Hello. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's Fourth Quarter and Full Year 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I would like to turn the conference over to 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 fourth quarter and full year 2024 results. Before we begin, I would like to mention that we have posted a presentation containing Q4 and full year 2024 financial highlights to our Investor Relations website located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and operating innovation initiatives, industry trends, marketing events and their expected impact, our partnership and strategic acquisitions, our physical retail stores, and our outlook for net sales, gross margin, operating expenses, and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon's press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our quarterly report on Form 10-Q for the quarter ended September 30, 2024, and our annual report on Form 10-K for the year ended December 31, 2024, which we expect to file with the SEC on February 25, 2025, 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. Presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information presented and prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures, as well as the definitions of each measure, their limitations and our rationale for using them, can be found in this afternoon's press release and in our SEC filings. Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn it over to Mike.

Hello everyone and thanks for joining us today. We finished the year with an outstanding fourth quarter highlighted by double digit top line growth year-over-year and a more than doubling of net income and adjusted EBITDA year-over-year. Most importantly, we achieved these strong financial results while continuing to invest in key initiatives that we believe set us up well for profitable growth and market share gains over the long-term. I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2024 accomplishments and closing out with our key priorities of 2025. I'm starting with the fourth quarter recap. Net sales were $294 million, an increase of 14% year-over-year, driven by improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2024. In fact, net sales increased by a double digit rate year-over-year across REVOLVE, FWRD, domestic and international for the first time in two and a half years. Net sales in the REVOLVE segment increased 15% year-over-year and net sales in the FWRD segment increased 11% year-over-year. FWRD returned to growth for the first time in seven quarters as our investments began delivering results within a luxury landscape that remains challenging. Gross margin increased by approximately 50 basis points year-over-year, well ahead of our gross margin outlook shared last quarter. Net income for the fourth quarter of $12 million, or $0.17 per diluted share, was more than triple the $3 million in the prior year quarter. Adjusted EBITDA was $18 million, an increase of 114% year-over-year, driving a 290 basis point expansion of our adjusted EBITDA margin. In addition to the gross margin expansion contributing to our exceptional growth and profitability were significant marketing efficiencies and meaningful efficiencies in our logistics costs, which benefited from a more…

Thanks, Mike, and hello everyone. I am proud of our strong results in the fourth quarter that were driven by our team’s great execution across the business. Key contributors to our double-digit growth in net sales were vastly improved site merchandising and exciting gains in emerging product zones. The strong top-line growth, combined with incredible efficiencies in our marketing and logistics costs, led to our more than tripling of net income year-over-year in the fourth quarter. With that as an introduction, I will focus my remarks on the strategic areas we are investing in and that we are especially excited about: merchandising and product assortment; brand awareness; physical retail expansion; and luxury and the high-end consumer. First, merchandising and product assortment. Meaningfully improved site merchandising and on-point inventory buys were important contributors to our growth in the fourth quarter. Leveraging technology and data analytics, our teams are doing an outstanding job of improving our assortment across a broader range of use cases and creating compelling merchandising to drive increased consumer engagement and conversion. I attribute much of the incredible growth in demand for our winter styles that Mike mentioned to our site merchandising improvements and assortments put in front of customers through optimized channel strategies. Looking forward, one area that I am truly excited about is premium essentials. Our customers trust our brands and delight in our shopping experience, creating a strong point of leverage for us to capture a greater share of wallet. One of the first steps in this journey was the launch of the Foundations Shop on our REVOLVE site featuring a selection of premium essentials from third-party and owned brands. It’s still early, but the merchandising looks fantastic and has begun to fulfill our customers’ desire to shop on REVOLVE for their everyday wardrobe needs, including…

Thanks, Michael, and hello, everyone. I am extremely pleased with our fourth quarter results, highlighted by double-digit net sales growth across segments and geographies and a more than doubling of our net income and adjusted EBITDA year-over-year. I’ll start by recapping our fourth quarter results and then close with updates on recent trends in the business and commentary on our gross margin and cost structure for 2025. Starting with the fourth quarter results. Net sales were $294 million, a year-over-year increase of 14% and a 4-point improvement from our net sales growth in the third quarter of 2024. REVOLVE segment net sales increased 15% and FWRD segment net sales increased 11% year-over-year in the fourth quarter. By territory, domestic net sales increased 11% and international net sales increased 29% year-over-year. Active customers, which is a trailing 12-month measure, grew to $2.7 million, an increase of 5% year-over-year. Total orders placed were $2.2 million, an increase of 7% year-over-year and our highest order growth in more than a year. Average order value was $301, a decrease of 1% year-over-year that was due to lower AOV in the FWRD segment driven by product mix. Consolidated gross margin was 52.5% and came in well above our guidance range. The increase of 53 basis points year-over-year primarily reflects meaningful margin improvement in our FWRD segment and an increased mix of net sales from the higher-margin REVOLVE segment, supported by strong full price mix in both segments. Moving on to operating expenses. A high-level summary is that much better-than-expected efficiency in marketing, selling and distribution and fulfillment expenses in the fourth quarter was partially offset by higher-than-expected general and administrative expenses. Fulfillment costs were 3.2% of net sales, a decrease of 27 basis points year-over-year and slightly better than our guidance. Selling and distribution costs…

