What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-27 · 65 added, 55 removed, 377 unchanged (24% of the section changed)

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convert them into active customers and then encourage repeat purchases.

We acquire and retain customers through paid search/product listing ads, affiliate marketing, our brand ambassador program, paid social, retargeting, personalized email marketing and mobile “push” communications through our mobile applications.

We acquire and retain customers through paid search/product listing ads, affiliate marketing, our brand ambassador program, paid social, retargeting, personalized email and SMS marketing and mobile “push” communications through our mobile applications.

We have developed an efficient logistics infrastructure, which allows us to provide free shipping and returns to our customers in the United States.

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To date, we have successfully expanded internationally with limited investment and physical presence.

Our ongoing initiative to elevate the international service levels and customer experience has been a key contributor to our growth, enabling us to offer express shipping and hassle-free returns at no cost (for international orders valued at $100 or more) in most of our major international regions.

We also offer REVOLVE products on two large international marketplaces, Tmall Global in China and Nykaa Fashion in India, to expand our distribution reach in these key geographies.

Our ongoing initiative to elevate the international service levels and customer experience has been a key contributor to our growth.

We also offer REVOLVE products on international marketplaces such as Tmall Global, RED and Douyin in China and Nykaa Fashion in India, to expand our distribution reach in these key geographies.

For 2024 and 2023, we generated $226.4 million and $198.3 million, respectively, in net sales shipped to customers internationally, or 20.0% and 18.6% of total net sales, respectively.

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and depreciation and amortization;

adjusted to exclude the effects of equity-based compensation expense and certain non-routine items.

adjusted to exclude the effects of equity-based compensation expense, certain transaction costs and certain non-routine items.

We have provided below a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items and may include other expenses, costs and non-recurring items.

We have included Adjusted EBITDA in this report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

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• Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

• Adjusted EBITDA does not reflect certain transaction costs that may represent a reduction in cash available to us;

• Adjusted EBITDA does not reflect certain non-routine items that may represent a reduction in cash available to us;

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(in thousands)

Other (income) expense, net

Other income, net

Provision for income taxes

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Equity-based compensation

Transaction costs (1)

Non-routine items (2)

Adjusted EBITDA

(1) Includes legal and professional service fees related to potential and consummated strategic acquisitions and investments.

(2) Non-routine items in 2024 included a $2.0 million non-routine loss related to a shipment theft incident, which we expect to recover in full through our insurance in future periods, and a $0.5 million charge for a settled matter related to non-routine import and export fees.

Non-routine items in 2023 included $7.5 million in legal fees and charges for two separate settled legal matters and $2.8 million related to non-routine import and export fees.

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Free Cash Flow

To provide investors with additional information regarding our financial results, we have also disclosed in the table above and elsewhere in this report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used in purchases of property and equipment.

We have provided below a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure.

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Purchases of property and equipment

Purchases of rental product

Free cash flow

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We view total orders placed as a key indicator of the velocity of our business and an indication of the desirability of our products and sites to our customers.

Total orders placed, together with

average order value, is an indicator of the net sales we expect to recognize in a given period.

Total orders placed, together with average order value, is an indicator of the net sales we expect to recognize in a given period.

We believe that total orders placed is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

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Average order value varies depending on the site through which we sell merchandise, the percentage of sales at full price, and for sales at less than full price, the level of markdowns on these products, product mix, and the number of units per order.

Average order value decreased slightly during 2023 as compared to 2022, primarily due to a lower percentage of full price sales year over year, partially offset by an increase in the price of products year over year as a result of the increase in the cost of goods and other input costs.

Average order value increased during 2024 as compared to 2023, primarily due to a higher percentage of sales at full price.

Factors Affecting Our Performance

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Macro factors that can affect consumer confidence, shopping behavior and spending patterns, and thereby our near-term and long-term results of operations, include inflation levels, employment rates, business conditions, changes in the housing market, changes in the stock market, adverse developments affecting the financial services industry, the availability of credit, resumption of student loan payments, U.S.

government stimulus payments, interest rates, foreign currency exchange rates, fuel, energy and raw material costs, supply chain challenges, and wars and geopolitical tensions.

government stimulus payments, interest rates, foreign currency exchange rates, fuel, energy and raw material costs, supply chain

challenges, and wars and geopolitical tensions.

