Revolve Group LLC’s Gross Margin Outlook and Tariff Refund Claims Clash With Owned Brand Growth Plans

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Date of Call: Aug 4, 2026

Financials Results

• Revenue: $347 million, an increase of 12% year-over-year
• EPS: $0.26 per diluted share, up from $0.14 in the prior year and includes a $0.06 gain from IEEPA tariff refunds
• Gross Margin: 56.6%, up from 54.1% in the prior year and includes a 160 basis point benefit from IEEPA tariff refunds

Guidance:

• Q3 gross margin expected between 53.5% and 54.0%, a decrease of ~88 bps YOY at the midpoint.
• Full-year 2026 gross margin expected between 53.5% and 54.0%, a YOY increase of ~25 bps at the midpoint.
• Q3 fulfillment expected ~3.4% of net sales; full-year between 3.2% and 3.4%.
• Q3 selling and distribution expected ~17.5% of net sales; full-year between 17.1% and 17.3%.
• Q3 marketing expected ~15% of net sales; Q4 >16%; full-year between 15.8% and 16%.
• Q3 G&A expected ~$43.5 million; full-year between $170 million and $172 million.
• Full-year effective tax rate expected 24%-26%.
• Net sales in July increased ~18% YOY.

Business Commentary:

Revenue Growth and Customer Expansion:

• Revolve Group reported net sales of $347 million for Q2 2026, an increase of 12% year-over-year, marking the third consecutive quarter of double-digit top-line growth.
• The growth was driven by strong performance across segments and geographies, increased brand awareness, and strategic investments in technology, AI, and category expansion.

International and Segment Performance:

• International net sales grew by 16% year-over-year, contributing nearly 23% of total net sales, the highest mix ever reported.
• The growth was supported by marketing enhancements, successful activations, and a rebound in the Middle East region, despite geopolitical challenges affecting logistics costs.

Gross Margin and Tariff Refunds:

• The company's gross margin was 56.6%, including a 160 basis point benefit from IEEPA tariff refunds, up from 54.1% in the previous year.
• This improvement was attributed to successful AI and data-driven recalibrations of markdown algorithms and tariff refund benefits.

Active Customers and Marketing Investments:

• Trailing 12-month active customers grew by 11% year-over-year, surpassing 3 million for the first time.
• This was fueled by record new customer acquisition and increased engagement, driven by significant marketing investments and brand-building initiatives.

Inventory and Cash Flow:

• Inventory at the end of Q2 2026 was $276 million, an increase of 25% year-over-year, influenced by tariff-related delays in the previous year.
• The company maintained a strong financial position with no debt and generated positive free cash flow of $34 million year-to-date, enabling ongoing investments and shareholder returns.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'very solid quarter', 'strong and profitable growth', 'continued market share gains', and 'third consecutive quarter of double-digit top-line growth'. They noted 'strong momentum', 'record new customer acquisition', and 'exciting progress' on long-term initiatives. The tone was confident: 'We are very focused on the long term... and believe the growth initiatives we’re investing behind have the potential to supercharge our profitable growth.'

Q&A:

• Question from Rick Patel (Raymond James): Unpack the July 18% growth acceleration; timing of activations vs. consumer strength, and durability into 3Q/4Q?
  Response: Attributed growth to marketing investments paying dividends and internal execution, not a broad consumer trend. Expect better growth trends in Q3 than Q2.

• Question from Rick Patel (Raymond James): Where is new customer acquisition coming from? Geography, categories, channels?
  Response: Broad-based strength across revenue and new customers; driven by international, domestic, category expansion, and new marketing investments.

• Question from Nathan Feather (Morgan Stanley): Ramp trajectory for Gro Good into back half 2027; when becomes material?
  Response: Limited by inventory; larger restocks expected this fall to drive more meaningful top-line growth into 2027; more granular disclosure later this year.

• Question from Nathan Feather (Morgan Stanley): Detail on return rate initiatives and opportunities?
  Response: Mix shift and initiatives drove improvement; forecasting flat for back half but feeling good about direction; R&D ongoing with new tech.