Thank you. [Operator Instructions] Your first question comes from Randy Konik of Jefferies. Your line is open.

Yes. Thanks a lot. I guess, Jesse, a question for you, really more color on the gross margin outlook, great performance in the quarter. Just curious, you talked about the ability to kind of even increase the amount of full price proportion of sales in the business and I guess, in REVOLVE. Give us some perspective on what drives that thought process going forward? And then on FWRD actually, maybe give us some perspective of just how much lower the gross margins are at this point in time and where you can see those margins going ahead? Thanks.

Yes. Sure. Thanks. And yes, definitely a great quarter and good to see that FWRD margin starting with a 4% again, we still see opportunity there, especially on a full year basis. Again, a reminder in the first half of the year was more challenged than the back half of the year. So we’re entering 2025 in a really good place in terms of inventory on FWRD and expect that full price to continue. On the overall full price landscape, I think it’s a couple things. One, styles continue to expand. The team gets better and better at bringing in those new styles. The merchandising is really resonating. So we do see further opportunity there for full price even on top of the really healthy full price we exited 2024 on. And again, reminder, the first half of 2024 was more pressured than the back half. So we see a good full year 2025 ahead.

One last question. Just on the outlook on the outlook for logistics, especially internationally, where does that sit right now? I’m sure the international margins, I don’t know if it’s the case, but I’m sure they’re a little bit lower than domestic margins. Maybe give us some perspective where those margins sit internationally relative to the domestic piece of the business at Revolve and kind of how that journey will unfold in the years ahead? Thanks.

Yes, yes. From a gross margin perspective, it’s relatively in line. There’s always some product mix differences there, but call it in line. And then when you work down to contribution margin, call it neutral. It is more expensive to ship internationally, but that’s offset by a lower return rate internationally than we see domestically. So there’s some puts and takes throughout, but it’s comparable to that of domestic.

Super helpful. Thanks, guys.

The next question comes from Oliver Chen with TD Cowen. Your line is open.

Hi, Mike, Mike, and Jesse. Great results. As we look forward the comparisons get a little tougher in terms of the revenue growth as we go throughout the year. What are your thoughts in terms of average order value relative to number of orders? And how that may manifest? As well as, are you expecting a better first half versus second half given the nature of the comparisons? Secondly, as we think about physical retail, what are just some key things you’re thinking about longer-term with physical in-stores? Thanks, Jesse.

Yes. I’ll take that first one and then pass it along. In terms of orders versus AOV and customers, we expect strong growth in that customer and orders with a slight increase in AOV again going back to the full price mix. With a higher full price mix assumed, we should see a slight uptick in AOV, but nothing meaningful. So most of the growth coming from orders and customers.

And then in terms of physical retail and how we’re thinking about it, it’s a huge long-term opportunity. We’re really excited about our experiences there thus far. The Aspen store entering its second year now and then the Grove pop up, which was a great success and really excited to put our heads down and get that store open for the fall this year. We think it’s a great location. There was phenomenal interest and traffic and turnout at our pop up and really excited to see what we can do in the fall. And again, long-term, it’s a massive opportunity. Half of the apparel market or more is still offline. And so, we’re putting the pieces in place to go after that.

Okay. And on return rates, which have trended better, what should we know about what you’re seeing now with return rates? And any implications that has for the nature of the health of your consumer? When we do model revenue growth in the year ahead, do you think it’ll be pretty bumpy or just consistently positive ideally? Thank you.

