity provides significant optionality: $315.4M cash, no debt, active buyback capacity (~$55.6M remaining as of 9/30) to fund growth and capital returns .
  • Near term: expect continued margin strength and tightly managed OpEx; watch October/holiday demand trajectory, return-rate normalization, and any tariff policy changes that may further benefit margins .