Good afternoon. My name is Samantha and I will be your conference operator today. At this time, I would like to welcome everyone to the Revolve Group third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will host a question and answer session. If you would like to ask a question during this time, press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Erik Randerson, SVP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's third quarter 2026 results. Before we begin, I'd like to mention that we had posted a presentation containing Q3 2026 financial highlights to our Investor Relations website located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, shipping and freight costs, return rates, our marketing events and their expected impact, our physical retail stores, our own brand and luxury brand expansions, our use of AI, our market position and competitive positioning, our partnerships and our outlook for net sales, gross margin, operating expenses, and effective tax rate. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release, as well as other risks and uncertainties disclosed under the caption, Risk Factors and Elsewhere, in our filings with the Securities Exchange Commission, including without limitation our annual report on Form 10-K from the year end of December 31, 2025, and our subsequent quarterly reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. Thank you for joining us. Presentation of this non-GAAP financial information is not intended to be considered in isolation or a substitute for or superior to the financial information presented and prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures, as well as the definitions of each measure, their limitations, and our rationale for using them can be found in this afternoon's press release and in our SEC filings. Joining me on the call today are our co-founders and co-CEOs, Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

Hello, everyone, and thanks for joining us today. We delivered a strong quarter with outstanding top-line growth. Net sales grew 20% or more across both segments, Revolve and Forward, and in domestic and international markets. Also notable is the great momentum in our underlying business metrics. Active customers increased 18% year-over-year and grew 202,000 sequentially, the most we've ever added in a single quarter. The year-over-year increase represents an acceleration of 7 percentage points from last quarter, driven by a record quarter for new customer acquisition and increased engagement from existing customers. Our strong top-line results and the momentum in our customer base in recent quarters is especially noteworthy in an environment where many in our industry have seen softer trends. We believe that it shows our investments are delivering results and reflects the team's disciplined execution against our key growth initiatives. Another bright spot in the third quarter was product returns. Our return rate decreased by more than two percentage points from a year ago, better than we expected. Category diversification was a big driver along with initiatives to reduce returns in ways that are good for the customer. That also helped absorb the impact of higher fuel surcharges on our logistics costs this quarter, and we've now lowered our return rate year over year in eight of the last 10 quarters. With that context, let me step back and briefly recap the quarter. Jesse will provide more details in his remarks. Net sales were $356 million, up 20% year-over-year. Notably, sales in our mobile app have been growing much faster than our other channels in recent quarters. Strong growth in app downloads has helped, and the app is becoming a bigger part of our overall mix. That's important because, on average, these are our most valuable customers. They order more often, convert at higher rates, and spend more than customers in any other channel. Coming into the year, we set a goal of returning to double-digit net sales growth in 2026. With three quarters done, we're well-positioned to deliver on that goal. Net sales are up 16% year-over-year through the first nine months, and this is our fourth straight quarter of double-digit growth, going back to the fourth quarter of last year. We believe that's evidence that our investments in brand, technology, and AI, site experience, and category expansion are paying off. Gross margin was 53.9% near the high end of our guidance range and down 75 basis points year-over-year against a difficult prior year comparison. Adjusted EBITDA was $23.5 million, down 7% year-over-year, reflecting the investments and growth initiatives that we're making this year. Also recall that our adjusted EBITDA grew 45% year-over-year in the third quarter of 2025, so our results still reflect healthy 34% growth on a two-year basis compared to the third quarter of 2024. Earnings per diluted share were 20 cents compared to 29 cents last year, when we benefited from an insurance recovery equivalent to 5 cents per share. As we've discussed on prior calls, 2026 is a foundational investment year for us, focused on launching longer-term initiatives that we believe have the potential to meaningfully shape our business over time. I am encouraged by our progress against these large opportunities, such as physical retail, developing our first-ever Revolve namesake label within our own brand assortment, and launching a successful joint venture with Cardi B. We also continue to invest to extend our track record in deploying AI technology across the business, which has contributed to both growth and efficiency. As a founder-led company bolstered by a rock-solid balance sheet, Michael and I are focused on maximizing value over the long term. Michael will talk more about our progress on each of these initiatives in his remarks, as well as our new joint venture with Donatello Versace that we are very excited about. Importantly, we expect to resume adjusted EBITDA margin expansion in 2027 after this investment year. Shifting to our longer term priorities, I'm excited about our progress on a number of key initiatives. First is brand building investments to help us grow our customer base and deepen our relationships with existing consumers. The third quarter was a busy one, highlighted by events celebrating the launch of our inaugural Revolve magazine, which we timed with the third drop of Revolve Los Angeles. We believe our investments in brand building contributed to the strong new customers growth and the acceleration in active customers that I discussed earlier. Thank you for watching. Third is category expansion. The handbags, shoes, and accessories in the fashion apparel categories both grew faster than total net sales this quarter, led by wardrobe essentials like tops, pants, shorts, and outerwear. Our newer product areas, men's and beauty, are together growing much faster than the overall business and are also contributing to the reduction in our return rate. Finally, we continue to leverage AI to drive innovation, growth and efficiency across our platform and throughout the company. Last quarter, I discussed AI-enabled enhancements to our on-site search that let customers upload photos to discover products more easily. Building on that, we recently tested and rolled out new AI-powered search filters that allow mobile customers to refine their searches by color, price point, and product category. This feature was built internally and we've seen a meaningful lift in the conversion rate among mobile customers who use it. Another example we're especially excited about is the custom mobile app for our store associates. Using AI, the team built the app in less than a week, and it's already showing great results. Associates scan the styles a customer selects on the sales floor, and the app searches available inventory throughout the store. It also suggests similar and complementary styles, which helps associates build a complete look for the fitting room. Our operations team uses the same app to pull the styles and stage the fitting room for customers. Since we rolled it out at the Grove in August, our conversion rate there has experienced meaningful sequential growth each month. In addition to the customer experience and conversion rate benefits, it has further strengthened our real-time reporting and analytics. Let me close by providing some additional context as it relates to the optimism in our longer-term growth algorithm. We recently commissioned an independent market research study that offered some useful insights. First, even with trailing 12-month net sales of nearly 1.4 billion, unaided brand awareness for Revolve remains below 5%, which we view as a significant opportunity. At the same time, our customers are strong advocates. Among the 15 well-known retailers in the survey data, Revolve ranked first for Net Promoter Score. That fits with what we see within our own data, where revenue retention among tenured customer cohorts has been consistently very high, with productivity from these customers increasing meaningfully beyond their first purchase. We believe the combination of the opportunity and brand awareness in our strong and growing active customers base further builds on our foundation for continued future profitable growth for years to come. To wrap up, we are encouraged by our business momentum and by the strong progress we're making on our long-term strategic investments, which we believe further strengthen our foundation for profitable growth. I want to thank our team for their exceptional efforts day in and day out. Michael and I are fortunate to work alongside such a talented, dedicated, and passionate group of people, and they have us well positioned for the opportunities ahead. Now, over to Michael.

