RVLV Q1 Earnings Call: Management Details Tariff Mitigation and Brand Investments Amid Macro Uncertainty

Online fashion retailer Revolve (NASDAQ:RVLV) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 9.7% year on year to $296.7 million. Its non-GAAP profit of $0.16 per share was 7.6% above analysts’ consensus estimates.

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StockStory’s Take

Revolve’s first quarter results for 2025 were shaped by a combination of steady consumer demand, notable gains in marketing efficiency, and ongoing investments in technology and owned brands. Management attributed performance to increased customer engagement, improved logistics, and a lower product return rate, while highlighting a challenging environment driven by shifting consumer sentiment and global tariff uncertainty. Michael Karanikolas, Co-CEO, noted, “We achieved these strong results while continuing to invest in key foundations for long-term success, including advancing our AI technology and personalization capabilities.”

Looking ahead, management’s forward-looking guidance is heavily influenced by ongoing trade policy instability and cautious consumer spending. CFO Jesse Timmermans emphasized the dynamic impact of tariffs and the company’s mitigation strategies, stating, “Our outlook for gross margin is especially susceptible to variability given the uncertainty surrounding the timing and level of tariffs that will ultimately be in effect.” While management is taking a measured approach to inventory and cost planning, they remain focused on expanding owned brands, optimizing supply chains, and leveraging new retail formats to drive long-term growth.

Key Insights from Management’s Remarks

Revolve’s leadership provided extensive commentary on the operational and strategic factors shaping Q1 results and the company’s near-term positioning:

• Tariffs and mitigation focus: Management spent significant time outlining exposure to new tariffs and described a multi-pronged mitigation strategy—emphasizing that about 78% of inventory is sourced through third-party brands, limiting direct tariff impact. For products directly imported (primarily owned brands), the company is pursuing supply chain diversification, cost-sharing, and selective price increases.
• Marketing efficiency gains: Marketing investments became more efficient relative to prior periods, supported by the impact of large-scale brand events like REVOLVE Festival. Michael Mente, Co-CEO, highlighted that social media impressions and press coverage increased year-over-year while spend decreased, signaling effective brand-building.
• Shift in consumer price sensitivity: The company observed a move toward more accessible price points among shoppers, influencing average order values. Management reported higher markdown activity and noted that this trend was not isolated to the U.S., though it was most pronounced domestically.
• Owned brands momentum: For the first time in two and a half years, owned brands increased as a mix of net sales. Management reported these brands delivered higher gross margins and outperformed third-party brands on key metrics, with multiple new launches planned for later in 2025 and early 2026.
• Physical retail expansion: Construction is underway for a flagship Los Angeles store at The Grove, with management citing positive early data from physical retail, such as lower return rates and effective new customer acquisition. A new Head of Retail with extensive industry experience was recently hired to oversee this initiative.

Drivers of Future Performance

Management’s outlook centers on navigating tariff-driven cost volatility, evolving consumer demand, and continued investment in strategic growth initiatives for the remainder of the year.

• Tariff impact and mitigation: The evolving global tariff environment is expected to remain a key driver of gross margin variability. The company is actively negotiating with suppliers, seeking alternative sourcing, and considering price adjustments to offset higher costs, but notes that the full impact is difficult to predict.
• Expansion of owned brands: Management anticipates owned brands will contribute more meaningfully to revenue and margin, given their higher profitability relative to third-party products. Planned product launches and deeper vertical integration are strategic priorities.
• Physical retail and customer experience: The opening of the Los Angeles store is seen as a test bed for further retail expansion. Management believes physical retail can enhance customer acquisition, reduce return rates, and strengthen overall brand presence, supporting long-term growth.

Top Analyst Questions

• Mark Altschwager (Baird): Sought clarification on the gross margin guidance’s tariff assumptions and how quickly Revolve could pivot sourcing away from China if necessary. Management confirmed their guidance reflects best estimates of mitigation and noted supply chain changes for owned brands have longer lead times.
• Anna Andreeva (Piper Sandler): Asked if owned brand launches would be delayed due to tariffs and whether promotion strategies would change. Management stated some adjustments have been made, but key launches remain on track, and markdowns are driven by inventory algorithms rather than industry trends.
• Jay Sole (UBS): Questioned the magnitude of softer sales expectations and whether price increases might reduce demand. Management said they are moderating inventory buys and considering price elasticity, emphasizing flexibility and ongoing monitoring of consumer sentiment.
• Lorraine Hutchinson (BofA Securities): Asked how third-party brands are responding with pricing given tariff pressures and whether customers are showing resistance. Management reported some price increases by partners but no significant customer pushback yet, noting the situation is still evolving.
• Michael Binetti (Evercore ISI): Inquired about sustainability of lower product return rates and shifts in consumer behavior outside the U.S. Management expects improvements in return rates to moderate and reported that international trends are stable except for Canada, where policy changes have impacted demand.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will be closely monitoring (1) Revolve’s ability to manage gross margin variability as tariffs fluctuate and mitigation strategies unfold, (2) the initial performance and customer traction of the Los Angeles flagship store, and (3) the continued growth and profitability of owned brands, especially as new product launches roll out. Additionally, trends in consumer price sensitivity and the impact of macroeconomic uncertainty on active customer growth will be important markers for execution.

Revolve currently trades at a forward EV/EBITDA ratio of 19.7×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.

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