Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve Group's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Erik Randerson, SVP of Investor Relations. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Revolve's fourth quarter and full year 2025 results. Before we begin, I'd like to mention that we have posted a presentation containing Q4 and full year 2025 financial highlights to our Investor Relations website, located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities and business initiatives, industry trends, the impact of tariffs and our mitigation efforts, our marketing events and their expected impact, 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, 2025, and our annual report on Form 10-K for the year ended December 31, 2025, which we expect to file with the SEC on February 24, 2026, 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'll 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 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 that was outpaced by a 44% increase in adjusted EBITDA, resulting in a nearly 190 basis point increase in our adjusted EBITDA margin. We achieved these strong financial results while continuing to invest in many initiatives that we are very excited about and which we believe set us up well for profitable growth and market share gains in 2026 and beyond. I'll start by briefly discussing highlights from our fourth quarter results before shifting to the full year 2025 accomplishments and closing out with our key priorities for 2026. Starting with the fourth quarter recap. Net sales were $324 million, an increase of 10% year-over-year, driven by meaningfully improved trends across both segments and geographies relative to our year-over-year comparisons in the third quarter of 2025. In fact, our net sales increased by a double-digit rate year-over-year across REVOLVE, FWRD, domestic, and international, and this is despite facing the most difficult comparisons of the year by far in the fourth quarter. Notably, our revenue growth rate on a 2-year stacked basis in Q4 improved to 26%, an increase of 11 points compared to the third quarter of 2025. Net sales in the REVOLVE segment increased 10% year-over-year, and net sales in the FWRD segment increased 14% year-over-year. Gross margin increased by nearly 80 basis points year-over-year, driven primarily by powerful margin gains from data-driven recalibration of our markdown algorithm, as well as an increased mix of owned brands. Our ability to overcome macro pressures to expand our gross margin and operating margin year-over-year is notable in comparison to the margin declines experienced by many retailers due to tariff pressures, further illustrating our agility, operational execution, and…

Hello, everyone. I am very proud of our team's great execution across the business that contributed to double-digit top line growth and an incredible 58% growth in net income year-over-year in the fourth quarter. Anchored by our pristine financial foundation that continues to get stronger, we are investing in growth initiatives that we believe will be impactful drivers in further strengthening our brands and expanding our overall growth potential. With that as an introduction, I will focus my remarks on some of the strategic areas we are investing in and where we see a great deal of opportunity: brand investments; opportunities in the dynamic luxury industry; expansion of owned brands; and physical retail development. First, brand building. We had an impactful quarter for brand-building activities that helped to drive an acceleration in active customer growth while delivering increased marketing efficiency year-over-year that contributed to our strong bottom line performance. One of the most innovative brand-building moments occurred in early December with the unveiling of our reimagined brand identity in a global campaign that integrated the use of physical events and AI imagery for maximum impact and efficiency. Those following REVOLVE on social channels witnessed our imaginative campaign, featuring the refreshed REVOLVE logo on historical landmarks from around the world, including Los Angeles, New York, Shanghai, Tokyo, Hong Kong, and Dubai. The new REVOLVE logo was also prominently displayed throughout the Crypto.com arena in Los Angeles, courtesy of our Lakers partnership. Most importantly, consumers have embraced the new brand identity, validated by very favorable A/B testing on our e-commerce sites and our strong close to the fourth quarter. Entering 2026 with a strong financial foundation, increased momentum in the business, and plans to launch exciting new growth initiatives in the coming months, we believe the timing is right to increase investment…