• Question from Michael Binetti (Evercore ISI): Did you invest more due to tariff refund? Comment on flow-through, promotional environment, and July trends?
  Response: Would have invested absent tariff refund; marketing showed good results. Full price mix healthy but markdowns heavier; July growth broad-based across segments/geographies.

• Question from Anna (Piper Sandler): What driving higher G&A? Input costs and gross margin outlook?
  Response: G&A driven by growth initiatives (Revolve label, physical retail, Cardi B JV); investments largely this year, with leverage next year. Input costs (petroleum-based fabrics, transportation) factored into guidance as gradual pressure.

• Question from Anna (Piper Sandler): Potential for FWRD gross margin to reach high 40s? How narrow Revolve-FWRD delta?
  Response: Aim to expand FWRD differential; FWRD in low-to-mid 40s is good. Revolve gross margin to expand with own brand penetration.

• Question from Janine Stichter (U.S. Bancorp BTIG): Revolve Los Angeles expansion plans and timing? Marketing % outlook next year?
  Response: Revolve LA initially premium; will expand to full wardrobe categories over time. Marketing up this year due to new channels/initiatives; expects to come down next year.

• Question from Peter McGoldrick (Stifel): Inventory flow relative to forward plans?
  Response: Healthy receipts this year vs. prior year delays; two-year stack shows net sales outpacing inventory growth by ~5 points; inventory a bit heavy but normal; comps to normalize in Q4.

• Question from Peter McGoldrick (Stifel): Gro Good crossover with Revolve segment? AOV impact?
  Response: Gro Good demand strong with high repeat rates; AOV impacted due to lower price points; consolidated metrics include Gro Good, but not broken out yet.

• Question from Mark Altschwager (Baird): Store rollout pace and criteria for faster expansion?
  Response: Patient build-out of infrastructure/processes; testing different store formats; goal is unique in-neighborhood connection, not rapid chain expansion.

• Question from Mark Altschwager (Baird): Gross margin guide unchanged with tariff refunds; what offsets?
  Response: Tariff refunds at high end of guidance; margin within expectations; Section 301 tariffs (avg. 12.5%) factored in, but later phases uncertain.

• Question from Matthew Koranda (Roth Capital): July strength by category? Comp cadence for remainder of Q3?
  Response: Momentum across segments/geographies; men’s, beauty, home outpacing overall growth. Q3 comps get lighter after July strength; Q4 comps pop back to 10%.

• Question from Matthew Koranda (Roth Capital): Why isn’t gross margin outlook higher given own brand mix improving?
  Response: Own brand penetration increasing modestly (~1-2 points per year); offset by lower full price mix and input costs; net reflected in guidance.

• Question from Jay Sole (UBS): How is AI improving demand planning/inventory management and long-term forecasting?
  Response: AI greatly impacts inventory optimization, category mix, and product personalization; enhances sales and demand; still some consumer uncertainty, but on track for double-digit growth target.

• Question from Jay Sole (UBS): AI token cost control and impact on SG&A?
  Response: Token costs are a focus; part of increased G&A balancing innovation with optimization via open-source models; gap between frontier and open-source models diminishing.

• Question from Oliver Chen (TD Cowen): Active customer growth relative to past algorithms? AI and reinforcement learning for physical stores?
  Response: Core execution driving growth; AI potential huge for personalization and search; physical stores different but using AI for video feed analysis and real-time metrics; early stages.

• Question from Oliver Chen (TD Cowen): Is low double-digit active customer growth the new normal? OpEx vs. sales growth outlook?
  Response: Not necessarily new norm; net sales and active customer growth aligning. OpEx (marketing) to leverage later; G&A leverage with double-digit sales growth; gross margin expansion key for profit growth.

• Question from Simeon Siegel (Guggenheim): Product categories with lower full price mix? Capital allocation for rest of year?
  Response: Full price mix slightly lower YOY but still healthy; starts with A. Capital position strong for share buybacks, growth investments, and opportunistic M&A no specific guidance on balance.

