Good afternoon. My name is Carol, and I'll be your conference operator today. At this time, I would like to welcome everyone to Revolve's Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be question-and-answer session. [Operator Instructions] Thank you. And at this time, I'd like to turn the conference over to Mr. Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin.

Good afternoon everyone, and thanks for joining us to discuss Revolve's third quarter 2021 results. Before we begin, I'd like to mention that we have posted a presentation containing Q3 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. These statements include our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations and financial results; our growth and market opportunities; the impact of Kendall Jenner's appointment as FORWARD's Creative Director; our ability to manage through supply chain challenges; our outlook for operating expenses for the fourth quarter of 2021 and gross margin for the full year 2021 and our 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 today's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including without limitation our annual report on Form 10-K for the year ended December 31, 2020 and our subsequent quarterly reports on Form 10-Q all of which can be found on our website at investors.revolve.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 will also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions, as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation, or as the substitute for, or superior to the financial information prepared and presented 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 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.

Good afternoon everybody. We're excited to update you today on the strong momentum in our business that continued to build during what was an incredible third quarter. There are three key points that I want everyone to walk away with today. First, we delivered record top line results in the third quarter, highlighted by 62% year-over-year growth and 58% growth on a two-year basis versus the third quarter of 2019. This is an acceleration of 17 points compared to the 41% two-year growth rate we reported for the second quarter of 2021. The strong revenue growth trajectory discussed on last quarter's earnings call improved throughout the quarter and the positive revenue trends have continued through October. What's gratifying is that the strength in our top line is broad-based with net sales in the REVOLVE segment, further accelerating in the third quarter while our FORWARD segment delivered nearly triple-digit growth year-over-year. Second, our brands are extremely well positioned in the market. And the momentum of our brands driven by our strong assortment in innovative marketing is generating increased customer engagement. Last quarter, I discussed our plan to invest heavily in marketing and brand-building initiatives during the third quarter. While we expect these investments to provide long-term benefits, we are thrilled with the early returns. In true, REVOLVE style, we stood out during New York Fashion Week delivering impact and awareness, innovation and redefining marketing for the modern fashion brand. I'm equally excited to see the clear signs of increased customer engagement. Traffic in the past few months has accelerated to well above levels before COVID-19. And we are generating more revenue per traffic session helped by our customer increasingly buying from us at full price, as well as a shift in category mix to higher price points. You can see the…

Thanks, Mike. I'm really proud and impressed with our performance during the past quarter. After successfully navigating a very challenging pandemic so far, we are gradually transitioning into a post-pandemic world and we are thriving. It is very clear to me that the same strengths we have demonstrated in the most recent quarter are positioning us to drive for continued success over the long term. An important driver of our success is that our customers love us and deeply connect with the REVOLVE brand. As our customer resumes her socially active lifestyle, it's clear to me that her relationship with us is stronger than ever. She shopped with us when she was stuck at home and she's shopping more than ever as she starts to go out and needs to refresh her wardrobe. She also has begun to buy luxury goods from us in a very meaningful way. With the trust we have earned from the customer, we believe we can continue to expand our offering and broaden her range of shopping at REVOLVE. The opportunity continues to grow. Our technology-driven DNA, AI and proprietary algorithms continue to provide a clear competitive advantage. Integral to our success in this recent period of extreme turbulence was understanding our customer's evolving needs and the key to understanding our customer is our data-driven mentality and proprietary technology infrastructure. Leveraging our data-driven approach we have thrived in this fluid environment by quickly identifying shifts in consumer demand, which has enabled us to continue to gain traction in the marketplace and deepen our relationship with the customer. Our operational excellence and agility are key differentiators and are our critical long-term competitive advantage that is especially evident today. Despite the external challenges in the marketplace, we have been able to ensure that deliveries to our customers…