Thanks, Mike, and hello, everyone. It was another quarter of strong growth and meaningful progress on the long-term investments that we believe will strengthen our brands and position us for continued profitable growth in the years ahead. Today, I'll focus on three of those areas, brand building, partnerships, and physical retail expansion. Thank you. We brought the heat, creating three separate covers that feature Revolve Los Angeles on fashion trendsetters Tiana Taylor, Alex Kansani, and Kendall Jenner, who have more than 300 million social media followers combined. The magazine beautifully integrates all aspects of our business, including our forward, beauty, and men's offerings, connecting our editorial storytelling to Revolve's product universe through shoppable QR codes that link to our site. Featuring aspirational names in fashion that speak directly to the Revolve customer, including Arena Shake, Becky G, Cameron Brink, and Dwayne Wade, it brings our brands to life in exciting new ways. We hosted a magazine launch event during Paris Fashion Week that Vogue called one of the chicest fashion parties of the season, attended by A-listers such as Kendall Jenner, Rosie Huntington-Whiteley, Amelia Gray Hamlin, Anak Yai, Adriana Lima, and Olandria. Thank you for watching. Thank you so much for joining us. Thank you so much for joining us. Donatella Versace Thank you for watching. Thank you for joining us. We look forward to sharing more about our plans in the months ahead. Thank you for watching. Thank you for joining us. Thank you for joining us. and the brand has been our top activewear brand on Revolve and Forward year to date. It is performing particularly well in our stores, including at The Grove, where we're currently hosting a shop-in-shop. The partnership has been great, and the investment has contributed nearly $900,000 in equity earnings so far this year through September. Finally, physical retail. Thank you for watching. We celebrated the grand opening with Li Ning and our new Chief Performance Officer, Dwayne Wade, unveiling a curated selection of footwear and apparel from his Way of Wade brand, including styles exclusively available through Revolve. Fans lined up out the door to meet the NBA and Miami legend in person. We're also very encouraged by the progress at The Grove in Los Angeles and in Aspen, where performance has improved steadily since we opened in early 2024. Based on that demand, our Aspen store at about 3,100 square feet is too small to realize its full long-term potential. With that, I'm excited to share that we've signed a multi-year lease to more than double its size, meaningfully expanding our growth potential in the market. Ahead of construction, which we expect to begin in early 2027, we'll move into a temporary store of more than 8,500 square feet Thank you for joining us. to discuss the financials. Thanks, Michael. And hello, everyone.

