REF (REF) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Reformation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jean Fontana. Please go ahead.

Good afternoon, everyone. Thank you for joining us today to discuss Reformation's second quarter 2026 results. Joining me on the call today are Hali Borenstein, Chief Executive Officer; and Joshua Moore, Chief Financial Officer. Before we begin, I'd like to remind you that this conference call will include forward-looking statements, including statements regarding our future financial and operating performance, including our outlook and guidance for the full year 2026. 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 and our SEC filings, all of which can be found on our website at investors.thereformation.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA and adjusted EBITDA margin. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information presented and prepared in accordance with GAAP. 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 our SEC filings. With that, I'll turn the call over to Hali.

Thank you for joining our first earnings call as a public company. Today, we will discuss our second quarter results and our outlook for 2026. Our IPO was a significant milestone and the result of years of work building a truly special once-in-a-generation brand. I want to thank our amazing team for everything they've done to get us here as well as our customers, partners and shareholders for their support. We're incredibly excited to begin this next chapter together. Our mission is to bring sustainable fashion to everyone. From the beginning, we set out to build a modern retail brand that delivers on that mission while driving durable, predictable growth and strong profitability. With 24% year-over-year net revenue growth in the second quarter, we have now delivered 21 consecutive quarters of double-digit revenue growth. Our strong financial profile is underpinned by consistently high full-price selling, averaging approximately 80% over the last several years and disciplined execution, which drives our healthy gross margins and double-digit EBITDA margins. We are proud of what we've accomplished, and we're just getting started. Reformation's success is driven by 3 core competitive advantages: our powerful brand, our agile merchandising model and our tech-forward DTC selling strategy. First, our engaging and distinctive brand. Our brand identity cuts through and retains relevance over time. We're smart, fun, confident and a little bit irreverent. Our approach to brand building leverages both data and a highly creative team to ensure we consistently deliver compelling content across channels. The majority of our customer base is aged 25 to 50. As we expand, so does our customer group. In 2025, 20% of our new customers were under the age of 25 and 20% were over the age of 50. Mom and daughter both shop at Ref. And in fact, 3/4 of our customers who come to Ref to shop for their daughters end up shopping for themselves as well. Ref is a multigenerational brand that appeals to an attitude and mindset rather than a specific demographic. And we have a wide geographic reach with 70% of active customers located outside of New York and Southern California and about 20% coming from international markets. The strength of our brand shows up in our economics, enabling us to acquire customers efficiently, maintain marketing spend at approximately 9% of revenue and remain profitable on the average first order. Once we acquire customers, they stay with us. 70% of our revenue in 2025 came from repeat customers, creating a durable foundation for growth. Nearly 20% of customers acquired in 2015 still shop with us 3 times a year today, one of the clearest examples of Reformation's ability to transcend age and life stage. Second, we have a proprietary merchandising model. Great product has always been at the core of what we do. Reformation first became famous for beautiful dresses and has since evolved into a multi-category womenswear destination. Last year, about 3/4 of DTC net revenue came from customers who purchased more than one category. We have a thoughtful approach to fit that inspires confidence and loyalty. 84% of customers say that wearing Reformation makes them feel confident. This is one of the metrics I am most proud of as CEO because it really underscores the positive impact our product has on our customers. Our agile merchandising engine is a key differentiator. We combine real-time customer data with a fast, flexible supply chain that allows us to test, learn and quickly scale winning products. Rather than making large inventory bets up to 12 months in advance like many brands, we respond to what customers actually tell us they want. Our supply chain is built for speed, sustainability and quality. We produce more than 50% of our products in 60 days or less and approximately 90% of DTC revenue comes from styles with proven performance behind it. That means that we have data that gives us confidence in what products we make. This model reduces fashion risk and inventory risk while enabling us to deliver more of what customers want, resulting in approximately 80% full price selling and supporting strong gross margins and cash generation. Third, our DTC-first selling experience. As a digitally native brand, we combine best-in-class third-party platforms with proprietary technology to create seamless customer experiences that are designed to drive customer engagement and value. Our stores and e-commerce business operate as one integrated ecosystem. Both channels have compelling stand-alone economics, but they are meaningfully more productive together. Markets with stores grow significantly faster than those without, and omnichannel customers, who represent 34% of revenue, spend 3.1x more than single channel customers. Retail X, our proprietary retail technology, connects the sales floor and fitting room in store, allowing customers to request new styles and sizes at the touch of a button and enabling our team to deliver more convenient and personalized experiences. The impact is meaningful. Retail X drives an average 270 basis point increase in conversion while also generating valuable customer insights that inform merchandising, marketing and inventory decisions. Our selective wholesale strategy complements this ecosystem by expanding brand awareness, introducing new customers to Reformation and supporting international growth. Now turning to our second quarter results. The strength of our model is further illustrated in our performance. Our second quarter results came in above the high end of the estimates we provided at the time of our IPO. In Q2 2026, we generated net revenue growth of 24% to $155.2 million, adjusted EBITDA of $25.4 million, which is a 16.4% margin and an increase of 54% to last year. And we did this by servicing 1.2 million active customers on an LTM basis, an increase of 23% to last year. We are seeing strength across the business in both DTC and wholesale in our U.S. and international markets and across product categories. We launched a highly successful spring collaboration with tastemaker Courtney Grow, generating nearly $1.5 million in demand on launch day. The collaboration built brand heat and drove engagement across new and existing