Thanks Michael, and hello, everyone. We are very pleased with our third quarter results, highlighted by accelerating top line growth, incredible brand momentum and strong customer engagement. We believe our results for the past few quarters demonstrate that not only have we navigated the pandemic challenges with agility, we are well positioned for our exciting next phase of growth in the new retail landscape. With that, I'll start by recapping the third quarter. Net sales were $244 million, a year-over-year increase of 62% and reflect a two-year growth rate of 58% compared to the third quarter of 2019. This two-year growth rate is 17 points higher than the 41% two-year growth rate that we reported for the second quarter of 2021. By territory, both domestic and international markets contributed to the strong top line results with domestic and international net sales growth of 65% and 49% year-over-year respectively. By segment, REVOLVE segment, net sales increased 56%; and FORWARD segment net sales were again exceptional, increasing by 95% year-over-year in the third quarter. A highlight of Q3 was active customers increasing by 124,000 compared to the second quarter of this year, our highest-ever sequential quarterly increase by a wide margin. This expanded our Active Customer count to 1.7 million, an increase of 12% year-over-year. Our customers placed a record 1.8 million Orders in the quarter, an increase of 60% year-over-year. Average Order Value, or AOV, was $276, an increase of 19% year-over-year and an increase of 8% sequentially from just the second quarter. A key driver of the growth in AOV year-over-year, and sequentially, was a further shift in mix back to higher price point merchandise such as dresses, handbags and shoes, as well as the continued strength coming from the FWRD segment. Shifting to gross profit. Consolidated gross margin was…

[Operator Instructions] Your first question comes from the line of Erinn Murphy of Piper Sandler. Please ask your question.

Great. Thank you. Good afternoon. My first question is on the FORWARD business. The strategy is really starting to pay off. I'd love how you could maybe help us think through, how big this business could be over time? And if you could share a little bit more about what Kendall's relationship with the brand is bringing from a brand relationship or a vendor relationship perspective. And then just a second follow-up on the holiday season can you just share your perspective on the promotional environment into holiday? Thank you so much.

Okay, Erinn. I think the FORWARD opportunity is just immense. We're competing against many old-school stores that still have billions and billions of revenue as well as competing against large online players, who are struggling. We've seen competitive ...

Michael, your audio is cutting out.

Do you want to go in? You want to go in? I don't know what...

Yes, sure. I can take it. Yes as Michael, was saying we think it's a really large opportunity. As you know the luxury market is huge. And FORWARD is still a relatively small player but it's positioned with the elements that we think are going to set it up for huge long-term success. Certainly, you look at just its trajectory momentum compared to the other players in the market, it's really on fire right now. And then you combine it with hiring Kendall Jenner, as Creative Director, I couldn't think of any person in the world, honestly, that we'd want for that position more than her. And then you also combine it with the REVOLVE customer base, which is quite large in the opportunity to transition that customer base to FORWARD. And incredibly, every single month, we've seen sequentially higher overlap in shopping on the REVOLVE customer base of – on FWRD since we launched the loyalty program. So there's just a lot of ingredients for success. It's a market size that's in the tens of billions. So we feel really good about, where that business can go over time.

Yeah. And then maybe on the second piece, it's Jesse. It's a little bit early to see, what's going on in the promotional environment for the holiday season. We are seeing some early promotions, so that's giving us some caution. And then just to back up, and kind of set the stage, we're not overly seasonal. We're not a gift-giving destination. So this isn't a period, where we're overly active. And we see a lot of activity in the market, just in general. I think holiday season can be volatile in any season or in any year, this year in particular, with supply chain and everything else going on. We're just being very cautious on that last couple of months of the year to see what happens.

I just wanted to correct that. Hopefully, you guys can hear me. But it's not tens of billions. It's actually several hundred million – billion. So, massive potential here and we're positioned perfectly.

Your next question comes from the line of Lorraine Hutchinson of Bank of America. Your line is open.

Thank you. Good afternoon. I wanted to follow-up on some of the comments you made around the supply chain and just get a sense for, how comfortable you are that you have the product you need for holiday? And then also, what you're hearing from your brand partners about deliveries for the first half? Thank you.

Yes. On the supply chain side, we have started to see some delays there more delays than we'd like. I think compared to the rest of the marketplace, we're positioned pretty well. And we feel good about our inventory position heading into the holidays. Is it perfect the same as a world with no challenges? No. But I think compared to others, we're doing well. And I think that reflects in the results that we saw in the third quarter, as well as the results we're continuing to see in October. And then heading into the first half of next year, it's something that we certainly have our eye on. Again, we expect some challenges, but we expect to be able to manage and navigate those challenges as we typically do.

The next question comes from the line of Oliver Chen of Cowen and Company. Your line is open.