In addition, during periods of low unemployment, we generally experience higher labor costs.

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Failure to attract new visitors to our sites and convert them to customers would impact future net sales growth.

If our marketing efforts do not connect with our customer or fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability will be adversely affected.

If our marketing efforts do not connect with our customer or fail to cost-effectively promote our brands or convert impressions into new customers, our net sales growth and profitability will be adversely affected.

Competition for social media and influencer-based marketing channels continues to increase, making it more difficult to differentiate ourselves and cost-effectively acquire customers.

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This transparency framework was launched in April 2021 and has made it more difficult and costly to acquire and retain customers.

Additionally, in June 2023, Apple announced new software development kit, or SDK, privacy controls that it has integrated into iOS 17, which was released in September 2023, including new protections designed

to limit tracking or identification of user devices.

We seek to engage with our customers and build awareness of our brands through delivering unique events and experiences, as well as short-term pop-up retail experiences.

We plan to continue to conduct in-person events at varying levels of scale in the future and make opportunistic investments in marketing initiatives that could increase marketing as a percentage of net sales to levels in excess of historical levels for certain quarters or periods of time in the future.

In February 2022, Google announced its Privacy Sandbox initiative for Android, a multi-year effort expected to restrict tracking activity and limit advertisers’ ability to collect app and user data across Android devices, and in July 2024, announced its change from a previously-announced plan to stop supporting third-party cookies in its Google Chrome browser as a part of this initiative.

We seek to engage with our customers and build awareness of our brands through delivering unique events and experiences, as well as select retail experiences.

We plan to continue to conduct events at varying levels of scale in the future and make opportunistic investments in marketing initiatives that could increase marketing as a percentage of net sales to levels in excess of historical levels for certain quarters or periods of time in the future.

This incremental investment may not deliver a meaningful return in the short term and may adversely impact our operating income in the short term.

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Existing customers as a percentage of total active customers were 54%, 52%, 50% and 49% for 2024, 2023, 2022 and 2021, respectively.

Existing customers typically place more orders annually than new customers and at higher average order values, resulting in existing customers representing approximately 79% of orders and approximately 80% of net sales in 2023, up from 77% of orders and 79% of net sales in 2022, and 57% of orders and 58% of net sales in 2014, again having increased in each year since 2014.

Existing customers typically place more orders annually than new customers and at higher average order values, resulting in existing customers representing approximately 80% of orders and approximately 81% of net sales in 2024, up from 79% of orders and 80% of net sales in 2023, and 77% of orders and 79% of net sales in 2022.

Orders placed by existing customers and net sales from existing customers have each increased each year since 2014.

We believe these increases are reflective of our ability to engage and retain our customers through our differentiated marketing and compelling merchandise offering and shopping experience.

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Cohort net sales retention rate is calculated as net sales attributable to a given customer cohort divided by the total net sales attributable to the same customer cohort from one year prior.

Cohort net sales retention rate was 77% in 2023 compared to 97% in 2022, 120% in 2021 and 74% in 2020.

Cohort net sales retention rate was 85% in 2024 compared to 77% in 2023, 97% in 2022, 120% in 2021 and 74% in 2020.

If we are unable to maintain our historically strong retention rates, our operating results could be adversely impacted.

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In 2020, our cohort net sales retention rate was negatively impacted by COVID-19 headwinds before recovering very strongly in 2021 and, to a lesser extent, in 2022.

We believe the 2023 cohort net sales retention rate reflects a normalization following the resurgence of consumer spending on fashion apparel in 2021 and 2022, coupled with a more challenging macroeconomic environment in 2023.

We believe our cohort net sales retention rate in 2024 began to normalize following the resurgence of consumer spending on fashion apparel in 2021 and 2022, coupled with a more challenging macroeconomic environment in 2023.

Due to the variability in our retention rates in recent years, which was primarily driven by external economic factors, we believe the average of our cohort net sales retention rates from 2020 to 2024 is a relevant measure for benchmarking our performance in retaining customers.

The average cohort net sales retention rate for 2020-2023 was 92%, which is higher than the 89% net sales retention rate reported in 2019.

The average cohort net sales retention rate for 2020-2024 was 89%, consistent with the 89% net sales retention rate reported in 2019.