audiences. We were really encouraged that 2 of our top 5 SKUs were accessories, further validating the strength of our product diversification strategy. Our performance in Q2 is a good representation of our growth strategy in action, including continued diversification of our product offering, increasing distribution and international expansion. Let me share some of the highlights of the quarter in each of these areas. First, product diversification. In Q2, we continue to see strong momentum across categories. Today, our assortment spans categories and occasions with significant white space in areas like tops, bottoms, including denim and shoes. We've added more than $200 million of annual non-dress net revenue since 2021. This expansion is driving growth by creating more ways for new customers to discover and enter Reformation and by giving existing customers more reasons to shop with us. We see that reflected in our active customer base, which grew 23% year-over-year in Q2 on an LTM basis, ahead of our long-term algorithm. We saw particularly strong new customer acquisition, many of whom came through our product focus areas. At the same time, existing customers are returning to Reformation at an increasing rate, shopping the assortment more broadly. The strength of our existing customer base can be observed across cohorts, including in our Friends with Benefits, or FWBs, our most engaged customers who spend more than $1,000 annually, which grew more than 20% year-over-year. Together, the strength we are seeing across both new and returning customers is an important indicator of overall brand health and reinforces our confidence in our ability to drive durable long-term growth. LTM DTC net revenue per customer was $417, down 1.4% year-over-year as a result of the significant growth in new customers who naturally have lower initial spend than more tenured customers. Importantly, spend within each customer cohort remains healthy and customer value increases meaningfully with tenure. For example, in 2025, returning customers spent nearly twice as much as new customers to the brand. The overall decrease of net revenue per customer is a reflection of the mix of the customer base as we accelerated the rate of new customer acquisition over the first half of the year. Given our strong track record of retaining and growing customer value over time, we expect the 23% LTM growth of our customer base to create a significant opportunity for future growth as these customers deepen their relationship with Reformation. Second of all, we are focused on expansion of our channel distribution across our proven e-commerce and retail model. As of the end of Q2, we operated 70 stores, and we see a clear path to doubling our fleet over the next 5 years. We are currently present in only half of the top 50 U.S. MSAs and have a strong pipeline of new locations ahead. In terms of our new store road map, approximately 2/3 of our opportunities are in new markets with the remainder in existing markets. We believe that we have a proven and strategic playbook for identifying, opening and operating highly productive stores. In Q2, we opened 4 locations, bringing our year-to-date total to 6, including stores in Raleigh, Paris and Chicago. We view our stores as more than a retail revenue opportunity. They act as a catalyst for the entire market, building brand awareness, attracting new customers and accelerating e-commerce growth. Chicago is a great example. In Q2, we opened 2 additional stores in Chicago on the same day, demonstrating our expansion strategy in action. We supported the openings with local activations, including VIP tours of The Art Institute of Chicago, helping create a broader brand moment and connecting directly with our Chicago customers. The early results have been impressive. New customer growth in Chicago accelerated from 28% year-over-year in the 20 weeks before the opening to 50% in the 11 weeks since. In total, DTC net revenue growth accelerated nearly 1.5x following the openings with both retail and e-commerce growing year-over-year. As we expand our store footprint, we believe we can drive not only highly productive store growth but also accelerate customer acquisition and e-commerce growth across the market. Our wholesale strategy also continues to gain traction. We continue to see strong demand from our existing partners with future growth expected to come through expanded product assortment and additional doors. At the same time, we remain deliberate and DTC first, using wholesale strategically to build brand awareness, acquire new customers and test new international market fit. Our last growth pillar is focused on international expansion. Our brand resonates well beyond the U.S. with approximately 20% of net revenue in Q2 coming from international markets, led by the U.K., Canada and France. With only 10 international stores as of Q2, we believe we have established strong product market fit with significant runway ahead. That success is reflected in our results. During the second quarter, international net revenue grew 37% year-over-year. We take a deliberate market-specific approach to expansion, building brand awareness and discovery while adapting our marketing and distribution to the local dynamics without compromising what makes Reformation distinctive. France is a great example of this strategy in action. We first built the business digitally by establishing a strong brand position and localizing the customer experience. From there, we expanded into a physical presence, first through select wholesale partners and ultimately with our first Paris store in Le Marais in November 2025. The strong response to the brand across both digital and retail gave us confidence to grow our presence further with a second location in Passy opening in March 2026. It has been incredible to see the strong response to Reformation in one of the most important fashion markets in the world. New customer growth in France has accelerated to more than 180% year-over-year in the first half of 2026. Both stores are also performing above our initial expectations. We see strong growth in all 3 of our core markets, France, the U.K. and Canada, and intend to continue our brand and retail expansion efforts in these markets in the second half of the year. The response we're seeing gives us confidence in Reformation's global appeal and the significant international opportunity ahead. In conclusion, we are pleased with our Q2 results, and we continue to see strong momentum in the business as we enter the final weeks of Q3. We're encouraged by the customer response to both our fall product transition and annual summer events. As we begin our journey as a public company, we remain focused on what has always driven our success, creating great product, serving our customers exceptionally well and executing with discipline. We believe that this is a winning strategy to support our long-term growth algorithm, revenue growth in the mid- to high teens, gross margin in excess of 62% and adjusted EBITDA margin in the mid- to high teens. We believe the strength of our brand, differentiated operating model and significant runway ahead position Reformation to deliver sustainable growth and long-term value creation. With that, I'll turn the call over to Joshua.