Yes, really hard to say what the cadence of revenue growth will be over the course of the year. I think one thing to hit on maybe is seasonality, because seasonality has been so volatile over the last few years. And then this past year with a lot of our initiatives kicking in, in the back half of the year, we did that revenue in absolute dollars increase essentially each quarter. So I think if we look ahead to 2025, absent any bigger macro factors, we’d expect seasonality to return closer to where we were back in the pre-COVID era with Q2 being the highest and 1Q and 4Q being a little bit lower. But more muted than it has been than the pre-COVID period, just given the great success we’ve had in other product categories outside of that core kind of event, kind of festival going out, apparel that we’ve had in the past. And then return rate, we’re – for modeling purposes, we’re modeling in a flat return rate for 2025. Now, that’s not to take away from the optimism we have in generating further gains there. But from a modeling perspective, we’re still modeling a flat return rate with more opportunity to beat that in the first half of the year than the second half given the progress we made in 2024.

The next question comes from Jim Duffy of Stifel. Your line is open.

Thank you. Really nice quarter, guys. Wanted to ask on Q1, no doubt a challenge for the team operating amidst the wildfires. Are you able to size the January impact of the disruption from both the customers in the area and the pause you had in performance marketing to the January figures.

Yes. Yes, it definitely had an impact. It's hard to give an exact number there because there were a lot of factors at play, but we definitely saw depressed sales specifically during that time period. And from a couple of different perspectives. One, in that core market of California and then more specifically around L.A., and you could really see that at the growth store. And then second, which impacted more kind of nationwide sales was our pause on social. And then also just a lot of the social attention was focused on wildfires, there was also a lot of kind of weather challenges, especially on the East Coast. And then also a lot of, call it, noise from administration change tariffs, et cetera. So January was challenging from a number of perspectives. But to our point in the prepared remarks, February really picked up and is – it performed solid through that first couple of weeks of February. So feeling optimistic about the progress despite the challenge we had in January.

Okay. Thank you. And then on the merchandising, can you put a little more color on broader use cases you gave the skiwear example, which drove really impressive growth in the fourth quarter. Are there others like this that you would point to, which are tangible drivers in 2025? And then maybe like within that, if you could speak to the own brands that you're most excited about?

So I think Michael is having trouble with this line. Normally, Michael would answer these questions.

Yes. Can you guys hear me?

We got you, Michael.

Sorry, guys, yes, I'm getting interrupted with a lot of muting, unmuting from the operator. But yes, the CSAP [ph] has been incredible and that's something we continue to expand. But water cold weather has been very, very strong for us over the past 20-some years, we've been known for a lot more warmer weather. But with the Aspen store with merchandising focus, we've been able to connect really on an outerwear sweaters in this past cold weather season. We're also seeing a lot more tailoring and sophisticated kind of styles, which can translate to a more accent customer as well as kind of workwear, which has been super exciting for us. Long-term right also we think that foundational basics and essential things that our customers necessary historically too has gone quite well. The Foundation Shop is launched and we see that as a long term journey. So we really see a lot of traction in all aspects of the wardrobe long-term-wise, even more. There's other things that we haven't even yet attacked yet, but those are three huge areas that we know our customers shop for and is now really shopping with us for. So the team has done an incredible job there.

The next question comes from Nathan Feather of Morgan Stanley. Your line is open.

Hey everyone. Thanks for the question. Really encouraging to see FWRD return to double-digit growth here. I guess, do you feel you're back to sustainable positive growth in that segment Aspen additional macro volatility there? And then can you give us an update on the inventory situation? How far would you say you are from normalized levels, specifically at FWRD? Thank you.

Yes. So with regard to FWRD, we feel great about the progress in the fourth quarter. FWRD has been a little bit more volatile business. So you don't want to kind of refrain from commenting on precise projections going forward, but we're continuing to see some positive momentum there. We feel that we made great investments last year, really tapping into the higher net worth customer segment, as Michael mentioned. Also, we feel like we're starting to see some signs luxury market is turning a bit. We're certainly optimistic we're going to see positive growth there in the quarter to come. But we'd like to see a couple more months of progress before putting anything to firm out there. With regards to the inventory situation, we're definitely seeing progress on inventory, still a bit more heavily inventory than we'd like. So continue to work our way through. There are some signs of recovery, really great results in Q4, and we're looking to strength through a couple of nice quarters in a row before we get too bullish on that segment.

The next question comes from Michael Binetti with Evercore ISI. Your line is open.