Merchandise Mix

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The brands we sell on our platform consist of a mix of emerging third-party, established third-party (including iconic luxury brands) and owned brands.

Our product mix consists primarily of apparel, footwear, beauty and accessories products.

Our product mix consists primarily of apparel, footwear, beauty, accessories and home products.

Our merchandise mix across our two reporting segments carry a range of margin profiles and may cause fluctuations in our gross margin.

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Over the long term, we expect to continue to make capital investments in our inventory, fulfillment centers, and logistics infrastructure as we grow our customer base, launch new brands, expand internationally and drive operating efficiencies.

We believe these investments will yield positive returns in the long

We believe these investments will yield positive returns in the long term;

however, we cannot be certain that these efforts will grow our customer base or be cost-effective in the short term.

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The REVOLVE segment contributes to a majority of our net sales, representing 85.9% and 84.6% of our net sales for 2024 and 2023, respectively.

During 2023 and 2022, REVOLVE generated $904.5 million and $921.7 million in net sales, respectively, representing a decrease of 1.9%.

The net sales decrease in 2023 compared to 2022 was primarily due to a higher proportion of returned merchandise, partially offset by an increase in the number of orders placed.

During 2024 and 2023, REVOLVE generated $970.5 million and $904.5 million in net sales, respectively, representing an increase of 7.3%.

The net sales increase in 2024 compared to 2023 was primarily due to an increase in average order value combined with a lower proportion of returned purchases and an increase in the number of orders shipped.

The FWRD segment contributes to a smaller portion of our overall net sales, representing 14.1% and 15.4% of our net sales for 2024 and 2023, respectively.

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The net sales decrease in 2024 compared to 2023 was primarily due to a decrease in the number of orders shipped.

Net sales to customers in the United States contributed to 80.0% and 81.4% of our net sales for 2024 and 2023, respectively.

During 2024 and 2023, net sales to customers in the United States were $903.5 million and $870.4 million, respectively, representing an increase of 3.8%.

Net sales to customers outside of the United States contributed to 20.0% and 18.6% of our net sales for 2024 and 2023, respectively.

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Net sales represent the sales of these items and shipping revenue when applicable, net of estimated returns and promotional discounts.

Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase and average order value.

Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase, the proportion of returned merchandise and average order value.

Cost of Sales

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Fulfillment expenses also include the cost of warehousing facilities.

We expect fulfillment expenses to fluctuate as a percentage of net sales due to pressure from increased costs such as wages and other input cost pressure, expansion of our fulfillment network footprint and capacity, and our customers’ propensity to return merchandise, to be partially offset by operating efficiencies from increased scale as well as automation of the fulfillment center workflow.

Longer term, we expect operating efficiencies from increased scale as well as automation of the fulfillment center workflow.

Selling and Distribution Expenses

Selling and distribution expenses consist primarily of shipping and other transportation costs incurred delivering merchandise to customers and from customers returning merchandise, merchant processing fees, and customer service.

We expect selling and distribution expenses to fluctuate as a percentage of net sales reflecting input cost pressures, particularly freight charges and fuel surcharges, from elevated return rates due to consumer behavior, investments in international markets to offer hassle-free returns, partially offset by efficiencies realized from optimized shipping methods.

We expect selling and distribution expenses to fluctuate as a percentage of net sales reflecting changes to input costs, particularly freight charges and fuel surcharges, from changes in our return rates, investments in international markets to offer hassle-free returns and efficiencies realized from optimized shipping methods.

Marketing Expenses

Marketing expenses consist primarily of targeted online performance marketing costs, such as paid search/product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push” communications through our mobile applications.

and SMS marketing and mobile “push” communications through our mobile applications.

Marketing expenses also consist of investment in brand marketing channels, including events, payments to influencers and other forms of online and offline marketing.

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Over the long-term, we expect general and administrative expenses to continue to increase in absolute dollars to support business growth with general and administrative expenses as a percentage of net sales declining over the long-term as we leverage our investments and as our business scales.

Other (Income) Expense, Net

Other (income) expense, net consists primarily of interest income on our money market funds, interest expense and other fees associated with our line of credit and foreign exchange (gains) losses.

For 2023, other (income) expense, net also includes $5.1 million of insurance proceeds related to a settled legal matter.