Thank you, Hali, and thank you, everyone, for joining us today for Reformation's first earnings call as a public company. This marks an important new chapter for Reformation and reflects the strength of the brand, the consistency of our operating model and the dedication of our team. We believe we are still in the early stages of our long-term growth opportunity with a durable foundation in place and remain focused on executing against the strategies that have consistently driven strong profitable growth over the last several years. I will begin today's discussion with a review of our second quarter results, followed by our full year 2026 outlook. Our second quarter's performance reflected continued top line momentum and disciplined execution across the business. Net revenue increased 24.1% to $155.2 million, representing our 21st consecutive quarter of double-digit growth. Performance was consistent across channels and geographies as customer acquisition and engagement remain key strengths of our business. Looking at our revenue by channel. Our direct-to-consumer net revenue increased 21.2% to $135.3 million. This performance was led by LTM active customer growth of approximately 23% to 1.2 million customers, reflecting the strength of our brand and product offering. We were particularly pleased with the growth in new customer additions, while retention remained strong, demonstrating the continued resonance of our product assortment and strength of our customer engagement across channels. Our seamless DTC model combines a highly productive e-commerce platform with a smart retail strategy. We opened 17 new stores over the past 12 months, including 4 in the second quarter, bringing our total store count to 70. Our stores expand our reach and accelerate growth in markets they serve, with sales in markets with stores growing at an accelerated pace relative to markets without stores. Our DTC net revenue per customer decreased 1.4% versus last year. As Hali mentioned, this was driven by our outsized growth in new customers. Newly acquired customers typically enter the brand at initially lower spending levels and increase their spending over time. The behavior of our new customer cohorts remains strong and consistent with prior year cohorts, giving us confidence that the strength in new customer acquisition should continue fueling our growth over the long term. Wholesale and other net revenue increased 48.7% to $19.9 million. Wholesale growth was driven by particularly strong customer response to our spring/summer product assortment in the second quarter, which led to higher order volumes from existing partners. We continue to grow wholesale selectively, partnering with a few strategic accounts that align with our Reformation brand, extend our reach and build brand awareness. Turning to our performance by geographic region. U.S. revenue increased 21.3% to $124 million, reflecting strength across channels, product categories and growth in our active customer base. International revenue increased 36.8% to $31.2 million, driven by broad-based growth across our focus markets and the continued expansion of our retail footprint in France. We ended the quarter with 10 international stores across the U.K., Canada and France and continue to serve customers in more than 150 countries through our digital channel. This performance further reinforces our confidence in the significant long-term growth opportunity we see internationally. Now moving to gross margin, which was 66.7% compared to 64.4% in the prior year period. The approximately 230 basis point increase was primarily due to lower blended tariff rates and higher AUR, partially offset by accelerated growth in the wholesale channel. The second quarter's gross margin is typically the strongest of the year, reflecting the normal seasonal cadence of our business. Turning to operating expenses. Total operating expenses increased by 24.2% to $84.4 million compared to last year. As a percent of net revenue, operating expense was flat to last year at 54.4%. Marketing expense in the second quarter was $14.5 million or 9.3% of revenue compared to $11.3 million or 9% of net revenue over the same period last year. We remain disciplined with how we deploy our marketing dollars with spend varying quarter-to-quarter based on the timing of campaigns and events. SG&A was $70 million or 45.1% of net revenue compared to $56.7 million or 45.4% of net revenue over the same period last year. The dollar increase was primarily due to increased shipping expense, higher stock-based compensation and new stores. The 30 basis points of SG&A improvement was a result of leverage on payroll expense and the lapping of costs associated with the relocation of our Los Angeles distribution center. Net income grew to $12.4 million in the second quarter compared to net income of $6.9 million in the second quarter last year. Adjusted EBITDA was $25.4 million compared to $16.5 million during the same period last year. Our adjusted EBITDA margin increased to 16.4% compared to 13.2% in the same period last year, driven by gross margin expansion and continued operational discipline. Turning to our balance sheet. Our strong financial position provides us with flexibility to continue investing in our long-term growth priorities. We ended the second quarter with cash and cash equivalents of $76.6 million and $26.4 million in available borrowing capacity. Inventory at the quarter end was $81.8 million, reflecting a 25.7% increase as compared to $65 million at the end of the second quarter last year. The increase in inventory was primarily driven by new store openings and sales growth. Inventory remains healthy and well positioned to support our growth. Capital expenditure totaled $8.4 million in the second quarter, primarily supporting new store openings and other key initiatives. Turning to liquidity. On June 17, 2026, ahead of our IPO, we amended our credit agreement, raising an additional $92 million of term loans and extending the maturity to June 2031. These proceeds were used to fund approximately $90 million in dividends to our shareholders or $1.63 per share. Total debt was $246.7 million, and net debt was $170.1 million at the end of the second quarter. In July, we successfully completed our initial public offering, generating $132.2 million of net primary proceeds after deducting underwriting and commissions, of which approximately $110 million were used to repay debt. As of August 24, 2026, total debt was $136.7 million, bringing our net leverage ratio to approximately 0.9x. Looking ahead, as we navigate life as a public company, our team is committed to driving consistent, strong growth while operating with financial rigor and agility to deliver successful execution of our winning strategy. Turning to our full year 2026 outlook. We expect net revenue to be in the range of $602 million to $606 million, representing approximately 18.6% to 19.5% growth as compared to last year. We expect growth to be driven primarily by continued expansion of our active customer base, supported by the strength of our brand and product offering. Our outlook reflects the outperformance in the second quarter and the strong trends we've seen thus far in the third quarter, which closes in just 16 days. Based on these trends, we currently expect net revenue in the third quarter to be higher than that of the fourth quarter. For the fourth quarter, our outlook reflects strong year-over-year comparisons as we lap both the normalization of tariff-related supply chain disruptions and last year's strong holiday performance. From a profitability perspective, we expect to deliver adjusted EBITDA margin between 14% and 14.2% for fiscal year 2026. With respect to gross margin, as a result of a lower tariff environment, AUR increases and continued strong full price selling, we expect relatively similar year-over-year gross margin expansion in the third quarter as what we experienced during the second quarter. Note that our third quarter typically has a lower gross margin profile than the second quarter due to the incurrence of our summer sales event. From an SG&A perspective, our outlook reflects increased stock-based compensation in the third quarter as well as public company costs. We continue to execute with rigor across the business and expect to realize efficiencies that will drive future operating leverage. With respect to capital allocation, our focus remains on investing in high-return opportunities. We expect 2026 capital expenditures of approximately $23 million to $27 million or roughly 4% of sales, primarily due to new store openings. We expect to open 9 to 10 stores in the second half for a total of 15 to 16 in 2026, including the reopening of our Palisades store, bringing our year-end store count to 79 to 80. Overall, we are very pleased with the momentum we are seeing across the business and remain confident in both our outlook for 2026 and our ability to deliver against our long-term growth algorithm. With that, operator, we are ready to open the line for questions.