Thanks, Michael, and hello, everyone. I'm extremely pleased with our fourth quarter results and the strong close to 2025, highlighted by double-digit net sales growth across segments and geographies, and a more than 50% increase in earnings per share 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 outlook for 2026. Starting with the fourth quarter results. Net sales were $324 million, a year-over-year increase of 10% and a 6-point improvement from our net sales growth in the third quarter of 2025. We achieved this growth acceleration despite facing a much more difficult prior year comparison in the fourth quarter as reflected by the 26% 2-year growth rate in the fourth quarter, our highest 2-year growth in more than 2 years, and a significant expansion from the 15% 2-year growth in the third quarter of 2025. REVOLVE segment net sales increased 10% and FWRD segment net sales increased 14% year-over-year in the fourth quarter. By territory, domestic net sales increased 10% and international net sales increased 13% year-over-year. Active customers, which is a trailing 12-month measure, grew to 2.8 million, an increase of 6% year-over-year. Total orders placed were 2.4 million, an increase of 13% year-over-year, and our highest growth rate in 3 years. Average order value was $296, a decrease of 2% year-over-year, primarily due to product mix, highlighted by an exceptional 43% increase in beauty sales year-over-year. Consolidated gross margin was 53.3%, an increase of 78 basis points year-over-year, that primarily reflects meaningful margin expansion in our FWRD segment. Moving on to operating expenses, where we have continued to drive efficiencies year-over-year. Fulfillment costs were 3.2% of net sales, more efficient than our guidance and unchanged year-over-year. Selling and distribution costs were 16.7%…

[Operator Instructions] Your first question comes from the line of Janine Stichter with BTIG.

I want to ask a bit more about owned brands. I think you mentioned that you feel like it can be considerably bigger than where they are right now at 20% of sales. Maybe help us put some parameters around that. And then you alluded to, I think you said a new chapter for owned brands in 2026. Can you elaborate a little bit more on what that might mean for the growth of owned brands in this year?

Yes. It's called -- I guess, quite some time ago, owned brands was, call it, mid-30s penetration. We think that's well within reach. We're in no rush to get there. We have to get there in the long term, but increase profitability in super-sustainable way. But that's well within reach and even beyond that. We do have 2 exciting things coming up, potentially 3 that are as big as anything we've ever done. But that's all marketing-oriented things in the future. We choose to tease them when it's optimized for the consumer and release them when really consumer focused. So don't want to steal that thunder and excitement from the consumer. So I'll refrain from commenting too deep on all the super exciting things I'm working on.

Great. And then maybe just as you think about gross margin progression through the year, you mentioned first half stronger, just due to the comparisons. But then the offset, I guess, would be the owned brand's penetration. How should we think about that offsetting the tougher comparisons in the back half of the year? Should we expect owned brands to continue to build sequentially as the year goes on?

Yes. Yes, we would expect owned brands to build sequentially as the year goes. But then we did have the huge gains last year from the markdown algorithm that kicked in around midpoint of the year. And those were meaningful gains. So that will offset some of those owned brand gains that we will achieve. So that's reflected in the guidance where you see that 100 basis points in Q1 and then 45 for the full year.

Your next question comes from the line of Michael Binetti with Evercore.

Congrats on a nice holiday. I guess this is the first quarter we haven't talked about returns in a while. It looked pretty stable year-over-year, but it was increasing in third quarter. So it seems -- I'm sure there's more noise in it than just stable year-over-year. So maybe you could just tell us -- I know you've said for a while, you had a bunch of initiatives going on there. Maybe what's going on beneath the covers on that one a little bit. And then I'm curious if you do plan on having any physical stores open in '26. And then maybe, Jesse, if I could just hear a little bit more -- I guess, jump ball, guys, a little bit more on the marketing increase. Mike, I think you mentioned efficiency improved on marketing quite a bit in 4Q. I have to think that plus a big step-up in the marketing deleverage in '26 gives you quite a war chest of media impressions. Is there an unusual event there? Is that the new run rate? Or anything you can tell us about the big step-up there?

Sure. So I'll start with the return side of things. So yes, we're pleased with the progress in the fourth quarter. It was relatively flat quarter-over-quarter after an increase in Q3. It's a combination of a few different factors. There's some category mix shift that played a role there. But then also some of the newer initiatives around returns that we started ramping up played a role there as well. So we're pleased with keeping the return rate stable and our forecast for the upcoming year would be relatively stable return rates. But as always, we're continuing to invest in new initiatives on that front and hopeful that we can continue to see success there. With regards to physical store timing, we just recently opened and launched, of course, The Grove store in Los Angeles, thrilled about the start we have there. We're not providing specific guidance on the number of stores that might open in '26. But loosely speaking, you could see a store -- an additional store to open in '26, depending on locations and timing and the things of that nature. So it's still TBD. And then on the marketing side of things, I'll speak to it a little bit, and then Michael can maybe speak to some of the bigger investments in the upcoming year. We did have a very efficient fourth quarter, which was great to see. A combination of some really nice gains on the performance marketing side, some of which driven by new algo changes on our side and AI enhancements to the way we're advertising. And then also a little bit of a decrease in brand marketing investments. And to your point about having a war chest built up for the marketing side and the impression side, we're definitely looking to have a big year in this upcoming year with regards to marketing deployments and specifically around some of the launches that Michael alluded to, but that we can't yet reveal.