Other Income, Net

Other income, net consists primarily of interest income on our money market funds, partially offset by foreign currency exchange gains and losses and fees associated with our line of credit.

For 2024 and 2023, other income, net also includes $2.8 million and $5.1 million of insurance proceeds related to settled legal matters, respectively.

Results of Operations

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Income from operations

Other (income) expense, net

Other income, net

Income before income taxes

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Income from operations

Other (income) expense, net

Other income, net

Income before income taxes

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(dollars in thousands)

The decrease in net sales for 2023 compared to 2022 was primarily due to a higher proportion of returned purchases, partially offset by an increase in the number of orders placed by customers.

Net sales in the REVOLVE segment decreased 1.9% to $904.5 million in 2023 compared to net sales of $921.7 million in 2022.

The increase in net sales for 2024 compared to 2023 was primarily due to a lower proportion of returned purchases, a 1.9% increase in the number of orders shipped, and a 1.7% increase in the average order value.

Net sales in the REVOLVE segment increased 7.3% to $970.5 million in 2024 compared to net sales of $904.5 million in 2023.

Net sales generated from our FWRD segment decreased 2.9% to $159.4 million in 2024 as compared to net sales of $164.2 million in 2023.

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Percentage of net sales

The increase in cost of sales in 2023, as compared to 2022, was primarily due to a higher mix of third-party brand sales, which generally carry higher cost of sales than that of owned brand goods, partially offset by a higher proportion of returned purchases.

The increase in cost of sales as a percentage of net sales was primarily due to a lower percentage of full price sales combined with a higher mix of third party brand sales.

The increase in cost of sales in 2024, as compared to 2023, was primarily due to an increase in net sales and an increase in inbound shipping expenses to receive product merchandise from vendors.

The decrease in cost of sales as a percentage of net sales was primarily due to a higher percentage of full price sales, partially offset by increased inbound shipping rates and a higher mix of third-party brand sales.

Fulfillment Expenses

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Percentage of net sales

Fulfillment expenses in 2023 were higher as compared to 2022, primarily due to an increase in the number of units processed and increased rent cost for existing facilities.

The increase in fulfillment expenses as a percentage of net sales was primarily due to customers returning a higher proportion of their purchases, higher wages for fulfillment staff and the expansion of our fulfillment network footprint and capacity.

Fulfillment expenses in 2024 were higher as compared to 2023, primarily due to increased occupancy costs, partially offset by efficiencies gained from successful expansion and optimization of our fulfillment network.

The decrease in fulfillment expenses as a percentage of net sales was primarily due to an increase in average order value and a lower proportion of returned purchases.

Selling and Distribution Expenses

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Percentage of net sales

The increase in selling and distribution expenses in 2023, as compared to 2022, was primarily due to an increase in the number of orders shipped and returned.

Shipping and handling costs increased $7.3 million and other selling expenses decreased $0.7 million during 2023 as compared to 2022.

The increase in selling and distribution expenses as a percentage of net sales was primarily due to customers returning a higher proportion of their purchases, higher shipping rates and a lower average order value as compared to the comparative period in the prior year.

The decrease in selling and distribution expenses in 2024, as compared to 2023, was primarily due to a $7.1 million decrease in shipping and handling costs, a $0.4 million decrease in other selling expenses, partially offset by a $5.6 million increase in merchant processing fees.

The decrease in selling and distribution expenses as a percentage of net sales was primarily due to lower shipping rates, lower proportion of returned purchases and higher average order value, partially offset by higher merchant processing fees.

Marketing Expenses

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Percentage of net sales

The decrease in marketing expenses in 2023, as compared to 2022, was primarily due to reduced investment in performance marketing campaigns driven by efficiencies in marketing investments.

As a result, we experienced a decrease of $12.3 million in performance marketing expense, partially offset by a $2.4 million increase in brand marketing expense.

The decrease in marketing expenses in 2024, as compared to 2023, was primarily due to a $8.7 million decrease in brand marketing expense, partially offset by a $4.1 million increase in performance marketing expense.

The decrease in marketing expenses as a percentage of net sales was due to efficiencies in our brand marketing and performance marketing investments.