Hi. The revenue growth continues to be really impressive and the active customer growth as well. What should we think about for a longer term in terms of your revenue growth algorithm and also as you start to anniversary some tougher compares in Q1? I would also love an update on private label, as you think about it near and longer term. I know, there's opportunities at both divisions? And then the third question, on FWRD congrats on all the momentum there. What do you see happening with the assortment over time as you think about breadth relative to depth and where you want to go with the nature of inventory buys and pricing?

Sure. Mike, here. So with regards to the long-term growth algorithm we wouldn't make any changes to our long-term projections. Certainly we experienced a phenomenonal several quarters, and we still got enough momentum in our business, and more importantly really good about the long-term opportunity. We think we're positioning better than ever. We think our brands are resonating with consumers. Our ability to manage our inventory versus others we think has been shown during this time, and also our ability to execute at high service levels. So we feel really good about our long-term trajectory, but at the same time it's not the sort of situation where we would make a change to our long-term projections at this time. I guess the second question with regards to private label, Michael do you want to dive in there?

Yeah. The opportunity is there, remain greater than ever. Of course, we scaled back. And we've begun the acceleration in this coming year you'll see a lot more from us across categories, across brands, across collaborations. And you will begin to see things that expand into the FWRD zone as well, which is completely, completely untapped. I think that, the customer as always comes for emerging designers, and we've been able to consistently curate exciting emerging designers. So you'll see a lot more of us in the same format as you've seen us in this past New York, so very excited for what's to come.

Okay. Thank you. On FWRD, I'd love your thoughts there.

Do you want to take the FWRD inventory, or do you want me to Michael?

What was the question, again, or do you want to jump in Mike?

No. I'll jump in. So with regards to FWRD breadth and depth, we continue to see there to be an opportunity to enhance FWRD's inventory assortment. That's one of the things we talked about on past calls that with all the things FWRD has going for it, what's really exciting about the future is it has a lot of opportunities on the assortment side. So, we're continuing to increase the breadth of inventory as well as the depth that we're able to sell to consumers. And then, that's been a powerful driver of results.

Okay.

Your next question comes from the line of Mark Altschwager of Baird. Your line is open.

Good afternoon and congrats on the ongoing momentum. I guess first just on the marketing front, I mean it seems like you're seeing some nice response to the marketing initiatives with the acceleration in client, adds this quarter. I guess, as you realize some of the benefits from these brand investments that are ongoing, what do you think is the appropriate rate of net customer adds that we should anticipate in the quarters ahead? And then, separately, on margins Jesse, I guess, it looks like you're on pace to close to hold the 2020 margins. I think if I got all the numbers correctly, the guidance implies maybe something in the neighborhood of 11.5% EBITDA margin this year. Just with the performance year-to-date does that increase your confidence in the ability to sustain or even expand EBITDA margins beyond 2021? Thanks.

Yeah. Yeah. Sure. On the first one on the active customers really excited about the customer behavior in these last couple of quarters and the last quarter especially. And it's coming from both new customers we had record new customer adds, but also that returning customer. That returning customer has been more active than ever. And she came back in a big way in this quarter. And not just returning customers, but also lapsed customers. We saw that some customers, who had gone completely away in 2020, came back in these last couple of quarters. And that ratio of that lapsed customer actually increased from Q2 to Q3. So we feel really good about the active customer growth. I think that's one dynamic and the most exciting dynamic. The second one is that because of that active customer number is a trailing 12-month number we will layer on new higher-performing quarters as we cycle out of lower-performing COVID quarters. So the combination of those two for the next at least couple of quarters we should see that active customer growth rate increase sequentially, before it starts to normalize kind of in the middle of next year at some point. And then, on the EBITDA margins and long-term EBITDA margins we feel good. We made a lot of investments this quarter that we believe will pay off over the long-term. There is some cost pressure and supply chain and et cetera that we've talked about that will add some near-term pressure. But over the long-term we still feel good about that 14% EBITDA margin target that we put out again in the mid-to-long-term, so not commenting anything specifically on the next quarter but feel good about the long-term opportunity there.

Thank you.

Your next question comes from the line of Michael Binetti of Credit Suisse. Your line is open.