Our next question comes from the line of Anna Andreeva with Piper Sandler.

Congrats. Wanted to follow up on gross margin. What drove that slight decline at REVOLVE brand in 4Q? Assuming some of that was tariffs, but just wanted to follow up. Should we expect REVOLVE gross margins to be up in 1Q and also for the year? And then secondly, I guess to you, Jesse, on EBITDA margins, so your guidance for '26 implies flattish at 7.5%. Can you just remind us how we should think about the longer-term profitability goals for the business? Is that still a mid-teens margin that you used to talk about? And how should we think about gross margin versus SG&A within that, just given the markdown, optimization algo still in pretty early days?

Yes. Thanks, Anna. So let me start with the REVOLVE margin. There was a slight decrease in Q4. And to your point, there was some tariff impact there. The tariff impact built over the course of the year as inventory receipts flowed into COGS. And then there was also some mix shift element there with some of the category diversification, beauty growing 43%, apparel growing 11%, and outpacing the REVOLVE. And then the FWRD outpacing REVOLVE as well. So some of those were the negatives on the REVOLVE gross margin, offset by the owned brand expansion, which did help there. And then as we look ahead into 2026, I think we'd expect some slight increase. Overall, that 45 basis points -- FWRD is in a really healthy position at that 42.7%, I think. And that's a good place for FWRD to be. So maybe there's some small incremental gains there. And then on the REVOLVE side, with owned brand penetration increasing, that's where we'd see some benefit. And then if we look at adjusted EBITDA margin, I'll speak to our more near-term goal, and that is to get EBITDA margin into the high-single digits on a consistent basis. And we did great in Q4, made great progress for the full year. Much of the -- if you look at a little bit longer term, much of the increase will come from gross margin as we expand the owned brands. That's the biggest driver there. And then some leverage on the G&A side of the equation. We made a lot of investments in 2025, gearing up for a big 2026. So we should start to see more leverage out of that G&A line item over the course of the coming years.

Our next question comes from the line of Oliver Chen with TD Cowen.

This is Gabriella Garr on for Oliver. I'd like to ask a little bit more on inventory positioning going into 2026. I see inventories grew roughly in line with sales this quarter. But if you could tell us how you're feeling about your inventory positioning going into '26, particularly as we're seeing some faster-growing categories and some shifting in mix with beauty, for example, growing so quickly.

Yes. Thanks, Gabriella. We feel good about the inventory position, to your point, growing about 10% in line with sales, which is a good place to be. It was a little bit higher in Q4, kind of a lag from some of the supply chain difficulties that we faced in Q3 that impacted the top line. So we saw some of that inventory come in, in Q4. But overall, we feel very good about the inventory position, the health of the inventory. And particularly on FWRD, as you probably know, that inventory can take longer to work through. So to have FWRD inventory in a really healthy position is really positive. And we feel good about the positioning in those other categories as well and geared up to continue to expand in those other categories.

Your next question comes from the line of Dylan Carden with William Blair.

You've gotten the flow-through question a couple of times. I mean, I'm curious, you also mentioned that you're thinking about balancing growth here and investment in the business. Is part of the posturing here switching to maybe more offense -- more offensive stance to drive faster top line while keeping things like marketing -- I mean albeit within historical ranges, but deleveraging to last year. Are you seeing those opportunities, seeing efficiencies out there to go after a faster top line profile? Is that one way to read the guide?

Yes. I mean, the most important flow-through to us is EBITDA growth. And so, yes, we've been making investments into G&A and overhead, and we've been producing great results. We're really pleased with the revenue growth, the revenue trajectory, the earnings and EBITDA growth. And yes, a lot of our investments in the AI, technology, brand are really paying big dividends. We're also investing a lot ahead of some big launches in the coming year. So yes, certainly very mindful, and we do expect to get leverage on G&A over time. But right now, we're seeing really good opportunities to invest. And so that's what you're seeing in the current year results. And again, we've been driving the most important number, the EBITDA and earnings in the right direction. So we're very pleased with that. And then, Jesse, if you want to comment on projections for the upcoming year and guidance around the flow-through in '26.