[Operator Instructions] Our first question today is from Matthew Boss with JPMorgan.

Congrats on a nice quarter. So Hali, on your comment, we're just getting started. Could you elaborate on the 23% growth in customer count this quarter? What drove the outperformance just looking across your customer cohorts? And how best to think about the new customer maturity curve and what it means for revenue spend per customer over time?

Thanks, Matt. We are really excited about the customer growth that we are seeing. It really is a reflection of several aspects of our model working together at the same time. And it's important to note, it's coming from both new customers and our returning customers. Both cohorts are performing very nicely right now. We believe the strength is really a reflection of 2 parts of our model. The first is the agile merchandising. The fact that we can test lots of products, let the customer tell us what to make more of, really ensures that we're offering the right product at the right time. And our product to date is really checking quite well with our customers. We're seeing strong response in spring and summer and now into our fall transition. We also have a brand and marketing strategy that puts the customer at the core. And so that really ensures that we're consistently engaging with our customers and generating best-in-class loyalty. And we're seeing that in our returning cohorts. Every single cohort we have, when we look at them, they are spending at or above prior year's levels. So with tenure, value is expanding. It's also important to call out, we've made significant progress in some of our core growth pillars, areas that are really underway and with significant traction, things like product diversification, channel expansion as well as international growth. And that's really what has enabled such strong performance. To your question on net revenue per active customer, we believe it's a positive dynamic. The new customers naturally enter the brand with lower initial spend. So outsized new customer growth will temporarily pressure the blended DTC net revenue. For example, in 2025, returning customers actually spent double what a new customer did. But again, our spend on our returning cohorts each year looks very healthy. So we know that these new customers, as we give them more time with the brand, their value will increase. We see a big step-up in that second year and then subsequently healthy growth year after year. The consistency of our retention, the fact that we've had 80% revenue retention on a 1-year basis, 98% on a 2-year basis, that really fuels our growth and gives us a lot of confidence in how we're going to approach the subsequent quarters. So we think it's a really good dynamic and consistent on how we want to drive this business going forward.

Great. And then maybe just, Hali, as a follow-up, could you elaborate on the current momentum in the business that you cited a few times? Maybe just speak to some recent trends you're seeing, more notably across full price selling in the fall transition?

Yes. We've been really pleased to see fall is continuing to perform quite nicely. We're seeing great trends in the business across channels, across geographies as well as across product categories. It's really just a reflection of our ability to test lots of new ideas and then double down on the things that are really working where our customer is responding well to. And so we feel very good about our ability to continue our streak of 80% full price selling. And we're excited to see how the quarter continues to close. We only have 16 days left in the quarter. So we have a good line of sight and feeling really good about how we're going to enter Q4 as well.

The next question is from Simeon Siegel with Guggenheim.

Nice job. Welcome to public markets. I want to follow up on Matt's, if I can briefly. And then just a quick follow-up. So how are you thinking about the revenue per customer versus the active customer growth embedded in the guide? And maybe to your point, Hali, when you were talking about, how much of your forward revenues do you think are inherently predictable because of the new customer spend ramp? And then, Joshua, I think, just pretty fantastic gross margin performance. How should we think about the drivers and levers of go-forward gross margin, both embedded in the full year guide, but also thinking about beyond that?

So in terms of active customer growth, it continues to show strength in Q3, led by new customers. And so, insomuch that, that continues, we should expect that the similar pressure on the DTC metric to continue. But again, it's really a mix issue more so than if you look at each year or each cohort together, each cohort in isolation, you will see expansion in value. So again, we really believe this is a good thing and should fuel our growth. I don't have an exact number of how much of our revenue is predictable exactly to give you. But the way I'd help you think about it is by going back to our retention curve. So 80% of our revenue on a 1-year basis is retained and then 98% on a 2-year basis. And that number just continues to increase year-over-year. It really is what gives me so much confidence in our ability to continue executing quarter after quarter. And that's really, kind of, the -- what underpins the 21 quarters of double-digit growth that we've been able to achieve.

Simeon, yes. So with respect to gross margins, yes, we've been very happy with our gross margin expansion, increasing 230 basis points during our second quarter. And we expect to continue to expand the margins. Number one, we're still very focused on full-price selling and are going to continue to emphasize that. Two, and the biggest driver of our overall margin expansion has been the lower tariff environment this year versus 2025. And we're going to continue to benefit from that in the back half of the year, and that's reflected in our overall guidance that we had provided for 2026. I will mention, though, that when we actually look at our third and fourth quarters, the actual benefit from tariffs becomes a little bit less. Q2 of 2025 was the height of the tariff rate environment, and they started to stabilize in the third quarter and the fourth quarter of 2025. But that will continue to be a nice little tailwind for us through the back half of the year. And then also, we have begun our historical AUR increases at the beginning of this year. We pressed pause on that last year, and we're starting to see benefits of that. And so in our third and fourth quarters, we'll continue to get benefit from AUR increases as well. We do see overall mix impact from our wholesale channel, which is -- we've just had great growth in wholesale, and we continue to expect wholesale to outpace our total sales growth as well.

The next question is from Dana Telsey with Telsey Advisory Group.