Thank you. Hello everybody. Thanks for taking my questions and congrats on the great quarter guys. A couple for you Jesse, your -- the AOV in the quarter was above pre-COVID levels now very happy to see that. I'm curious, how much of that is just segment mix between the two segments versus any other headwinds or tailwinds you could maybe point to there what's above what's below pre-COVID levels? And how do you think about it from here? And then also, I think on the owned brands you thought that maybe it would cross over into positive year-over-year territory perhaps at some point during fourth quarter. Maybe just check in on that see, where it is if it's moved around at all because of the supply chain. And then, the product return rates they're back in about the low-50s rate. I know maybe a point or two below where you were pre-COVID. And I know as we talked about this through COVID you thought that maybe they could stabilize a little lower than where they were pre-COVID. Is that still the thinking? Maybe anything you could tell us about the behavior you're seeing there. Is -- maybe that's done going up in the near-term or if you think it maybe goes back a few more points. Thanks.

Yeah. Sure. So first on the AOV, definitely a positive impact from that FWRD performance and FWRD really over-indexing for the last several quarters. And we see continued strength coming out of that segment, which of course carries a higher average order value. So that's definitely a contributor. The other piece of that is the record high full price sales mix that we've been operating at. And not just the full price sales mix, but also the markdown margin. So kind of just kind of that full price customer behavior has been really strong. And strong for sure on a year-over-year basis just given where we're at last year, but then also even higher than back in 2019. And as we've commented on in the past that's kind of coming through in some of the margin again, we don't expect that to last forever. We do expect that to come off of the highs. And it actually came off of the Q2 high that we experienced in this Q3, but still feel really good about the long-term full price mix there. And full-price customers generally behave better over time than a markdown customer. So we're really excited about the record new customer additions this quarter that came through in a big way on full price. So that's on AOV. On owned brands, yes, I think we troughed out in Q2. So we're seeing a sequential increase in the mix of owned brands from Q2 to Q3. And I think in that Q4 zone is probably still in the right range of crossing over from that kind of year-over-year increase in penetration. And in return rates, return rates are increasing as you can see. And that's largely due to the shift in mix back towards those higher return rate categories like dresses and away from the lower return rate categories like beauty that we had experienced last year. And also as we localize the international experience that has an impact on return rate, but an overall positive experience and impact just on the overall P&L from a gross demand perspective. So, I think, we'll see it increase sequentially from here. We're still optimistic that we can be lower than that the peak rate, but it will increase between kind of where we're at now and that peak rate that we experienced back in 2019. If you look at the dress mix right now, we're at 29% in the third quarter. And at our peak kind of pre-COVID levels, we're in the 32%, 33% zone in those peak Q2 periods where addresses are really high. So, just to give some context on kind of potential movements looking ahead.

Your next question comes from the line of Edward Yruma of KeyBanc Capital Markets. Please ask your question.

Hey, guys. Thanks for taking the question. You guys are really early in identifying the influencer opportunity and I've argued have done a better job than really anybody in the industry. It does seem though that a lot of other folks are trying to emulate this kind of micro influencer strategy. I guess have things changed on the influencer front? Is it harder to get the right influencers? And have costs come up? And then just as a quick follow-up to previous calls any impact that you're observing from IDFA? Thank you.

Yes. On the influencer side things continue to evolve, but it's important to note that our influencer strategy isn't one strategy. It isn't a singular strategy. It's really a multifaceted strategy. So we work with the biggest influencers in the world like literally like a Kendall Jenner, of course. We work with the entire spectrum all the way in to micro influencers with 10,000 followers. So I think it keeps us on our toes. Of course, things that we did years ago aren't as effective as they are now. But we have some new things coming out that we're excited to talk about that are just continued elevation of what we do, more tech-driven ways to work with influencers. And we're as bullish ever as this is an important part of our strategy. And we're super clear that it works and we're super, super confident that we can continue to invest in a very strong way. Mike do you want to talk about.

Yes, coming in the quarter, we certainly had some reservations about it and noted that it could cause some level of headwind. For the most part, we're pleased with how things played out. We feel like our marketing teams navigated it well. And on balance you could call it net neutral, so it didn't end up being the biggest concern as we thought it might be.

The next question comes from the line of Camilo Lyon of BTIG. Please ask your question.

Thanks. And I'll add my congrats on the great quarter. Two questions for me. Number one, you talked about being happy about the early results and the returns from the investments in the Fashion Week event. I'm curious how do you -- can you share some of those early metrics that you're seeing whether it's a boost in sales or engagement or what have you? And then longer term is this something that you think can be your fall Coachella from a sales driver perspective? And then my second question is on gross margin the gross margin guidance for the Q4 period. It looks like you're implying about a 300 basis point decline. And I appreciate the cautious stance on the potential for promotions to accelerate. But I'm curious are there other -- what are the other key driving factors that are behind the decline? Thank you.

Sure. So with regards to the marketing event question, we measured the success in several different ways. So certainly one of them is that we looked at the trajectory of sales momentum and new customer momentum and customer engagement. And we saw really nice results for the month of September in the period in which we conducted the marketing activity. And we know based off past events that we've done we have the ability to correlate the increases that we see there to a longer-term effect that we see in the form of customer awareness and where new customers are learn about us being inspired by us. So the early results looked great. And also all the metrics that we look at in terms of just general consumer awareness and impressions among consumers and reaction from consumers to the events that we're doing were all quite positive. So we feel great about those events. It was exactly the kind of investment that we wanted to make and we're really happy with how it performed. And with regards to your question could it become an institution like Coachella? The answer would be yes it definitely could be. And we're still planning the upcoming year and those plans continue over time. But at this point we feel very good about the event and we think it has potential to become an institution like Coachella.

Yes, the only other thing I would add is that of course with the strong Coachella a play that works for us in the spring. Balancing it out in the fall is great, but this is a play that could be any time of the year. This is something that of course we did during Fashion Week, but this is an event that we can manufacture on our own. So it really opens up kind of the flexibility and possibility to do things whenever we want on a global basis. So super happy with the results. It was of course something new which always carries a little bit of risk. But it is a huge win for us and something that we'll be able to leverage in a very strong way for many years into the future.

Yes, and on the second piece of the gross margin there I think important to keep in mind when looking at the year-over-year the last year was not a typical year. So if you think back to last year we kind of saw that step function from the first half of the year into the second half of the year. And it was really the tale of two halves where we saw that record full price everything kind of working on a margin perspective. So Q4 was not a typical Q4 for us last year. So that was abnormally high. So that's one piece on the comp. So I think probably balancing that with looking at the Q4 2019 and even earlier in 2018 and 2017 to see the seasonality there. So I think one the comp dynamic; and then two a seasonality dynamic; and then three just as we've commented in the last couple of earnings calls as we build in the inventory as we work through inventory that bulk price/mix will come down. The markdown margin will come down. So we're filling a little bit of that in as well.

Your next question comes from the line of Kimberly Greenberger of Morgan Stanley. Your line is open.

Great. Thanks. This is Alex Straton on for Kimberly Greenberger. I just have a quick question on both segments in terms of which categories within them at FWRD and REVOLVE are doing well. Did you see any sort of certain ones that stand out some on further reopening? I know it sounds like dresses are doing better. And then also just the second question I have is on kind of a sense for how full price selling came in this quarter compared to last year versus even 2019.

Well, starting with merchandising -- Go ahead Michael. Merchandising…

All right. I'll do a piece of it. Okay on the merchandise front I think as you'd expect dress is coming back in a really powerful way. So on a year-over-year basis plus almost 100% in that dress category. I think also important to call out that we do see that significant increase in these going-out categories like dresses. But also beauty pulled out a year-over-year increase and that was a phenomenal category for us last year in the kind of stay-at-home COVID time. So good to see that category still increasing. On the FWRD side you see the handbags and shoes really continue to check. And that goes back to that -- you can kind of link that back to the REVOLVE FWRD active customer overlap. Or FWRD over-indexes on the shoes and handbags; REVOLVE over-indexes on the dresses tops et cetera. So it's a good complementary assortment on that front. And then I slipped on your second question.

Just on a sense for full price selling the level like the compares from last year versus even 2019?

Yeah. Yeah. Yeah, over the prior year higher than last year, on a sequential basis though we came off of that all-time high that we experienced in 2Q of 2021. So we're kind of starting to see that full price ebb. And then also on the markdown margin front similar dynamic where we saw that record markdown margin last quarter, we're starting to come off of that record. So that again, goes into kind of some of that forward-looking guidance that we're giving around gross margin for this next quarter. Versus 2019, we're still higher than that historical, really strong full price sales so we still feel good about it, but it will come off those all-time highs we experienced in the second quarter.

Great. Thank you.