Yes. No, I think you covered it for the most part. But maybe to highlight what you said, Dylan, is that, yes, on the marketing side, it is a meaningful increase as a percentage of sales versus 2025. But if you go back in time, it's more in line with our historical rate. So it's bringing it back plus investing in these exciting launches and initiatives that we have coming up.

And so reading that with the body language around efficiencies via AI engagement, however you want to think about it, would one be forgiven for thinking that you see opportunities to accelerate top line or see an accelerated top line profile versus what you've done in recent years? Again, I know you don't guide to sales, but just trying to figure out maybe some of the philosophy here on higher spend.

Yes. We certainly expect investments on the G&A side to flow through to both top line and also bottom line. And so, certainly, increased revenue growth trajectory is one thing that we're targeting, and I think we've already seen in recent quarters. And then -- but it's also important to note that it's not just on the top line side that we get increased efficiency on the marketing side from investments that we make. We get increased efficiency on logistics and operations and things of that nature that allow us to essentially do more and invest ahead of expansion of the business and other things that we're targeting in '26.

And then just to confirm, I know, again, you don't guide sales, but no store costs or any sort of store expansion is embedded in the guide as it stands now for '26. Is that correct?

There is both the Aspen store and The Grove store included in the model, but not incremental stores.

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

Just starting with maybe the Q1 commentary, if we could, quarter-to-date up 16%. I understand the comparison gets tougher from here. But I guess even if we hold the 2-year, that would suggest getting close to low double for the full quarter, I guess. is that the right way to think about it? Or anything you'd caution us on there?

Yes. No, I think that's fair, just as you said, looking at the comps for January and the balance of the quarter.

And then on gross margin, understanding you're at 81% full price realization, which is a fantastic number. But maybe speak to the opportunity for further markdown optimization moving forward, even after you've lapped some of the changes in the back half of this year.

Yes. We're not guiding anything specific there. We're certainly optimistic that over time, we can continue to drive enhancement on that side that should result in improved margins, and of course, continued owned brand expansion. But with regards to the algorithmic investments, the nature of R&D is that it's hard to predict exactly when you're going to have those breakthrough enhancements. But I think we've demonstrated over a long period of time, including since we've gone public multiple times, our ability to drive those continued enhancements through R&D, and we're going to continue to invest there.

Your next question comes from the line of Jay Sole with UBS.

Mike, I have a question about just AI. Can you just talk about -- you've been talking about investments, but can you give us an idea of where the investment is showing up? Is it in SG&A? Is it CapEx? And is implementing AI a question of just money? Is it people in terms of do you need to bring in talent? Is it just capabilities of the AI systems? And then maybe, Michael, just can you talk about some of the different categories in a little bit more depth, talking about men's, maybe women's dresses, other categories where you're seeing outsized growth? And then maybe, Jesse, just international, can you talk about China a little bit more, how much you grew in China, what Chinese New Year was like? And that does my questions.

Sure. So with regards to AI investments, they mostly show up on the financial sheet -- financials under SG&A. There's some CapEx there, but it's mostly SG&A investments. And then in terms of the areas of the business where it's been giving us leverage, it's really across the board. Certainly, on site, a host of personalization and merchandising enhancements, whether it's better personalization for customers, whether it's the new search algos that we rolled out last year, whether it's improved product recommendations, on-site discovery, we rolled out the virtual styling tool recently. Or whether it's on the operations side, where we've talked about a number of things that we've done historically to drive efficiency, and we're continuing to make investments there. So there's certainly customer service, contact routing, customer service call transcription, invoice, auto ingesting, and then new opportunities that we're rolling out. We're starting to do more and more on the fashion design side in terms of using AI to enhance that process, make it faster, more efficient and better. So yes, it's really across the board, and we're seeing it make meaningful improvements to our business. On the marketing side, every aspect of the marketing chain and funnel, whether it's from a reach perspective, expanding the reach of our ads and the targeting of our ads through AI, whether it's through the content itself, using AI within the marketing content to help produce the content for the ads, or whether it's when they funnel into the site and the landing pages. We've seen a lot of success recently with using AI to enhance the landing pages when customers come in. So it's really, I think, a transformational technology, and we're excited about our ability to continue to roll out enhancements there.

I guess last thing also on the merchandise mix, we're seeing great strength across the board. Dresses continues to grow, historically our biggest category, but fashion, apparel, and the rest of the women's ready-to-wear-type categories are going extremely great. Men's and beauty and home are doing incredibly well, of course, smaller bases, but accelerating and growing much faster than the women's business, with also potential to even accelerate growth. The men's business particularly was hurt by missing deliveries due to all the tariff and logistics challenges, but still put up incredible numbers and incredible turns. So we're seeing broad-based success. And to me, the most exciting part is seeing success in areas that we have not been historically known for. We've been particularly known for dresses, going out clothes, and warm weather being an L.A. brand, but we're really seeing our customer really engage with us in other categories, other departments of our stores. So that really gives us a broader, stronger foundation for continued growth for many years to come.

Yes. And then I'm sorry, I realize I missed one part of your question on AI, which is, where do we need to make continued investments. Well, first, we have a great team, and we've talked about the investments we've made on the SG&A side with the team. It's really about applying AI technologies in a domain-specific way, which requires having the right team that really understands the domain that you're operating in. And then time to put in R&D and test and see what resonates with the consumer. So it's a combination of both technology, but also fashion expertise and really understanding the domain, which I think our company is incredibly well-leveraged for going forward.

Yes. And then I'll wrap up with your international question. We're really excited about the China growth, specifically. If you look at international overall, though, to start with, 13% growth on top of 29% growth last year in the fourth quarter was phenomenal. And China was a standout. That was one of our top 2 fastest-growing regions in the quarter, almost 2x the overall international growth rate. And then mainland China grew at an even faster pace than that. And I think, interestingly, and really excited that REVOLVE now is the majority of the mainland China sales. So it really shows the brand and our owned brands resonating with that customer. And then highlighted by the owned brand-specific collection that we did in China for that customer in the livestream event, not just the customer reaction and the sales and the demand, but also the logistics savings with our Hong Kong hub. So lots going on in China and the Middle East. I'm excited about where we can take that.

Your next question comes from the line of Nathan Feather with Morgan Stanley.

Really impressive growth for the 4Q and quarter-to-date. I guess, was there anything that was an outsized contributor? Or is it really more broad-based? You called out a lot of different things that are working here. And then just how should we think about the durability of this growth as we go forward? And then one on the agentics as well. Seeing a lot of improvement here, I guess. Just how are you thinking about what the consumer experience can look like in 2 to 3 years with the improved search and discovery and conversational tools we're seeing?

Yes. Thanks, Nathan. I'll start with the first one here. On the outliers, I think the great thing is that it was really across the board, double-digit growth across all cuts, REVOLVE, FWRD, domestic, international. You had some regions, like I mentioned, China growing at a faster rate than the overall international business, so that may be called as a standout. Beauty was another standout at 43% growth, so speaking to our category diversification. And then even within apparel, Michael touched on this, but within the fashion apparel, which grew at a faster rate than dresses. Outerwear was a great category for us. So I think, again, speaking to addressing different aspects of our life and going after those other categories. So I think to sum it up, it was great growth across the board. And then durability, we feel good about where we're at from an inventory position, from the merchandising, a lot gearing up in marketing over the next year and the owned brand launches that we mentioned. So we've got a lot cooking, and we're off to a good start with this first 7 weeks of the year, so optimistic.

Yes. And then with regards to what the shopping experience can look like 2 to 3 years from now. Certainly, we're already starting to see a lot of changes with the influence of AI on commerce, whether it's the generative Q&A that we launched on our website recently, where we auto-generate questions for consumers and answers for them that we're seeing nice lift on thus far with our deployments, and whether it's something like chatbots, which is certainly something that's on everyone's mind, and I know a lot of people are working on that. And certainly, we have ours in development as well. But then I think there's going to be some really interesting developments that don't look exactly like either of those 2 things that we're working on that probably to some extent blend maybe some of those technologies with more of a traditional shopping experience and then layer on some other elements. And we have some things in R&D. I don't want to get into too many details about things that we're working on that we haven't seen elsewhere. But I think it's going to be exciting over the next 2, 3 years. We're really excited about what we can deliver to consumers to help transform the shopping experience, make it even better. And I think as we look out 2 to 3 years, I feel very good about our ability to lead the way on the combination of fashion, tech, and retail, as far as how it relates to consumers. And I think brand is going to continue to be still an incredibly important brand and service. As much as AI technologies can transform part of the retail shopping experience, they cannot transform and replace brand and the meaning of brands with consumers and brand trust with consumers and the service levels that a company like REVOLVE offers. So yes, we feel quite exciting. And typically, in times of change with new technologies, we've thrived, and we're certainly excited to see what the next couple of years hold.

Your next question comes from the line of Peter McGoldrick with Stifel.

I wanted to ask about the drivers of the FWRD business. Could you talk about the road map for customer acquisition on the luxury side, and then building out the brand availability and how that points to your capacity for acceleration within that landscape?

I'll jump in here a bit on the FWRD side. So yes, we're seeing tremendous growth on the FWRD side. I think it's a combination of things. Certainly, the FWRD business has been continuing to strengthen, and we're starting to fire on all cylinders. I think we've done a really great job with some of the high-end customers on FWRD, which is an area we historically have not invested in, and we've really transformed and improved our experience there. And certainly, the general landscape within luxury has been certainly challenging in a broad macro sense, but very favorable for FWRD in the sense that it gives us a lot of opportunity to gain market share as competitors struggle with their service levels and their brand and product offerings and lose share to players like FWRD. So we feel great about that. And then in terms of continued brand acquisition and product expansion, there's certainly continued opportunities on FWRD and the weakness of some of those larger players certainly very much works to our benefit as far as that goes.

And then on the retail side, you had some encouraging comments about opportunities for tier 1 expansion. In the past, you pointed to a vision of a mix of destination in large metro retail locations. So I was curious if you could tell us more about how your retail strategy has progressed now that you've got The Grove in place.

Yes. It's interesting. Aspen is going quite well and The Grove is very, very new. They're both definitely different locations. But we see that with both those profiles, smaller town with a lot of wealth, a lot of shopping, as well as premium shopping locations, which there are many, many, many across the nation. We're going to have strong success in both. So we're exploring opportunistically and being patient, but ensuring that we have these perfect locations. And I'm optimistic that this year we will make continued progress, both with the performance of those stores, as well as expansion opportunities.

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

So a lot have been asked and answered. But on the customer engagement front, it looks like it's really picking up in terms of actives or orders per active. Any commentary around repeat purchase behavior from your existing customers? Is that just additional share of wallet in new categories? Is it core repeat growth in apparel? Maybe just a little bit more on that front. And then just on the physical retail, I know it's been asked a couple of different ways. But I guess I'm just curious, why not step on the gas a bit more on the physical retail front? What do you need to see from either existing locations or just in the general backdrop before you lean a little bit more on the physical retail expansion?

We're still building that core foundation. I think a lot of that goes back to team, technology infrastructure process. So we want to be sure that, that is as strong as our e-commerce business before rolling out super aggressively. I think at this point, slow is smooth but smooth is fast. So there will be a point in time where we feel like we're really humming, and we can expand. Not quite there yet, but we are building towards that level.

Yes. And on your customer questions, Matt, yes, we're really encouraged by the customer engagement as we progressed through 2025, both from the active customer count and then to your point on the revenue and orders per active customer. And then if you dig a layer deeper than that on the retention, so existing customers ticked up, their percentage of sales ticked up, the orders and sales from those customers ticked up. And then our retention also picked back up this year pretty meaningfully. So really good customer engagement and not to give you a nonanswer, but it really is across the board. It's both new customers and existing customers. It's across categories, as you can see with the sales results in the quarter. Maybe standouts are beauty, again, that 43% growth rate, and that's a lot of new customers. And then they increase their AOV over time. So we really are seeing both on the new and existing and that category diversification.

Your next question comes from the line of Simeon Siegel with Guggenheim Securities.

Jesse, can you quantify how much the owned brands increased gross margin this quarter? And then just another on marketing, if I can. Just how much of that increased spend or how are you thinking about the increased spend tied to REVOLVE versus FWRD versus corporate level brand building? Or is it really all tied to the commentary around the owned brand opportunity? And if it is, is the right way that you guys are thinking about the economics of owned brands as being higher gross margin, but maybe higher OpEx with the marketing? Or is this more of a onetime lift on the spend?