We're delivering strong top-line growth while investing for the long term, and we remain focused on balancing those investments with a return-to-margin expansion in the near future. I'll start by recapping our third quarter results, and then close with updates on recent trends in the business and guidance for the balance of the year. Starting with the third quarter results, net sales were $356 million, a year-over-year increase of 20%, our fourth consecutive quarter of double-digit growth. Revolve segment net sales and forward segment net sales each increased 20% year-over-year in the third quarter. By territory, domestic net sales increased 20% and international net sales increased 22% year-over-year. Growth in trailing 12-month active customers accelerated to 18% year-over-year, a 7-point improvement from our growth rate in the second quarter of 2026. Contributing to the strong top line was 19% growth in total orders placed year-over-year to 2.7 million and a more than 2-point reduction in our return rate year-over-year. Average order value was $292 compared to $306 in the third quarter of 2025, a 5% decrease year-over-year driven by initial orders of Grow Good Beauty products, which have much lower price points than average order values. Absent the addition of the Grow Good business, AOV would have been relatively flat year-over-year. Consolidated gross margin was 53.9% near the high end of our guidance range and a decrease of 75 basis points year over year as we lapped the significant gross margin gains from the prior year resulting from the AI-driven optimization of our markdown algorithms. Now moving on to operating expenses. Fulfillment costs were 3.4% of net sales, a slight increase from 3.3% in the third quarter of 2025. Selling and distribution costs were 17.8% of net sales and slightly above our guidance. The 35 basis point increase year over year primarily reflects increased costs for customer shipments, including much higher fuel surcharges year over year that are variable with the elevated fuel costs, partially offset by a reduced product return rate. Thank you for watching. General and administrative expenses were $46.2 million, an increase of 20% year over year and above our guidance. Key drivers of increased investment center around our growth initiatives, including strengthening the foundation for physical retail that we feel great about, as well as grow good and initial costs related to our new Donatella Versace joint venture announced last month. Below the operating line, other income net was $2 million, a significant decrease from $7.3 million in the prior year quarter. Recall that results for the third quarter of 2025 included a $4.5 million gain from an insurance recovery.

Thank you for watching.

Moving on to the balance sheet and cash flow statement. Net cash used in operating activities was $24 million, and free cash flow was negative $27 million in the third quarter, primarily due to unfavorable movements in working capital. For the nine-month year-to-date period in 2026, we generated positive operating cash flow and free cash flow of $17 million and $7 million, respectively. Inventory at September 30th, 2026 was $293 million, an increase of 23% year-over-year and two points higher than our net sales growth year-over-year. This relationship improved sequentially from our 12-point spread between inventory growth and net sales growth year-over-year in the second quarter of 2026. As of September 30th, 2026, our balance of total cash and cash equivalents was $285 million, and we continue to have no debt. Now let me update you on some recent trends in the business since the third quarter ended and provide some direction on our outlook to help in your modeling of the business for the balance of the year. Starting from the top, we're off to a solid start with net sales through the month of October 2026, increasing by a mid-teen percentage year over year. For modeling purposes, I want to point out that we face much more difficult prior year comparisons for the rest of the fourth quarter. A year ago, we disclosed that our net sales in October 2025 increased by a mid-single digit percentage year over year. For the remaining two months of last year's fourth quarter, our net sales growth rate improved well into the double digits, leading to 10% net sales growth year over year for the full fourth quarter of 2025. Shifting to gross margin, we expect gross margin in the fourth quarter of 2026 of between 52.3% and 52.8%, which implies a decrease of approximately 75 basis points year-over-year at the midpoint of the range, in line with our third quarter performance. Consistent with year-to-date trends, we expect our full price mix of net sales to remain slightly lower year-over-year but still very strong relative to the broader market. For the full year 2026, we have tightened our range to the high end of our prior guidance and now expect gross margin of between 53.9% and 54.0%. Fulfillment We expect fulfillment as a percentage of net sales of approximately 3.3% for the fourth quarter of 2026 and for the full year 2026. Selling and Distribution We expect selling and distribution costs as a percentage of net sales of approximately 17.6% for the fourth quarter of 2026, which implies an increase of approximately 90 basis points year over year. For the full year, we have increased our guidance to 17.5% of net sales, reflecting freight cost pressures in the third quarter that have continued into October. Thank you for watching. General and Administrative We expect G&A expense of approximately $46.1 million in the fourth quarter of 2026, and now expect G&A expense of $178 million for the full year 2026 as we continue to prudently invest in key growth opportunities for the long term. And lastly, we are narrowing our effective tax rate guidance to a range of between 25% and 26% for the full year 2026. To recap, as we move through this investment year and look ahead to 2027, I'm encouraged by the momentum we're seeing in the business and the progress on our longer term growth initiatives, the combination of which I believe lays the foundation for profitable growth, margin expansion, and continued share gains. Now we'll open it up for your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jonah Kim with TD Cowan. Your line is open. Please go ahead. Your line is open.

Thank you for taking our question. Just the first one, in October, trending mid-teens, could you just characterize what's driving that? Just first is the 20% that you saw in 2Q, anything to call out there? And then just a second question around international, just the outperformance there, any color around just the regions and demand by geography will be helpful. Thank you.