General and Administrative Expenses

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Percentage of net sales

The increase in general and administrative expenses in 2023, as compared to 2022, was primarily due to a $1.7 million increase in salaries and related benefits and equity-based compensation expense related to an increase in our headcount, a $1.7 million increase related to professional services and other occupancy costs, and a $7.9 million increase in other operating expenses.

During 2023, we recorded $7.5 million in legal fees and charges for two separate settled legal matters and $2.8 million in non-routine import and export fees.

During 2022, we recorded a $6.3 million accrual for a separate legal matter that has since been settled.

The increase in general and administrative expenses as a percentage of net sales was primarily driven by the increase in general and administrative costs as well as a slight decline in net sales.

The increase in general and administrative expenses in 2024, as compared to 2023, was due to a $7.9 million increase in salaries and related benefits, a $6.0 million increase related to professional services and other occupancy costs, a $4.2 million increase in equity-based compensation expense, a $1.1 million increase in studio and design costs and a $4.2 million increase in other operating expenses and transaction costs, partially offset by a $7.9 million decrease in non-routine expenses.

The increase in general and administrative expenses as a percentage of net sales was driven by growth in general and administrative expenses outpacing growth in net sales.

Year Ended December 31,

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Effective tax rate

The increase in the effective tax rate for 2023 compared to 2022 was primarily due to an increase in state income taxes and non-deductible expenses combined with a decrease in excess tax benefits related to the exercise of non-qualified stock options, partially offset by a higher proportion of foreign-derived intangible income.

The decrease in the effective tax rate for 2024 compared to 2023 was primarily due to an increase in excess tax benefits related to the exercise of non-qualified stock options, partially offset by a lower proportion of foreign-derived intangible income and an increase in disallowed expenses related to Section 162(m) of the Internal Revenue Code for covered employee's compensation.

Liquidity and Capital Resources

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The credit agreement also contains customary covenants restricting certain of our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness, repurchase stock or grant liens or negative pledges on our assets, make loans or make other investments.

Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock.

Under these covenants, we are prohibited from

paying cash dividends with respect to our capital stock.

We were in compliance with all financial covenants as of December 31, 2024 and 2023.

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We generated $26.7 million of operating cash flow in 2024 compared to $43.3 million in 2023.

The increase in our operating cash flow was primarily due to a $55.6 million net increase due to reduced investments in inventory, partially offset by a $28.7 million decrease in net income adjusted for non-cash items and a $7.0 million decrease from changes in other working capital.

The decrease in our operating cash flow was primarily due to negative impact from changes in working capital, partially offset by higher net income adjusted for certain non-cash items.

Net Cash Used in Investing Activities

Our primary investing activities have consisted of purchases of property and equipment to support our fulfillment centers and our overall business growth and internally developed software for the continued development of our proprietary technology infrastructure.

Purchases of property and equipment may vary from period-to-period due to the timing and extent of the expansion of our operations.

In addition, for 2024, our investing activities included purchases of rental product and cash paid for an acquisition.

Purchases of property and equipment may vary from period-to-period depending on the timing and extent of the expansion of our operations

Net cash used in investing activities was $9.1 million and $4.2 million in 2024 and 2023, respectively.

Net Cash (Used in) Provided by Financing Activities

Our financing activities primarily consist of proceeds from the exercise of stock options, borrowings and repayments related to the existing line of credit, when applicable and repurchases of our Class A common stock.

Our financing activities primarily consist of repurchases of our Class A common stock and proceeds from the exercise of stock options, when applicable.

Net cash used in financing activities was $5.4 million in 2024 and was primarily attributable to repurchases of shares of our Class A common stock under our stock repurchase program, partially offset by cash proceeds from the exercise of stock options.

Net cash used in financing activities was $30.4 million in 2023 and was primarily attributable to repurchases of shares of our Class A common stock under our stock repurchase program.

Net cash provided by financing activities was $0.9 million in 2022 and was attributable to cash proceeds from the exercise of stock options.

Contractual Obligations

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Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $20 reward once they earn 2,000 points.

We defer revenue based on an allocation of the price of the customer purchase and the estimated standalone selling price of the points earned.

We defer revenue based on an allocation of the price of the customer purchase and the estimated

standalone selling price of the points earned.

Revenue is recognized once the reward is redeemed or expires or once unconverted points expire.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis