Revolve's Q3 2025: Contradictions Emerge on Tariffs, Consumer Confidence, Marketing Spend, Gross Margins, and International Markets

Date of Call: November 4, 2025

Financials Results

• Revenue: $296M, up 4% YOY
• EPS: $0.29 per diluted share, up from $0.15 in Q3 2024
• Gross Margin: 54.6%, an increase of 347 basis points year-over-year
• Operating Margin: Adjusted EBITDA margin 8.6%, up 239 basis points YOY; GAAP income from operations up 47% YOY

Guidance:

• Q4 2025 gross margin expected 53.1%–53.6% (midpoint ≈ +80 bps YOY)
• Full year 2025 gross margin ~53.5% (≈ +100 bps YOY)
• Q4 fulfillment ~3.3% of net sales; FY ~3.2%
• Q4 selling & distribution ~17.6%; FY ~17.3% (assumes higher return rate YoY)
• Q4 marketing ~15% of net sales; FY ~14.6%
• Q4 G&A ≈ $38.7M; FY G&A ≈ $153.5M
• Effective tax rate Q4 25%–26%; FY 27%–28%
• October net sales: mid-single-digit % YoY

Business Commentary:

• Gross Margin Expansion:
• Revolve Group achieved a record consolidated gross margin of 54.6% in Q3, an increase of nearly 3.5 points year-over-year.
• The expansion was driven by successful tariff mitigation strategies, shallower markdowns due to improved markdown algorithms, and increased sales of owned brands.

• Adjusted EBITDA Growth:
• The company reported a 45% increase in adjusted EBITDA year-over-year for Q3, reaching $25 million.

• This growth was primarily due to a strategic shift away from promotions and improved gross profit dollars, despite lower net sales growth.

• International Revenue Performance:

• Revolve Group's international net sales increased by 6% year-over-year in Q3.
• Growth was attributed to strong performance in the Middle East, Europe, and China, particularly driven by expansion in owned brand penetration and marketing efforts.

• Marketing Efficiency:
• The company reported a decrease in marketing investment as a percentage of net sales, from 13.9% in Q3 2024 to 13.7% in Q3 2025.
• This efficiency was achieved through optimization in both brand and performance marketing investments.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted "exceptional gross margin performance" (54.6%, +347 bps YOY) and a 45% YOY increase in adjusted EBITDA to $25M, record third-quarter adjusted EBITDA, plus free cash flow tripling YTD and cash up $63M (25% YOY), framing results and outlook positively.

Q&A:

• Question from Rakesh Patel (Raymond James): Can you size the benefit from the improved markdown algorithm, how it accelerated in Q3, and how durable is the improvement?
  Response: The markdown-optimization algorithm was the largest driver of margin upside across REVOLVE and FWRD, accelerated in Q3, and management expects it to provide a sustained baseline improvement supported by healthy inventory and more owned-brand launches.

• Question from Rakesh Patel (Raymond James): October was up mid-single-digits — are those drivers consistent with Q3 and can growth accelerate into the holiday season?
  Response: October growth was mid-single-digits on tougher comps and is encouraging, but holiday volatility and tougher comparisons make any acceleration uncertain.

• Question from Oliver Chen (TD Cowen): What are AOV trends and category/price-point shifts in October, and how will you translate digital capabilities into physical retail?
  Response: Expect a slight AOV increase driven by new-product price increases and mix; physical retail is early and experimental but Aspen results are encouraging and the company will iterate to scale learnings.

• Question from Matt Koranda (ROTH): Given stress among larger luxury players, why didn't FWRD post stronger top-line growth in Q3 and where are headwinds?
  Response: FWRD was intentionally managed to prioritize margin recovery over top-line, delivering substantial gross profit growth; management expects revenue to follow once margins are reset.

• Question from Matt Koranda (ROTH): Why does Q4 gross margin guidance step down sequentially after strong Q3 margin gains?
  Response: Q4 guidance reflects mix effects and normalization after Q3's outsized markdown/promotional benefits as the algorithm seasons; full-year guidance still implies ~100 bps YOY improvement.

• Question from Michael Binetti (Evercore): Why was marketing spend lower than expected in Q3 despite decelerating sales, and how much of Q4 marketing is already deployed?
  Response: Q3 saw more performance marketing and delayed/timing-driven brand marketing, resulting in an underspend versus plan; upcoming activations exist but store openings require less global marketing.

• Question from Michael Binetti (Evercore): How does contribution margin for international sales compare to the U.S. and is there room to improve?
  Response: International contribution margin is fairly tight to the U.S. (higher shipping but lower returns and other offsets); team continues optimizing last-mile, localization and on-shore owned-brand production to improve margins.

• Question from Janine Hoffman Stichter (BTIG): How has owned-brand penetration progressed in Q3 versus prior quarters and what is the outlook with SRG and upcoming launches?
  Response: Owned-brand penetration has increased from roughly 20% last year and has grown faster than the business in recent quarters; SRG and pipeline launches should drive further mix gains into next year.

• Question from Anna Andreeva (Piper Sandler): What drove higher returns in Q3, any specific categories, and can returns improve next year?
  Response: Returns rose due to category/mix shifts, higher AURs (direct relationship with returns) and certain marketing channels showing elevated returns; the team is investigating channels and expects the impacted categories to rebound.

• Question from Anna Andreeva (Piper Sandler): How should we expect the markdown-optimization tool to manifest through next year?
  Response: The tool establishes a new margin baseline and inventory health that should sustain improved margins, though 2026 comparisons will moderate year-over-year gains as the algorithm seasons.