Hey guys. It's great quarter, great holiday. Jesse, would you just kind of put a final stamp on the question earlier, would you say the February run rate or whatever the run rate is since you went back to restarted social media is back to levels similar to 4Q, just so we can understand that that's kind of the normal rate here given the volatility. And then I'm curious on the gross margin outlook for the year, what – what should we think about as the inputs that dictate the high end, up 40 basis points versus the low end, down 10 basis points, so I understand some of the puts and takes. And then one last one on the – really impressed to hear the variable costs better by 130 basis points. I know that took a lot of work for you guys, very impressive especially as more of the orders coming from international, which I think has always been harder to serve. When do you get to that run rate? And what are the incremental drivers from here? Are there other projects that can drive that higher from here?

Yes. Okay. I'll try to hit all those. So maybe starting with February and the growth rate there, it did bounce back really nicely, and it was really solid. And I'd say, I'd put it in the zone of that Q4, which helped offset some of the January softness that we saw. So hard to say what happens from here, but our hope is that, that continues. On the puts and takes on gross margin, there's a couple of things. I think the things we called out, how successful we are in driving that full price mix, which we're confident in. The other probably bigger factor that's more somewhat out of our control is just what exactly happens with tariffs when that comes in play, timing of inventory receipts and then our mitigating factors. We have a number of mitigating factors in the works, which is why we’re not getting too precise on specifying that tariff impact. But that is definitely a variable. We feel good about the inventory as we head into the year, as Mike called out. So that definitely gives us a good start to 2025. On the variable, really good work by the team in 2024 with outside of the return rate impact, which I’ll get to, but we had 20, 20-plus specific initiatives and different size and scale that were in play that helped that selling and distribution efficiency gain in 2024. If you look at the combination of selling and distribution and fulfillment, there was about 160 basis point improvement, about 2/3 of that was due to return rate and a lower return rate year-over-year. So that definitely has a significant impact. And we’re optimistic we can continue to drive those gains. So that will be one factor. And the team continues to work on other efficiency gains. They’ve already identified a number of things as we head into 2025, not to get specific on those, but we’re optimistic we can continue to manage those variable line items. And thank you for calling out the international, too. That is a factor. So even with that international pressure in international growing at 29%, being able to get those logistics efficiencies down was really impressive.

The next question comes from Mark Altschwager with Baird. Your line is open.

Good afternoon. Thanks for taking my question. You called out the reduction in your customer acquisition costs. I was hoping you could contextualize how much of that improvement is your internal initiatives and marketing approach versus perhaps a more favorable backdrop on the performance marketing front? And then separately, Jesse, just G&A, I think you’re guiding to about 10% growth in G&A dollars in 2025. It’s – I think, a higher leverage point than you communicated in the past. And maybe I’m missing some one-timers in that calculation, but maybe just unpack that a little bit and help us understand the G&A investments. Thank you.

Yes. So on the marketing side, in terms of the marketing efficiencies we saw during the year, it was largely driven by internal team initiatives. There are a number of really nice things the team was able to do in terms of expanding our reach and efficiency with the performance marketing, some of them actually related to some of those AI initiatives that we talked about. Of course, there were initiatives beyond that. And then on the brand marketing side, really phenomenal work by the team, structuring our brand marketing events in a way that was much more efficient but also more impactful than the previous year. So a tremendous job by the team on the marketing side.

Yes. And then on G&A, in 2024, there were meaningful amounts of, call it, nonroutine costs that were included in G&A to the tune of about $4 million. So hard to predict those going forward, but assume those go away in 2025. Stock comp is also higher in 2024, so expecting that to normalize as we get into 2025. So – that 10% is really core G&A growth plus investments that we continue to make, expecting additional investment in physical. We’ve got a number of owned brand launches planned that we’re really excited about, and that takes upfront investment in team and infrastructure there. And then Vauthier will have a full year of cost impact versus the half year of 2024. So those are a couple of the kind of outliers outside of the core G&A growth.

The next question comes from Anna Andreeva with Piper Sandler. Your line is open.

Great. Thank you so much. And let me add my congrats as well. Great end to the year. Just a follow-up on the quarter-to-date. Great to hear that February improved so nicely. Just what are you seeing across the two brands and also international versus U.S.? And any particular categories you call out that are driving the business? And then we had a follow-up as well.

Yes. No additional color on the seven weeks in part because it’s only seven weeks, so we don’t want to give too much there. Other than to say we did see growth across both segments and both domestic and international. So optimistic that the growth is coming from all aspects of the business.

Okay. That’s perfect. And just on marketing, you’ve been getting really nice efficiencies all of last year. Just curious, can you talk about how you approach the Revolve Festival coming up in April? You got some pretty nice marketing efficiencies last year, already with the event. Just how do you think about that this year? And thanks again.