Nice to see the progress. Hali, as you think about the category performance in some of the new categories that you entered, whether it's the footwear category, what are you seeing? And what's the response, new customers versus existing? And as you think about the ramp of new customers getting to the existing, how do you see their purchase patterns scaling up as they get inducted into the community? And then, Joshua, as you think about inventory levels, how are you planning inventory levels for the third and fourth quarters? And are there any puts and takes on the margins that we should be aware of?

Thanks for the question, Dana. So we've seen broad-based performance across the categories, which is great to see. We did have standout successes in some of our focus areas such as separates, tops, bottoms, including pants and skirts. And we also are very encouraged by our progress in areas that are more emerging like footwear. When it comes to new customers, we actually find that product diversification is a great way to allow more customers to enter and discover the brand. And so we are seeing new customers as well as existing customers shop across our catalog. We are not focused on -- excuse me, which category a customer should enter. Instead, really, what matters is how we engage that customer and showcase our broader assortment so that we can build a deep and enduring connection with our customers. Today, 20%, 25%, 74% of our customers shop across the catalog, and we know we're still very early in that journey. Customer spend continues to increase with tenure and as they get to know Reformation for more categories and more occasions. So we believe by expanding the number of ways that customers can enter and return to Reformation, value will continue to expand.

With respect to inventory, we're not providing very specific guidance on the inventory levels. But what I'll say is that our inventory levels generally reflect our anticipated sales growth, new store expansion and the timing of when we actually open up new stores. As we mentioned in our guidance in the back half of the year, we're looking at opening up 9 to 10 stores. So when you look at our overall inventory through the second half of this year, we grew about 26% year-over-year. Our total sales grew 27%. And that includes -- that inventory growth includes adding 17 stores over the past 12 months. And then as I mentioned, the 9 to 10 stores that we're looking at opening. So we actually feel very good with our inventory position given the fact that when you look at the overall productivity, it is actually slightly improving year-over-year, including the accelerated growth of our new stores. And so we think by the end of the year, we're going to be very well positioned again to continue ramping up our store count and fuel our overall sales growth going forward. From a gross margin standpoint, we feel very good with our gross -- our ability to expand our gross margins, as I said a little bit ago. And our productivity of the inventory is going to help us continue to drive the full price selling and overall expand the margins.

The next question is from Mark Altschwager with Baird.

I was hoping you could talk a little bit more about the trends you're seeing with the newer markets versus more established markets and how you'd characterize the e-commerce lift and broader brand halo relative to what you've experienced in prior periods?

New markets are performing quite nicely, well, actually in line and in many cases, above our projections for that. So to pull back, if we think about the new stores we've added, 2025 cohort is well ahead of our internal projections. 2026 is early, but we are also off to a good start here. What we've seen is that when we open these stores, the market itself disproportionately grows faster than the rest of the business. So Chicago as an example we talked about, new customer growth acceleration went from 28% to 50% year-over-year once we opened additional stores in that market. We actually welcomed 2,000 new customers in 1 month in Chicago as a result of these store openings. We saw a similar dynamic when we opened our second store, Passy, in Paris in March of 2026, where the entire market lifted extraordinarily well. Digital sales really took off as well as customer acceleration. And we've been pleased to see that the entire market is outperforming our expectations. So this trend does continue and reinforces our confidence in our expansion plans to more than double our store count in the next 5 years. We still have a lot of really meaningful markets that we are excited to enter both new markets and infill in existing markets. And as Joshua mentioned, we have a busy schedule for the next Q3 and Q4 of this year, lots of new opportunities that we're excited to go after, and we'll share those results with you as well.

Great. And just a follow-up on the DTC revenue per customer. You spoke a lot about the mix dynamic, which I think we all understand. Can you give a little bit more color on the spend -- what the spend per customer trend looks like with some of your returning and more established customers? I guess what does that omnichannel mix and cross-category shopping look like in Q2 and quarter-to-date relative to what you've seen in recent periods?

So you really do need to look at it by year to truly understand because there's even a mix dynamic going on within returning customers, given we had a meaningful increase in our 2025 cohort, for example, which is obviously still at a lower spend than our '24 cohort. So to give you an idea of how to think about it, by year, we are still seeing mid-single-digit growth value in these cohorts, particularly the ones in the first couple of years. And so we're feeling really good that our customers are continuing to shop the assortment more broadly, and we are expanding and deepening our relationship with our customer base.

The next question is from Alex Straton with Morgan Stanley.

Congrats on a nice quarter. My first one is just on SG&A. It looks like the Street is modeling this as mostly an SG&A leverage story more so than gross margin expansion. So either for Hali or Joshua, can you just speak to your confidence in your ability to leverage this line item over time?