The next question comes from the line of Tom Nikic of Wedbush. Please ask your question.

Very good afternoon, guys. Thanks for taking my question. Maybe just a follow-up on the gross margin commentary, I mean, it kind of sounds like you have a few – yeah, things that will be pressured in Q4 and maybe some normalizing promos and mix and things like that. Should we expect that to kind of persist into 2022? Like, do you think that the 2021 gross margin that 57.5, is maybe a little bit inflated and maybe there's a little bit of normalization next year? Are there any sort of offsets there to some of these pressures? Just trying to get a sense of the longer-term direction in gross margins.

Yeah, yeah for sure. And that's a great question. I think maybe stepping back for that full year of even 2021 that's two points higher for the full year on a year-over-year basis compared to 2020, and then a full point higher than 2019. So I think stepping back from the quarter-to-quarter dynamics, we feel really good about the margin progression there. And I think to your point on offsets on the full price mix and the markdown margin, owned brands, so as we mentioned we kind of troughed out in Q2 on the owned brand mix. That has built sequentially into Q3. And we expect that to continue and kind of going back to some of Michael's remarks earlier and expect that to continue through to 2022 and beyond. So for the full year 2021, we'll see a decrease in the mix of owned brands before we see that increase again for the full year in 2022. And I think, as we've talked about before the owned brands carry meaningfully higher margin than a third-party. And with the owned brand reset that, we've been working on over the last few years, we feel really good about the unit dynamics on that front as well.

The next question comes from the line of Bob Drbul of Guggenheim Securities. Please ask your question.

Hey, guys. Just got a couple of questions, I think the first one I think for Jesse. The cash balance jumped. Can you talk a little bit about just the uses for cash and like what you're planning to keep building? I know, you're going to invest in some inventory but it just seems like there's a lot of excess cash on the balance sheet. And then I have a follow-up question.

Yeah, yeah. Yeah, first use of cash, especially this year and you can see that in the inventory balance is the reinvestment in inventory. And you can see the cash balance start to kind of plateau where we're at now where we've invested in inventory the significant demand that we've experienced as to the cash balance, but we're reinvesting that in the working capital. So I think we're largely through the inventory rebuild now. That will start to balance out. I think second use of cash goes along with that, but just working capital investing in the marketing investing in the business. We're pretty light on CapEx as you know so not any meaningful CapEx investments planned outside of historical norms. So then that leads to what else do we do with it. We are – we continue to look at things. We're being very disciplined. But M&A continues to be an opportunity for us, but we're being very patient on that front as well.

Got it. And just a question on the Kendall Jenner appointment in the interview process, which one of you guys played the heavy? Like, who was the tougher interviewer during that process?

That's always Mike. He's notorious for these impossible-to-pass programming tests. And I think that – to join that.

Okay. Thanks very much, guys.

The next question comes from the line of Ross Sandler of Barclays. Please ask your question.

Hey. Just a follow-up on the marketing question earlier, so you obviously spent a lot as planned on marketing and deleveraged a little bit in the third quarter. Mike, I thought the comment about IDFA being neutral is pretty bullish, given what we've heard from other folks in e-commerce. So, I guess could you just parse out influencer marketing versus the Kendall Jenner versus just classic performance marketing? Like what was the bigger driver of the record net adds? And do you think that now that we're post-pandemic and everybody is just shopping more generally online than they were pre-pandemic and brick-and-mortar suffering a little bit more, are you getting better bang for the buck on your influencer performance than you were two years ago? Thanks a lot.

Yeah, definitely. So with regards to the marketing increases, consistent with our commentary on the past earnings call, as a percentage of sales nearly all of the increase came on the brand marketing side and came from those really big brand marketing investments that we made in September. Some of the increase, a much smaller portion did come from the performance marketing side, which actually the way we operate usually means that we're seeing good returns right, because the better the returns we see the more we'll invest there. So, there's a little bit of an increase on the performance side, but we are seeing phenomenal results throughout the quarter. So we felt really good about those investments. I think in terms of the landscape, it constantly shifts every quarter. Our feeling is that, if you have a good offering for consumers a brand that is resonating a product that's resonating; that over the long run, you're going to continue to be competitive in the performance marketing space. And that's what we see. Quarter-to-quarter there can be shifts up and down as different players kind of do different things for various reasons. And this happened to be a more fruitful quarter for us.