• Question from Kavya Narayanan (Morgan Stanley): With tariff mitigation success in Q3, do you expect tariffs to be a headwind in Q4 or 2026?
  Response: Management does not expect incremental tariff headwinds; mitigation reduced exposure and certain China tariff cuts could provide further benefit, with some mitigation actions offering durable margin upside.

• Question from Jay Sole (UBS): Did REVOLVE also shift to prioritize gross margin over sales this quarter and why?
  Response: Yes — both REVOLVE and FWRD prioritized margin over top-line this quarter; REVOLVE saw margin gains with some sales trade-off, and management aims to sustain higher margins then grow sales.

• Question from Jay Sole (UBS): What advantages do owned brands provide versus third-party brands?
  Response: Owned brands fill product gaps, combine Revolve's design/manufacturing with brand marketing, and have driven superior near-term performance and LTV, making them a powerful growth lever.

• Question from Peter McGoldrick (Stifel): How healthy is the core U.S. consumer and are there regional or income-segment differences?
  Response: Core consumer demand remains generally healthy with strength among higher-income segments, though pockets of weakness and regional differences exist; management is monitoring macro risks.

• Question from Peter McGoldrick (Stifel): Is the decision to favor margin over growth a permanent strategic shift?
  Response: No permanent shift — management will dynamically balance growth and margin by quarter, but the long-term goal remains double-digit top-line growth and improving margins.

• Question from Mary Sport (BofA): How is the beauty category performing and how much of that is new vs. existing customers?
  Response: Beauty is growing at double-digit rates, is early in its development with investments in selection and marketing planned, and management views it as potentially a material long-term business (customer mix unspecified).

Contradiction Point 1

Tariffs and Their Impact

It involves the company's stance on tariffs and their expected impact on business operations and financial performance, which are crucial for investors and stakeholders to understand.

Will tariffs remain an ongoing headwind in Q4 or 2026? - Nathan Feather(Morgan Stanley)

2025Q3: We are pleased with this headwind mitigation strategy and expect further benefits in coming quarters. - Jesse Timmermans(CFO)

Are tariffs and weaker sentiment impacting customer traffic and conversion trends? - Unidentified Analyst(TD Cowen)

2025Q1: We're seeing a shift to more accessible price points. This is impacting AOV, and consumer confidence is decreasing, leading us to moderate our expectations for the year. - Jesse Timmermans(CFO)

Contradiction Point 2

Consumer Confidence and Behavior

It involves the company's assessment of consumer confidence and behavior, which directly impacts sales and marketing strategies.

Can you explain the gross margin? Can you quantify the benefit from the improved markdown algorithm? - Rakesh Patel(Raymond James & Associates)

2025Q3: We're seeing a strong mix shift toward owned brand, with double-digit growth in both REVOLVE and FWRD. - Jesse Timmermans(CFO)

What gives you confidence in pushing owned brands during uncertain times? Will they continue to outperform? - Rick Patel(Raymond James)

2025Q1: Our owned brand penetration has increased. We have a broader product mix today. And we've seen stronger demand and resulting higher gross margins from our owned brands. - Michael Karanikolas(CEO)

Contradiction Point 3

Marketing Spend Strategy

It involves the company's approach to marketing spend, which impacts sales performance and cost management.

Why reduce marketing spending as sales slowed post-July? What is the Q4 budget allocation? - Michael Binetti(Evercore Inc.)

2025Q3: We did spend aggressively on performance marketing, but shifted brand marketing due to event timings. We're excited about upcoming Q4 activations. - Michael Mente(CO-CEO)

Why maintain marketing spend at ~15% of sales? - Dylan Carden(William Blair)

2025Q1: Our marketing projection is based on current trends. We haven't seen any major changes in marketing efficiencies, and the team has executed well in Q2. - Michael Karanikolas(CEO)

Contradiction Point 4

Gross Margin Improvement and Strategies

It highlights differing perspectives on the company's gross margin improvement strategies, which are critical for financial performance and investor expectations.

Can you provide more details on gross margin? - Rakesh Patel (Raymond James & Associates, Inc., Research Division)

2025Q3: We were super happy with the gross margin result this quarter. The largest impact was the markdown margin optimization to our optimizing that markdown algorithm. It started in Q2 and accelerated into Q3. It was across both FWRD and REVOLVE. - Jesse Timmermans(CFO)

Can you elaborate on the gross margin outlook? - Randal Konik (Jefferies)

2024Q4: Gross margin is largely driven by full price mix. REVOLVE sees further opportunity for full price, while FWRD had a more challenged prior year. FWRD margins are lower due to a higher mix of discounted and promotional items. - Jesse Timmermans(CFO)

Contradiction Point 5

International Market Performance

It involves the performance and growth expectations for international markets, which are crucial for the company's expansion and overall revenue growth.

What is consumer demand like? How are international markets performing? - Peter McGoldrick (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: Standout regions are Europe, Middle East, and China, with strong results in Germany, Netherlands, and Switzerland. - Jesse Timmermans(CFO)

Can you break down the geographic performance? Are there factors causing weaker performance in the U.S. compared to international markets? - Mark Altschwager (Baird)

2024Q4: Internationally, we're encouraged by what we're seeing in Korea, in Japan, and also in certain parts of Europe. I think it's just great progress there. - Michael Karanikolas(Co-Founder, Co-CEO & Chairman of the Board)