Yeah, so there's nothing to call it with regards to October. We feel great about October performance. It's well ahead of the targets we set out at the beginning of the year and There'll be a little bit of fluctuation quarter to quarter and month to month, of course. And Q4 is a tougher comp for us as an important consideration as well. But we think it's off to a great start and we think the quarter is off to a good start. And then flipping to international, international has been a great growth story and growth driver for many quarters now. I think the recent quarter is just a continuation of that and certainly a lot of pieces coming together. All major regions up double digits. And so, you know, we're very happy with that momentum and we think we're going to continue to see success in international markets for the quarters to come.

Got it. That's helpful. And just one last one, Jesse, on the promotion that you're embedding in the guide. What are you expecting just around the holiday season? Thank you.

Yeah, thanks, Jonah. Nothing different from years past. Promotions should be generally in line. I think, you know, most of our call it promotions are markdowns through algorithm. So that is, again, algorithm driven. So no significant change on kind of promotions.

Your next question comes from the line of Jay Sol with UBS. Jay, your line is open. Please go ahead.

Great. Thank you so much. You know, my question is about units per transaction. Given it seems like the beauty business is going really well, how much are you seeing an ability to get consumers to buy across categories? And maybe talk about where you see that going from where you saw it in Q3.

Yeah, thanks, Jay. Yeah, I think you're right. Beauty's been performing very well. Thank you so much for joining us today. Good overall.

And maybe just to follow up on that, on the category expansion, you called out so many of the prepared remarks, whether it's beauty or men's or, you know, a lot of, you know, stuff outside of dresses, international as well. What is your thinking about strategically how these categories fit in? I mean, do you think these can be, you know, full-size categories where you can have to kind of share these categories that you have in dresses? Like, give us a feel for what your ambitions are in some of these newer categories.

Yeah, that's certainly the intention and the goal. And obviously, we're a lot earlier stages with these categories. But, you know, men's, we think, is performing incredibly well and still quite a small base, but huge opportunity. You know, beauty, home, these other categories as well. That's absolutely our goal to get them to the point where dresses and fashion apparel is today.

If I can ask one more, maybe for Michael, you know, a lot of super interesting marketing initiatives and just brand building initiatives in the quarter. And congrats on the Revolve magazine. But of all these things going on, which ones do you think have the most promising? Can you just give us a little hint of what maybe you have prepared for holiday to drive more excitement in that key critical season?

I think that, you know, in this near-term holiday, it's kind of, you know, core and same. This investment's made, you know, my mindset is usually zoomed out a little bit. But the one thing I think that is probably the most exciting for years to come is the Donatello-Versace partnership. She's one of the most iconic fashion designers of all time and certainly on the planet at this moment. She has massive reach and the announcement that we had with her was the biggest announcement of any announcement ever. And we had quite a share of announcements over the years. So that's super exciting. And her audience might not be as obvious to the world, but her audience is really 18 to 34, which is really right in the heart of our Next Generation Revolve audience. So it's really clear that We're speaking to our customer and our potential customer with the most influential designer with a very, very overlapping kind of brand ethos. So that for me has huge, huge, huge potential.

Your next question comes from the line of Randy Koenig with Jefferies. Randy, your line is open. Please go ahead.

Yeah, thanks a lot. I got a question for you, Jesse. Can you give us some thoughts just high level about how you're thinking through kind of medium term EBITDA margins and just maybe the different moving pieces, maybe give us some perspective on where we are with own brand penetration, where that's kind of likely to go over the medium term? International, how you're thinking about that. The forward gross margins seem like they're getting more spread is narrowing more versus the revolve gross margins. So it'd be very helpful to get a sense of just the different moving pieces of margin and how you think those develop over the medium term, maybe more qualitatively if you don't want to get into them more quantitatively. Thanks.

Yeah, sure. Thanks, Randy. There's a lot there. I'll try to hit them all. So maybe just first high level. You know, as we've talked about in the past, our goal, our first goal is to get into double digit top line growth, which we've done for the past four quarters. And then our second goal is to get to double digit EBITDA margin. So maybe bridging to that at the high level. If you take this quarter 6.6, as we mentioned, this is a foundational year for investments. We are investing meaningfully in these growth initiatives. And that is to the tune of about two points across G&A and marketing. So, you know, that brings you up close to 9%. So we're within striking distance of that double digit. So how do we get the rest of it? Number one is gross margin, as you mentioned, primarily on Revolve with own brand expansion. Thank you for joining us. and many more.

as we roll out a fleet, I guess, of stores. And in the last few quarters, you've talked about the different locations and how they're performing above, I guess, plans or expectations, and they sound like they're doing very well. When do we get to a place, or do we get to a place where you start to really accelerate development of the units by year. What is that looking like or not looking like? Give us some thoughts, again, on the medium term there. Thanks.

I don't think there's necessarily a threshold where things really turn the corner. I think it's going to be a gradual acceleration. We are very, very satisfied with the progress made over this past quarter across the two stores as well as the launch of the Aventura store. So feeling really good. We, again, you know, I think we are crawling quickly. We're not walking or running yet, but we're crawling quickly. So we are accelerating, but we really can see, you know, You know, compared to, you know, people who have global fleets, we see people opening, you know, literally hundreds of stores a year. We're light years away from that. But I do think that you will see acceleration of our expansion, and not just from the number of doors, but a little bit also another parallel important lens is from the expansion of square feet. It doesn't have to be new door, new door. It could be slightly larger stores at the same time. So... Very excited for what's ahead. We're making great progress, but we also realize it is a big world, we have a big audience, and it is a long journey to get to where we ultimately will be.