This year from an investment perspective, we’re looking at the same range. But of course, we’re always challenging the team to do better and better. So it’s not an optimistic that we can continue to improve on our investments in these areas. But from a dollars perspective compared to last year, it will be quite similar.

The next question comes from Jay Sole of UBS. Your line is open.

Great. Thank you so much. Mike, my question is for you. You talked a lot about AI in the prepared remarks about all the different ways the company has utilized it to impact the business, but AI seems to be changing so fast. Can you just talk about maybe in the last 90 days, how you see new opportunities emerge just based on AI technology getting better? And what might you – what new things you’re working on to maybe help having the business forward using AI?

Yes, 100%. That’s what’s so exciting about it. We’ve gotten so much in terms of incredible results in the past year and is changing so fast, and the team is working on new things every day. So we've got several really exciting projects in the works. I think it's a bit too early to share them yet. One of the things I'm particularly excited about, I think really kind of taps into newer ways of product discovery. And I think that one will take a little bit of refinement any time you're introducing a new way of shopping to customers and new interfaces, it can take some time for consumers to adapt. But really excited about that one. We're continuing to leverage ML and AI against all facets of our business to improve efficiency, improve our existing algorithms. We made huge gains in terms of site merchandising, search product recommendations last year. The team's continuing to tap into some of those same areas with the improved technology. So, yes, it's exciting. I'm excited to see what the year comes and what comes with AI in the current year. I think the nature of R&D type developments is it can come in spurts, right. So you don't necessarily know what's going to hit until you fully validate everything, but there's a number of projects in the works that we're excited about.

The next question comes from Dylan Carden with William Blair. Your line is open.

Any just kind of follow-up to that question. The comments about the expanded reach on sort of the performance channels via AI, anything you can provide there as far as detail? Is that a proprietary versus third-party initiative? What are you seeing there?

Yes. So that used our own proprietary technology. And we don't want to get too much into the details of what exactly we did. But we were able to deploy technology in an effective way to expand our reach and it was among many things that helped our margin in the [indiscernible] during the quarter.

Fair. All right. And then just two quick ones here. Are you seeing any meaningful impact on the return rate deleverage or decline as it relates to product or category mix, men's, beauty, home? Or is it too early for that?

So with regards to return rate reductions, we're just kind of wondering if we're seeing it sort of more broadly across the board or some categories are more impacted than others, is that the question?

You're getting bigger in categories that are theoretically lower return, right? Is that too small at this point to be showing up more meaningfully in that return rate on any given quarter?

Yes. So category mix shift including I think putting that sort of geographic shift, maybe that's the one meaningful impact in the return rate reduction that we saw in 2024. It wasn't the largest area of impact, but it had a meaningful impact. Within that, I'd say domestic international was a bigger impact than individual category shift, but individual product category shifted did have some level of impact.

The next question comes from Ashley Owens with KeyBanc Capital Markets. Your line is open.

Great. Thanks so much. So I wanted to dig further into the gross margin guidance a little bit. I know you gave tidbits on tariffs versus higher full price sales and then recovering forward. Maybe just help us quantify the tariff impact you're assuming for Revolve and would love to hear color around your assumptions for own brands penetration given the launch of several new brands this year? And then two, just on the assortment in physical retail, you called out that within the pop-ups, you've carried a higher mix of that own brand penetration. So just anything you've done from a merchandising standpoint to really highlight these brands? Is it up front so the customers immediately gravitate towards it? Is it the majority of inventory? Or what do you think is driving the higher mix there? Thank you.

Yes. I'll take that first one and then pass it along. So on the gross margin, no further specificity on the tariff impact, other than to say that the margin improvement that we do see is largely coming from the forward segment, and bringing that back into a more healthy zone. On Revolve, we're planning essentially flat, maybe a little bit of an increase there. So most of the margin improvement is coming from the forward segment. We do anticipate, call it, slight to moderate increase in own brand mix in 2025 that is helping offset some of the tariff impacts. Most of the own brand launches that we're working on really take hold in the back half of the year, so more of an impact in 2026 than 2025. But we still do anticipate a mix expansion on owned brands this year.

And regarding the physical store, I mean, it's still part of why I'm so excited about physical retail is that we're far from optimal on many areas, one of those including our owned brand merchandising with in store. And I believe we actually have less own brand product on a percentage basis on the – in the store compared to the penetration on-site. But those styles are just performing incredibly well without massive optimization and visibility and a lot of the own brand section was actually upstairs in far multiple locations. So I think when the customer is in person and encounters this product, she's loving it. So as we focus long-term, I think that there's huge upside potential from where we are to where we can be and it's great to see those initial results being awesome.