Contradiction Point 1

Gross Margin Outlook and Tariff Refund Impact

Guidance for gross margin and the impact of tariff refunds shifted between quarters.

Mark Altschwager (Baird) - Mark Altschwager (Baird)

2026Q2: The full-year guidance is unchanged (tariff refund pushes it to the high end). The impact of new Section 301 tariffs (avg. 12.5%) is factored in... For return rates, the Q2 improvement was a mix of favorable category mix shift and ongoing initiatives. - [Michael Mente & Jesse Timmermans](CFO)

What factors are needed to accelerate the physical retail rollout following the Miami store opening, and how are the incremental gross margin offsets from the tariff refund and potential impacts of Section 301 changes affecting the outlook? - Anna Andreeva (Piper Sandler)

2026Q1: Tariffs (current 10% incremental rate) are factored in but are not a significant driver as most have been mitigated. - [Jesse Timmermans](CFO)

Contradiction Point 2

Owned Brand Growth Trajectory & Gross Margin Contribution

Contradiction on the pace and scale of owned brand growth and its impact on gross margin.

Matthew Koranda (Roth Capital) - Matthew Koranda (Roth Capital)

2026Q2: Own brand penetration is increasing but modestly (~1-2 points per year), offset by slightly lower full-price mix and input costs, resulting in the current gross margin guidance. - [Jesse Timmermans](CFO)

Why isn't the gross margin outlook higher despite improving own brand mix, July's strongest categories, and the Q3 comp cadence? - Janine Hoffman Stichter (BTIG)

20260225-2025 Q4: The long-term target is to increase penetration to the mid-30s, but the company is not in a rush and aims for sustainable profitability. - [Michael Mente](CEO)

Contradiction Point 3

AI's Impact on Gross Margin Expectations

Contradiction on whether AI initiatives contribute to gross margin improvement.

Jay Sole (UBS) - Jay Sole (UBS)

2026Q2: AI is significantly improving inventory optimization, category/product mix analysis, and front-end personalization, contributing to recent sales growth. - [Mike Karanikolas](CEO)

How are AI initiatives improving demand planning and long-term forecasting confidence, and what strategies are in place to manage AI token costs while leveraging open-source models as an opportunity? - Anna Andreeva (Piper Sandler)

20260225-2025 Q4: Long-term margin expansion will be primarily driven by gross margin improvements from owned brand growth. - [Jesse Timmermans](CFO)

Contradiction Point 4

Gross Margin Outlook and Drivers

Guidance and contributing factors for gross margin change significantly between quarters.

Matthew Koranda (Roth Capital) - Matthew Koranda (Roth Capital)

2026Q2: Own brand penetration is increasing but modestly (~1-2 points per year), offset by slightly lower full-price mix and input costs, resulting in the current gross margin guidance. - [Jesse Timmermans](CFO)

What categories showed the most strength in July, what is the comp cadence for the remainder of Q3, and why isn't the gross margin outlook higher despite an improving own brand mix? - Rakesh Patel (Raymond James)

20251105-2025 Q3: The largest impact on gross margin was the markdown margin optimization, which started in Q2 and accelerated in Q3... The company feels good about sustainability due to healthy inventory and upcoming owned brand launches. - [Jesse Timmermans](CFO)

Contradiction Point 5

Return Rate Performance and Outlook

The trend and drivers for return rates are presented differently, with a shift from being a concern to a positive mix factor.

Nathan Feather (Morgan Stanley) - Nathan Feather (Morgan Stanley)

2026Q2: The Q2 improvement was a mix of favorable category mix shift and ongoing initiatives. For the back half, return rates are forecasted flat, but the company is feeling good about the direction. - [Mike Karanikolas](CEO)

What is the ramp trajectory for Gro Good into the back half of 2026/2027, when will it become material, what learnings apply to the owned brand strategy, and what are the current return rates along with actions driving them down? - Anna Andreeva (Piper Sandler)

20251105-2025 Q3: Higher returns were due to mix shift, higher-priced products... Return rates remain a concern. - [Jesse Timmermans](CFO)

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