Your next question comes from the line of Peter McGoldrick with Stiefel. Peter, your line is open. Please go ahead.

Hey, guys. Thanks for taking my question. Encouraging to see the continued acceleration on the top line in the third quarter. I wanted to ask about some of the framing for the 2027 margin recovery. So with G&A and shipping costs now higher, does the prior mid-single-digit G&A outlook and the 15% to 16% marketing framework that you pointed to last quarter still hold?

Thanks, Peter. Yeah, that generally still holds. Again, as we lap the investments of this year, we expect to make some meaningful gains on both marketing and G&A with the goal of increasing G&A on a steady state basis in that mid-single digit percent range. and then marketing again, bringing that back to closer to who are historical. Keep in mind, we're coming off a relatively light year in 2025 at just over 14%. We made a lot of investments this year coming in, if you look at the guidance, closer to 16%. So bringing it back towards the middle of those. But yeah, I think you're thinking about it right.

Okay. And then I wanted to ask about the customer base. So active customer growth accelerating to 18% year over year. Can you help us think about how much of that came from GrowGood and relative to the core Revolve Forward business and then anything that we can just think about as GrowGood begins to scale, how we should be thinking about that contribution to the P&L?

Yeah, we had great new customer additions from GrowGood. But even absent the GrowGood additions, we would have seen acceleration in that active customer growth rate from the 11% that we saw in Q2. So even absent GrowGood, we saw really healthy active customers and coming both from new customers, which again, absent GrowGood was a near record. And then we also saw increased productivity from our existing customers. So it's coming from both sides. And really encouraging is as we stack these new customers, as you know, Our existing or pre-existing customers are more productive and get more productive with time. So adding to the base is really important. Thanks, and good luck. Thanks, Peter.

Your next question comes from the line of Michael Bonetti with Evercore ISI. Michael, your line is open. Please go ahead.

Hey, guys. Nice quarter. Really happy to see it. Thanks for taking our questions here. Let me just continue that one for a quick second, then I have a follow-up. What gives you guys the most confidence in sustaining the double-digit revenue growth that you're obviously very proud that you got there and keep telling us how many quarters you've been there? As you look into next year, you've got tougher compares, always raising the bar on yourself. Is it the customer growth that's the leading indicator that gives you the most confidence? Or maybe you could just talk about that for a second.

Yeah, I think there's a number of key things. Obviously, the customer growth, particularly new customers, active customers, seeing a new record. The current quarter and acceleration on those numbers. And I think just all the things we've done to really lay the framework for our brand to be successful going forward, continue to improve the customer experience through various means, including AI enhancements and other enhancements. And I think things are only going to get better. Physical retail stores, obviously big growth driver for us. The base is still quite small, but we're starting to accelerate there, as Michael mentioned. and importantly, a very large portion of the traffic and customers to those retail stores are new customers. The overall opportunity, which we spoke about on the call, with 0.5% unaided brand awareness, but incredible loyalty, incredible net promoter scores. We feel we're set up very well for success in the upcoming year in terms of continuing the growth trajectory. Obviously, continuing to invest in some of these big initiatives. I mentioned physical retail. GrowGood is set up for huge success. Donatello Versace. I don't know if we've shared the timing, but obviously, that's something that we could see You know, hitting next year, you know, that's going to be fantastic for us. So just a lot of really good things. And then obviously layering on, you know, a bigger focus on efficiency as we've made some investments this year and really laid some great foundational pieces. And then next year, delivering both the revenue growth and nice margin growth.

Okay, very helpful. Jesse, maybe I could ask you one. I know great momentum in third quarter. I know the context of fourth quarter will vary with sales a little bit, but if we kind of take your quarter-to-date trends at mid-teens or a little slower, because you're pointing out the tougher compares as a reasonable range for fourth quarter, gross margins are guided below where consensus is today. Most of the cost items are guided unfavorable to where consensus is today. It kind of works to like an EBITDA margin and like maybe low to mid singles, single digits in the fourth quarter. Maybe just, you know, help us a little bit with a wraparound out of fourth quarter as to what rolls off as we get into early 27. And then on cadence, if you don't see trends slow from that mid-teens level of October, how much variability there is in the cost lines as you've planned them and given them to us today?