Your next question comes from the line of Matt Koranda of ROTH Capital. Your line is open.

Hey, guys. Thank you. Two for me. So first one is on the net sales growth commentary quarter-to-date. I think you guys said broadly in the range of the third quarter growth rate. So I just wonder if you can maybe just speak to the key drivers of net sales growth quarter-to-date in terms of order flow AOVs return rates as kind of relative to what you saw in 3Q. For example, are we up here quarter-over-quarter on AOVs? What do return rates look like relative to 3Q? If you can give a little color on that that would be helpful. And then just on the gross margin front, maybe not to beat the question to death here, but just wanted if you could put a finer point on what's driving gross margin. Sort of the implied outlook is down quarter-over-quarter. So is it supply chain related, or is it the expectation of less full price selling? And then, why should we expect full price selling sort of to decline quarter-over-quarter? Is that based on actual quarter-to-date results you guys have seen, or is that just kind of a general observation in the overall competitive landscape into the fourth quarter here?

Yeah, sure. On the first part October, call it largely in line with the third quarter, both from a kind of across the board from top line growth probably in that same range being driven by continued increase in AOV, on a year-over-year basis so kind of again largely in line with the third quarter. Return rates in that same zone maybe a tick higher as dresses continue to perform. But largely I'd say, the customer activity continued on that same -- new customer adds really strong, returning customers/existing customer really active. So kind of the commentary that we've given on the quarter is very similar to today's more commentary on October. But again, adding some caution for that November-December time period as that can be a volatile time out there. And then the margin, I'd say, it's mostly due to that full price and markdown margin dynamics less so due to the supply chain. The inventory has been booked. Freight inbound freight is higher. But given the price point, the premium price point that we operate at, it takes quite a bit to move that from a margin perspective. So, it's largely just due to shifts from the record full price that we've been seeing, and then also the markdown margin, markdown margin coming off of the highs that we've experienced in the last couple of quarters. So hopefully that helps.

We have time for one more question. Your last question comes from the line Dylan Carden of William Blair. Please ask your question.

Really appreciate it. Thank you. and greedily, I might sneak two in here, sorry. But I just want to clarify on the private label as you kind of ramp that back up. Is it the case that you think by sort of the end of 2022 you might get it back to sort of pre-pandemic levels, or given past experience you're going to be more thoughtful about, how you layer in the assortment? And then just on the international front, I know the growth there was strong, but just curious if there's any commentary or color. Do you think you're benefiting because there's lockdowns or further restrictions in certain jurisdictions particularly, Asia, or do you think there's sort of a delayed potential benefit as those markets recover? Thanks a lot.

Yes, yes sure. Sorry on the first one, I lost your first one after you talked about international.

Just the pace of rollout of the private label, now that you're kind of getting back to ...

Oh right, right yes, yes. Yes so we feel really good about the improvement or kind of the sequential increase the first sequential increase that we've seen in the last couple of years. I'd say it's aggressive to say that we'll get back to that 36% that we were at in 2019. It's probably closer there's probably a line and the line is probably less steep than it was in the past as we are being I think measured in our pace of expansion there. But we do expect to see a nice healthy increase in the number of styles delivered sequentially from quarter to quarter. But again, I wouldn't say -- 36% at that peak that we were at in 2019 is aggressive at least for the next year. And then international, its varied region by region. I think a couple of good examples: Australia, which was in lockdown for the bulk of the third quarter, was one of the lower performing -- still a growth region for us but one of the lower-performing regions this quarter. And then you compare that with the UK who came out of lockdown earlier in the quarter that performed really well for us. Canada, China really healthy regions for us on the international front.

Appreciate it. Thanks guys, nice quarter.

That's all the time that we have for questions today. I will turn the call back to the management for closing remarks.

Hey, guys thanks for joining us. One thing, I just really wanted to thank our team. The financial results of course are just incredible and speak for themselves. But a layer below all the operational metrics and all the heart that went into delivering these results, it really does show. And to the investor community thank you for joining. We're super proud of all that we've done. I also wanted to note that we're still at the tail end of the pandemic and it's still not fully open. I think that there's brighter and better days yet to come. So feeling good not just over the near-term but for many, many years with continued dominating performance. So thanks for joining us and excited to chat more.

This concludes today's conference. You may now disconnect.