Yes. We feel confident in our ability to leverage over time. That's actually reflected, first and foremost, within our second quarter, where we leveraged SG&A about 30 basis points. And that was actually partially offset by increased stock-based compensation that we saw during the period. And -- but when you look out going further, Q3, with the IPO, we will have elevated costs with share-based compensation. We will also have elevated costs going forward with our overall public company costs. And then we are seeing elevated costs with respect to shipping as a result of increased fuel surcharges. But I think net-net, once we get through, I think, the first phase of the initial share-based compensation, we feel very confident of our ability to leverage our SG&A as early as when we start to get into the latter part of this year. And especially going forward, as we're looking at being within our long-term growth algorithm, we should get a great deal of leverage flowing through to the bottom line.

Perfect. Then maybe one follow-up just on gross margin. I think you spoke to this like 62% plus rate. You've been well above that historically. So it feels like there's opportunity there up to the maybe even mid-60s level. Can you just talk about the opportunity to close that gap longer term and if those historical levels are achievable?

Yes. What we provided before in terms of our growth algorithm, as youmentioned, is 62% plus. The biggest delta of that is, historically, you mentioned we've been at 64%, which we very much enjoyed historically. But the main difference is now we do have this elevated tariff environment that is a -- causes our input costs and our product cost to be elevated. And so that's, kind of, the structural difference that we have this year and going forward relative to what we had prior to 2025. But we're working on several things that will continue to allow us to expand those gross margins. And our focus is, when we say 62% plus, we really want to get back to those historical levels over time. And so we put -- we have things that work to help us get there. One, we're going to continue to be focused on our full price selling. That is our overall business model. And we've been able to execute our pricing strategy very well this year. Our products and our merchandising strategy has shown just great success. We continue to expect us to execute at a high level when it comes to that. And then as I talked about before, when we're going through this, one of the things that we are -- we have very strong strategic partnerships with our vendor base, and we're going to be working with them to ensure that we can moderate input costs. So as we look at AUR increases, we can ensure more of our AUR increases flow through the bottom line. And so we do see a nice runway to continue to expand those margins and stay consistently within that 62% plus and then working our way back up to that historical 64% level over a period of time here.

The next question is from Dylan Carden with William Blair.

I was curious just on the seasonality of the third and fourth quarters. So of the 2 historical years we have, it looks like those 2 trade off as far as contribution for the year. Can you help us understand that dynamic?

Yes. Yes, those -- in terms of absolute sales, Dylan, they're very similar in terms of overall size. And one of the biggest impacts is just the overall growth from one quarter to the next. This year, particularly when we provided our outlook, it's really based on what we've seen in our second quarter and so far, what we've seen in our third quarter. We're only 16 days away from the end of the quarter. And so we are expecting higher growth in our third quarter. One is just a result of we have tougher comparisons when you look at the fourth quarter of last year, we grew 24% last year, and so we will be lapping that. Also in our fourth quarter, we had just very strong execution across the board. And that combined with the stabilization of our supply chain as a result of tariffs last year, that was in full effect, and we reaped a lot of benefits from that. And then overall, we had very strong customer response to our product offering in the overall selling period last year. And so we are reflecting that in our outlook. And I think those are the things that are going to -- as you just look at the cadence that's going to impact the back half of the year.

Excellent. And then does it make sense that as you add categories, as you grow stores with the opportunity to convert customers into omnichannel customers in those markets quicker that you have or should see sort of spend per first year customer increase over time beyond sort of general price increases?

I think we would anticipate all of these -- the good work we're doing on product diversification, on channel expansion to certainly contribute to continued spend increases across all of our customers and our cohorts. I think the one thing that we're also thinking through is just with such a quick or such a major increase in our new customer base, we are also lapping or we are also welcoming a very broad set of customers. And so how we make sure we engage with them, how we build up sufficient retention plans for such a large audience is the work that we're currently undergoing to make sure we realize those benefits. The model is all there, omnichannel, certainly, we know those customers are worth much more. And so the work we're doing on the retention side, which is newer to our team, is really trying to make sure we're encouraging cross-channel shopping, making sure we are highlighting the right products in front of every customer so that we can fully optimize on the value per customer, both in the first year and subsequently.

The next question is from Irene Nattel with RBC Capital Markets.

Congratulations on the great results. We spent a lot of time on the call talking about the DTC, recognizing omnichannel is still a much smaller piece, but it is growing and you had great numbers. So can you give us a little bit more color around -- you noted strong sell-through from existing wholesale partners, what you're seeing from the long-standing, from the newer ones, and how we should think about the addition of new wholesale partners over the next several quarters?