Yeah, yeah. I think, you know, as you mentioned, we're pleased with the start to the quarter in that mid-teens percentage. You know, it is a decel coming off of 3Q, but it's only one month. So we're optimistic about, you know, customer acquisition, the customer engagement. So we'll have to see how the rest of the quarter plays out, but encouraged with the start. And as you mentioned, costs are up in Q4. I think, you know, a couple areas, we did have some shift in marketing from Q3 to Q4, but that stayed in line for the full year. Selling and distribution, we keep getting hit with this pesky fuel surcharges in freight. You know, if we think about our guidance in Q2, we factored fuel in, but it was coming down in June, July, and then it ticked up pretty meaningfully in August and September. So, you know, said differently, it's very volatile. We would hope that that would roll off soon, and especially into next year, and we could start to comp that. and then the G&A Investments. You know, this year again was an important investment year for us and we expect to leverage on that into 2027.

Your next question comes from the line of Mary Sport with Bank of America. Mary, your line is open. Please go ahead.

Hey guys, could you just give a little bit more of an update on your return rate initiatives and what exactly drove the decrease better than what was planned. And then after that, could you also give an update on your personal shopper program? Is that still an area that you're really focused on? And what are some of the benefits that you're seeing as a result of that? Thanks.

Yeah, so we were really pleased with the progress on our return rate initiatives in the quarter. And then, you know, kind of diving into the return rate decrease year over year, which, you know, was substantial. A meaningful portion was due to category mix shift, especially with Grow Good ramping up and things of that nature and just category shift within the business. International also carries a low return rate. But at the same time, a very meaningful portion of it did come from essentially what I'd call core return rate decreases. And yeah, that's just a continuation of the efforts that we've been continuing to make quarter in, quarter out. And as we always say, it's hard to Thank you for joining us. We've seen success with previously and that we were starting to ramp up. And so, you know, as we've seen that ramp up, we've seen good success there. And that's something we're going to continue to do in the coming quarters and then longer term. And, you know, we've talked about it before, but as technology improves. I'm very hopeful we're going to start to unlock some even more meaningful movements leveraging AI technology and visualization technology. Those things are starting to come together. It's maybe a little bit further out, but for me, those are things I'm incredibly excited about because not only can it help the economics of the transaction, but what excites me is that it's great for the customer in terms of helping them make a better choice, better decision. A lot of continuing investments, very pleased with the progress, and hopefully we can continue to deliver results in the quarters and years to come. And then I'm sorry, I think you had a part two to the question that I missed.

Yeah, that was super helpful. Thank you. And then just an update on the personal shopper program and some of the benefits that you see from that. Thanks.

Yeah, so we're continuing to invest in that program. We think it continues to be a big opportunity. You know, certainly, you know, it's been a very important driver of the success we've seen with Ford, but also Revolve, because nearly all of those customers cross-shop both sites, and many of them, you know, are very big fans of Revolve. So, we're going to continue to invest in that we can continue to get better in, and Incidentally, you know, just kind of a nice little anecdote, it's also an area where we've seen the power of AI investment starting to take hold. And what's really neat for me personally is seeing, you know, some of the personal shoppers within the program itself start to leverage AI technology to, you know, help improve the internal tools they use even more. So, yeah, a lot of progress and momentum there. And, you know, I think we're rapidly becoming the best asset we can deliver.

Your next question comes from the line of Anna Andreeva with Piper Sandler. Anna, your line is open. Please go ahead.

Great. Thank you so much and congrats. Nice results. We wanted to follow up on the fourth quarter. So you're calling out tougher November and December, but obviously lots of momentum in the business across the portfolio right now. So, Jesse, what's a reasonable sales outcome that we should expect for the fourth quarter? and secondly, on inventories, great to see that spread improve versus sales. Should we expect that carryover you had at the Revolve brand rectified by year end? Are you guys managing inventories tighter and closer to sales as we think about 27? And you've had a full price sales dip A little bit here this year, just a result of that inventory situation. So should we think the full price penetration is back to growth as we think about next year? Thanks so much.

Yeah, thanks, Ana. On the fourth quarter, I won't give you an explicit specific number, but if we just look at the comps, something lower than the mid-teens that we did in October. Again, just given the comps, November, December, we went from mid-singles in October to double-digit in November and December. So just from a comp dynamic, something lower than the mid-teens that we had in October. On the inventory spread, yes, we are very pleased with closing that gap in Q3. And just as a reminder to last year in Q2 and Q3, we were lighter on inventory coming off of Liberation Day and a lot of delays and receipts. So we were down on inventory year over year in both of those quarters, less so in Q3. So that helps the spread this year on Q3. In Q4, we are managing inventory tight. And, you know, this is largely dependent on sales, but Thank you for joining us. Really pleased with the results, both on inventory, full price, even though it's down year on year, it was up against a really tough comp, still very healthy. So things are checking well.

Great. Thank you so much. Can I just follow up one more? You guys had talked about the Markdown Algo, and it obviously did a lot of good things for the business last year, especially in 3Q. Can you talk about how you're using that? Are there kind of additional opportunities from that as we look out?

Yeah, so, you know, we're continuing to use the enhanced smart tone ago and we're continuing to see benefits from it in terms of our ability to liquidate merchandise at optimal sale prices. And so, you know, feel great about that. You know, in terms of additional enhancements, you know, with anything R&D based, it's kind of often hard to say what's next until it hits, but it's an area of continued optimization and As we continue to invest in AI and tech, I'm confident we're going to get even better at our ability to manage and optimize inventory.