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

Thank you. Good afternoon. On last conference call, you talked about 15% to 16% marketing for 2025 and now you're guiding it to 15%. Can you talk about the drivers that caused that change? Was it just the efficiencies in 4Q or are there other initiatives in place to help bring that down?

Yes. It was really just the continued efficiencies that we're seeing, in both channels, both in brand and performance that gave us the confidence to guide to that 15% in 2025.

The next question comes from Janine Stichter with BTIG. Your line is open.

Hi. Thanks, and congrats for the momentum and two questions for me. First is on product categories. You mentioned a lot of success with some of the more everyday essentials and some of the newest categories. Can you elaborate on what you've seen within the core business, particularly in dresses, and then just on the cash balance? You've accumulated quite a nice balance of cash here. Any thoughts on go forward use, potential acquisitions? Thank you.

Yes, on the first part, dresses performed well. We saw great growth in some of those other categories, but dresses was up, I think 10% in 4Q. So, a little south of the overall growth rate, but still very healthy double digit. And the cash balance? We're continuing to look at a number of opportunities and continue to be opportunistic there. So not much more to say other than that we have the buyback plan in place and then again just continuing to look at strategic opportunities.

Great, thank you.

The next question comes from Matt Koranda with Roth Capital. Your line is open.

Hi, guys I just had two, I guess. It sounds like a decent portion of the higher G&A guide is related to the store build out. So maybe just if you could help us understand how we should interpret that in the context of the one permanent store that you're adding in LA. Is there more to come in 2026? How do we assess success there and then just on the message for overall margin expansion that we should take away from this, I guess? But look at the full year guide. Looks like maybe contribution margin a little bit better, but operating margin potentially kind of flattish depending on what we plug in for sales growth. So wanted to maybe see if you could put a little bit of a finer point on how we should think about the opportunity for margin expansion over the next year or two.

Yes, maybe on the first one store build out and the cost associated with stores in this upcoming year is a factor. I wouldn't say it's the most significant factor in that G&A increase. There's other investments there, including the owned brand expansion and some other things we're working on. So, it's a factor. It's not the leading factor in the G&A increase and the overall margin expansion. I think you're in line there. And it's largely dependent on the top line growth. But we do see margin expansion as a scenario. But again, depending on where top line shakes out.

The next question comes from Simeon Siegel with BMO Capital Markets. Your line is open.

Thanks. Hey guys. Afternoon. Hope you're all doing well. Congrats on the nice end [ph] of the year. Mike or Michael, just do you think your customers know that your owned brands are yours? I'm curious if you think there's different customers that come exclusively for third party or for owned brands or if it's really just not that segmented. And then, Jesse, can you just remind us the gross margin differential for owned brands? And then I follow-up after. Thanks.

To us, I don't think our customer really knows the owned brand are ours. I think they really, shop the brand, really for the merits of their design, fit, quality and such like that. It's really, we really drive our merchandising makes to put the best product in front of our customers. And a lot of times that's, our owned brand. But when there's great third-party [ph] product, we put that, aggressively as well. So I think it really shows that the teams really working hard to make sure that we do have amazing products internally.

Yes. And then on the gross margin differential, I guess the reminder is that we don't disclose that other than to say that it is meaningfully richer than the third-party margin. But maybe one additional kind of note there is that the owned brand margin is healthier today than it was back in 2019. So that differential has increased, the underlying fundamental metrics that we're looking at on owned brands are really healthy. That was our goal as we kind of went into 2023 and 2024. So really good to see that checking and that gives us again the confidence to really push here and launch those owned brands we talked about this year.

All right, that's great. And so then on the back of that and on the OpEx improvements you've been seeing and guiding to just any thoughts on your thinking about maybe the long-term EBIT margin opportunity? It looks like the margin is really moving in the right direction.

Yes, definitely moving in the right direction. Made a lot of progress in 2024 again entering the year with a focus on efficiency in those variable costs, getting a return rate down while making investments in AI and other areas. So, to see that come through while making investments and delivering those results was great. So, over the long term we do see opportunity in EBITDA margin expansion. Our goal is to get into that, high single digits and ultimately into the double digits.

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

Thanks guys. Really proud of the fourth quarter and really proud of really the steady progress over all of 2024. Great progress operation through do and do all aspects of the organization, all while making aggressive investments to the future that have potential transformational outcomes. So really proud of the team through and through all across the board and really excited for all that we're working on this coming year.

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