So the growth we're seeing is really coming from higher volume in our existing accounts and reflects really strong response to our spring and summer products, both sell-in and sell-through, which is great to see. And I'm happy to report we continue to see strong performance subsequently in Q3 as well with our key partners. We have meaningful runway to expand with these existing partners through broader assortments as well as new doors. And we do have many new partners that we could welcome to the brand. But we are very strategic in how we approach this business, and we are going to realize or capitalize on opportunities in a very disciplined way. So what you'll see from us in the next couple of quarters is really continuing to support our core accounts through expanded assortment. And then maybe we would be bringing on 1 or 2 new wholesale partners that have strategic value to the business, particularly around helping to introduce the brand to new markets. As a reminder, in 2025, 90% of our revenue came from direct-to-consumer. So we really are a direct-to-consumer lens business or business, and we use that lens when making our decisions on how we allocate resources and how we think about our product assortment. So we'll continue to nurture this business, grow this business, but we'll do it in a disciplined way over the coming years.

The next question is from Paul Lejuez with Citigroup.

Can you maybe talk about regional performance within the U.S. during the quarter? Curious if you saw any fluctuations tied to weather patterns, any particular region? And then second, would love to hear about the new store pipeline. How much is locked and loaded for next year? And what sort of number should we be thinking about as we sit here today? Should it be a similar number to what you plan to open this year?

Yes. So thanks for the question. With respect to regional performance domestically, we don't really, kind of, break that out. But what I'll say is that we've had building and strengthening performance across the board across all of our regions. And so we feel very good about that with both from an overall growth standpoint and productivity standpoint. When you look at our store base alone, we feel very good, not just from a regional standpoint, but when you look at our new stores, the last 2 cohorts of stores have been performing very well for the quarter. So we feel good about how we performed and how we are exiting Q3. And so that gives us pretty good confidence in terms of how we're going to be setting ourselves up for the last part to finish the year strong.

Great. And I'll tackle the retail question. So as Joshua mentioned, we do have 9 to 10 stores on deck or opened for Q3 and Q4, feeling very good about our execution of that cohort. For 2027, more than half, actually the majority -- vast majority of our stores for the year are already identified and either leased or under far into negotiation. So we are ahead of where we need to be to ensure that we hit our goal of 12 to 14 stores per year. Again, these stores will be across new markets and existing markets as well as international and domestic markets, really in service of our goal to more than double the store count. We have significant space -- white space in new and existing markets still. So we get to -- we have the privileged position of being very disciplined and rigorous about which stores we open, when. And our team has very strict guidelines, processes to ensure that we are constantly making great long-term decisions as we think about our broader store pipeline.

The next question is from Janine Stichter with U.S. Bancorp.

Congrats. With regards to the strong new customer acquisition you're seeing, can you further unpack the drivers in terms of how those customers are being acquired either via in stores and online or organic versus inorganic? And then you mentioned a broader set of customers that you're acquiring. Anything changing in terms of the demographic of that base? I think you've mentioned 20% new customers under 20 and 20% over 50. Anything changing there in that mix?

So our goal is consistently to enable our customers to shop wherever it is they want to shop. So we think about both retail and digital as one integrated ecosystem and are truly agnostic to where it is they discover the brand or continue to shop. We've seen in our business, very consistent trends where customers are coming to us across both digital and IRL touch points, and most importantly, what we're seeing is that customers are behaving more and more in terms of omnichannel moving between retail and e-commerce. So excited that new customer acquisition continues to be quite diverse in terms of all of the different ways we are reaching customers. In terms of also the demographics of this group, similar to 2025, what we're seeing is the group -- the breadth of our customer group continues to expand with customers under the age of 25 and customers over age of 50 continuing to grow. So Reformation is a brand that is reaching a very broad audience. I love the stat that shows that mom and daughter are both shopping. It's really quite true. The other thing to call out is even though our quantum of new customers are growing, we do have obviously very consistent trends as we've talked about for customer retention. And so we have good indicators for what customer behavior should look like. And this is a cohort where early indications are it's strong, they are shopping the right way and engaging with our brand. And so we feel really good about our ability not just to welcome a bigger group of customers, but really to engage them and retain them for the long term so that they can be the foundation for our fuel -- to fuel our future expansion.

This concludes our question-and-answer session. I would like to turn the conference back over to Hali Borenstein for any closing remarks.

Just want to thank everyone for joining us today. We've built a really strong and differentiated business with significant runway for growth. We're excited by the results that we shared with you today, and we know that the significant progress we've made extends well beyond this quarter and will continue to fuel our expansion for quarters and years to come. Like we say at Reformation, we believe we are just getting started. So we look forward to keeping you updated on our progress. Thank you for your time today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.