Yes, I'll start with the margin impact on owned brands. We don't quantify that other than to say owned brands, of course, produce meaningfully higher gross margin. And then as mix increases, of course, it impacts that REVOLVE gross margin. So it was a contributor to the REVOLVE margin and then offset by some of those other takes like tariffs and mix and such. Maybe I'll pass it on for the marketing.

Yes. I mean, as far as we think about the marketing investments in the coming year, certainly, they are to support some exciting things that we have on the owned brand side. But we don't view the owned brands as distinct and separate from the REVOLVE brand itself. Obviously, they are their owned brands. But we think the marketing that we do is going to support the mothership as well, not just the individual owned brands. And we've always said that on the brand marketing side, we're opportunistic, and we want to make sure we're going after the right opportunities, that we're seeing interest in the eyes of consumers. So there's always going to be some variability of timing on brand marketing investments in terms of what we do quarter-to-quarter, even year-to-year. We think we have some exciting opportunities for the upcoming year. We want to invest strongly behind them. We think they're going to pay dividends, not just in the current year, but for many years to come, really helping build and enhance the REVOLVE brand itself and take it to another level.

Your next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So just a 2-parter for us. But with the strong growth in beauty and the rising share of the new-to-sell customers that are choosing beauty as their first purchase, just curious as to if you have any color as to what's driving that behavior and if the beauty entry point translates into higher cross-shop rates in apparel and other categories. And then with that, but how should we think about the AOV trajectory through 2026? Is stabilization likely as those beauty customers mature and cross-shop? Or does mix remain the dominant governor on AOV for the year?

Yes. Super proud of the progress on beauty. Of course, beauty is a less mature business than the apparel business. So the simple things are really expanding our selection to be really, really amazing. I think we're having a very, very unique special curation of beauty brands and also improving the site experience. The beauty shopping experience is dramatically different, even though it looks the same, dramatically different than apparel, less picture driven, a lot more information driven. So huge progress there on both of those fronts. And there is a long runway to continue to improve both of those fronts. Beyond that, we have yet to even invest aggressively in marketing, which, of course, we are quite confident that we will be very successful there. So early stages of beauty, accelerating growth with a long road map ahead, super, super excited there. How it integrates with the rest of the businesses makes us even more excited. We are able to attract those new customers through an awesome, big, huge lane. And also, we've been able to convert those customers into long-time apparel, full-price customers across the board. So over the long term, we think it will be very, very, very incremental, despite some periods where beauty acceleration may lower AOV a tad. But we think overall, this is very, very healthy for the business and will ultimately be super synergistic with the mothership.

Yes. And for our AOV for 2026, Ashley, we -- in our model, we're guiding to roughly flat year-over-year in 2026, with, of course, a lot of puts and takes. And one of those is the category mix shift. If we continue to do a good job in this category, mix shift, that will put pressure on AOV. And then some offsets, as you and Michael mentioned, just those beauty customers migrating into other higher ticket items. We also have some price increases rolling through, of course, from the tariffs of 2025. And then dependent on full-price mix and the FWRD/REVOLVE mix, but guiding to roughly flat.

Your last question comes from the line of Mary Sport with Bank of America.

Is there anything you can share on the health of your consumer, particularly at the REVOLVE segment and just any trends that you've been seeing by income cohorts? I think you mentioned maybe some softness at the low end last quarter. Have you seen that persist?

Yes. Nothing significant. Again, I think some of that softness probably lightened up in Q4 with the great sales results that we saw. But nothing else really significant to call out, maybe other than the FWRD side of the business and that high-end consumer really performing with our emphasis there.

There are no further questions at this time. I will now turn the call back to management for closing remarks.

Thank you, guys, for joining us. It was an incredible quarter. We're very proud of our work of our team to deliver these results and very optimistic that we can continue to build from here. It's been a challenging year, but we've been able to jujitsu tariffs into a unique strategic competency moving forward. So we're ready for any bumps ahead there, and we're excited for that. Our AI investments are paying dividends, and our AI road map has no end in sight. Our financial profile and balance sheet is bulletproof. And many powerful strategic investments are just coming online this year. I believe we're entering a new phase of our evolution and very, very excited for the year ahead. Thanks for joining and excited to join you guys next quarter.

Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.