Your next question comes from the line of Matt Kuranda with Roth Capital. Matt, your line is open. Please go ahead.

Hey, guys. Good afternoon. I guess it's been asked in a few different ways, but I want to attack it from this angle. I guess, how do you balance in 2027 sort of what you referenced, which was maybe toggling back on marketing expense a little bit while preserving the ability to grow double digits on what looks like some tough comps next year. I guess it just seems like there's some inherent trade-off there usually, and maybe there's something as to sort of how you're allocating your marketing budget underneath the surface that you might help us understand a little bit better for 27 and confidence and growth there.

Yeah, there's certainly some trade-offs there. I should say a meaningful portion of the market increase this year was brand building investments, which by nature are longer term, things that we think set the foundation for quarters and years to come. Also importantly, we've invested in some newer things on the brand marketing side. So the magazine, which we feel great about, and I know Michael and the team have received fantastic feedback for Customers, vendors, people in the industry about the launch of that magazine. But it's the first time we've done it. And it's the sort of thing where we believe we'll find some nice efficiencies there as we do it the second time around, which is often the case. And importantly, including things like we've already been reached out to by brands and others that want to place advertisements with magazines, which of course was not something that... you know, we focused on with the inaugural launch. So a lot of opportunities for efficiency, you know, both in terms of, you know, kind of leveraging new activities that we've done and, you know, dialing the, you know, the investments a bit, you know, the investment knobs, you know, again, there can be some impact on growth, but we think we have very good ability to, you know, to manage those market expenses.

Yeah, I think I would add, Mike, is that like, you know, these have, you know, Your next question comes from the line of Nathan Feather with Morgan Stanley.

Nathan, your line is open. Please go ahead.

Hey, everyone. Thanks for the question. I just think there's a strong customer growth here. I can't wait to break it down into, you know, kind of gross acquisitions in turn. And as the customer growth has accelerated, have you seen a meaningfully different customer profile that's come in the door?

So, you know, I can speak to that a bit and then Jesse wants to jump in. So, you know, the Grow Good brand itself, which is a new brand and a very different brand than then Revolve. You know, it's played a meaningful role in the new customer numbers. To points made earlier on this call, we would have still seen an acceleration in records on the new customer side and the active customer side absent that. But, you know, the GrowGood customer, of course, has a different profile than Revolve and it's going to have its own characteristics, which, you know, we're still in the early stages of seeing exactly what those are. You know, we have very short cohort curves for that customer. Although I will say the early read is fantastic, you know, as far as the repeat rates that we're seeing on are a good sign of things like that. So it was certainly hopeful and optimistic. And then within the core Revolve business, we're seeing great new customer ads. We're not seeing any meaningful difference in profile. And to Jesse's point, as we layer those new customers and as they continue with us in the out years, they tend to become more and more productive over time. So we're feeling very good about the opportunity ahead of us. Your next question.

comes from the line of Janine Stitcher with BTIG. Janine, your line is open. Please go ahead.

Thanks for taking my question. Congrats on the momentum. Just following up on GrowGood, I was hoping you could share a little bit more about the go-to-market strategy for that brand. So you began testing wholesale there. And then as we just think about GrowGood, and now we have the JV with Dontella Versace, it seems to be the beginning of potentially a platform of other brands or joint ventures. I'm curious how you're thinking about that over the medium to long term, what this could look like in terms of adding new brands onto the Revolve platform. Thank you.

Yeah, GrowGood was interesting because it wasn't quite as dead center Revolve customer, but it was just the opportunity to work with someone as awesome as Cardi was just an opportunity that made a lot of sense to us. And it's going great, as you mentioned, you know, profitable growing business. So that's, you know, at a new stage. And then Give us the confidence to pursue Act 2 with Donatella, which is even more exciting because it is right down the center of the role of customer. If you zoom out to midterm, I think that actually, one second, it's actually the presence of GrowGood and our business with Cardi actually opened the door for the opportunity with Donatella. She saw what we were doing with GrowGood and thought that, oh, we have a potential partnership. So we've explored it and we're off to the races now. So We do think that the Donatello partnership will open even more doors. So I think that momentum begets momentum. I think that there will be other opportunities in the future. We will be extremely selective. I think we will have our choice of partners and ultimately can strategically pursue the opportunities that we assess to be the most lucrative. So I think over the midterm, there will be more to come. Of course, each one is very important and significant and Very similar to stores, we do have to build the infrastructure, the foundation, the team, and ultimately we'll be able to accelerate. But we will be very diligent and very, very focused to ensure that we have the solid foundation that we can build a massive, massive business on. So we're in the midst of that already.

Thanks very much. Your next question comes from the line of Mark Altschweiger with Baird. Mark, your line is open. Please go ahead.

Thank you. Good afternoon. Jesse, just first wanted to follow up on the shipping. Guiding to 90 basis points of pressure there in Q4, can you deconstruct how much of that is the incremental fuel surcharges relative to the return rate efficiencies? And then separately, I wanted to ask about Revolve Los Angeles. I think that's a big initiative for you heading into 2027. Maybe just frame up for us what success looks like for that next year. What would speed up the own brand penetration beyond the one to two points per year? And just talk us through any timing on what that rollout is going to look like for the broader assortment. Thank you.

Yeah. Oh, you want to go first, Michael?

You go first.

OK, I'll take the bright one, Mark. Yeah. So in Q4, as I mentioned, we did see fuel come down. I mean, still very elevated and still very high year on year growth. But we did see that year-on-year growth come down in June, July, but then it ticked up meaningfully in August and September and continuing to see that in Q4. I think the other important thing to call out here are a couple of things. One, there is an impact from international mix with international outpacing domestic. And then even within international, some of our fastest growing regions are also the regions that are the highest cost shipping regions. So there is an impact there as well. and then the lower AOV in large part due to GrowGood does have an impact on the selling and distribution. So those are a few of the factors and those carry on into Q4. How much of that is due to fuel versus return rate? We do see a nice, meaningful benefit from return rate, but that was completely more than offset by fuel and other shipping charges. We are factoring in, given our success this year to date, we are factoring in a slight Decrease year-over-year in return rate in Q4, different from what we've done in the past for the past few quarters of assuming a flat return rate. We are factoring in a slight decrease in return rate, not to the extent of Q3 because we are up against a tougher comp in Q4, but we are factoring that into the selling and distribution rate.

and related to Revolve LA, definitely this is a very, very strategically important project for us. I think if you focus on 2027, success looks like a lot more Revolve labeled product in other segments across the board on our consumers. Shopping carts and other bodies. I think that Revolve LA being our flagship pinnacle line is designed specifically for a specific customer, a lot of energy and a lot of coolness, but is not architected to be a broadly distributed brand. And we do have great projects in the works that will be a little bit more broadly accessible, a little bit more everyday, a little bit more noticeable. So that is something that we're all very excited for in the next year.

Your next question comes from the line of Rick Patel with Raymond James. Rick, your line is open. Please go ahead.

Thank you. Good afternoon here. Given the inflation we've seen broadly and with fuel prices, curious if you've seen customers behave differently this fall. Like, are you seeing signs of consumers become more sensitive about paying full price or gravitating towards certain price points? And what does guidance assume in terms of demand from upper income consumers versus more aspirational ones?

Yeah, yeah, that's right. Nothing more to add.

Great.

And can you maybe dig a little bit deeper on international markets where you're seeing the most strength and the opportunities you see in 2027? Yeah.

So, you know, as I mentioned, we're seeing Strength across the board, you know, really incredible. We're seeing double digits in every major market, which is, you know, we're thrilled about. But, you know, in terms of some of the biggest opportunities, Mexico continues to be a big growth market for us and has become quite large for us. And then also, you know, I think some of the tactics that we've deployed in Mexico, you know, we can start to apply to other markets and we started to see success there with some of the marketing tactics in Mexico. starting to apply those to the Middle East and to the UK and some other areas. And so I think we're in the early stages of, you know, kind of really leveraging the marketing playbook to its fullest as well as continuing to build our brand across the world. Thanks very much.

Your final question comes from the line of Ashley Owens with KeyBank Capital Markets. Ashley, your line is open. Please go ahead.

Hi, great. Thanks so much. Maybe just to start, Jesse, on gross profit. I saw that the debt calls out increased valuation adjustments as one of the pressures in the quarter. Could you just give us a little more color on what drove that and was it concentrated in any particular categories or parts of the assortment? And then I will follow up.

Yeah, this is nothing unusual, I would say. We're constantly marking our inventory on a monthly basis. It just tends to be higher in times where inventory is higher and full price mix is lower. So that's the dynamic this quarter. And I wouldn't call out any specific categories per se. I would say more on Revolve than Ford. Ford's in good shape relative to Revolve, but that's probably the only thing to call out there.

Okay, understood. And then just on the store associate app you've rolled out, you've called out the conversion improvements that you've seen. Just be curious beyond that if you're seeing it show up in basket size or maybe the UPT and if it's changing productivity or discovery in the store at all in a way that could matter to those four-wall economics as you kind of continue to scale the store base. Thanks.

Yeah, so, you know, the biggest impact we've seen, you know, from the launch of the app has been increase in conversion rates when, you know, we have shoppers engaging with our associates in the dressing room or wherever. And, yeah, increase in basket size and in AOV and all of that. And, you know, I think it's just incredible and shows how early stage we are within physical stores and also within AI that we're able to launch something like this and have such meaningful, you know, because the conversion rates were quite meaningful. We have reached the end of the Q&A session. I will now turn the call back to management for closing remarks. Thank you everyone for joining us. It's been great to see the excitement and momentum build for our brand this year while continuing to invest for the future. Excited about what's next.

This concludes today's call. Thank you for attending. You may now disconnect.