Revolve Group, Inc. (RVLV) Earnings Call Transcript & Summary

Okay. We're going to get started. Thanks, everybody, for joining us. We're happy to have Erik Randerson, here from Revolve for a fireside chat. I wanted to just start off with maybe the obvious question. We were supposed to have Jesse here. Can you just tell us what happened?

Sure, Lorraine. And thanks for having me. Jesse sends his regrets. He was snowboarding over the weekend and had a mishap and ran into a tree honestly. And he's going to be just fine, but he did have to go to the hospital. And they said it just wasn't an option for him to come out to the East Coast. So promise you that he will be here next year.

Okay. So I'll take that promise, and he is just fine. We'll reiterate that, which came very far down in the e-mail that you send me. So I had some heart racing moments this weekend. But Jesse, we hope you get better quickly.

So on to Revolve. So coming into 2022, you saw some really, really strong demand. Can you just talk about the state of the business and where you see trends heading this year?

Sure. I'd be happy to. I think maybe first, let me just give you a little quick update on our Q4 results, which we announced just less than 2 weeks ago because they are truly exceptional. So at Revolve we had a fantastic 2021 capped by just an incredible Q4. And so the highlights were 70% growth on the top line net sales year-over-year. And on a 2-year basis, I know a lot of folks are looking at things on a 2-year stack. We grew 63%. And what we saw is acceleration in the top line each quarter throughout 2021. So really, really great results. If you dig underneath the covers, most encouraging to me is that we're seeing record growth in active customers in the fourth quarter, and that outpaced significantly a record growth in active customers in the third quarter. And that is one of the key metrics we look at to drive the business opportunity going forward. And of course, most important, too, is we're a very profitable company. So we delivered triple-digit growth on a 2-year stack basis in net income in the fourth quarter as well as an adjusted EBITDA and really showed great margin expansion as well. We also commented in the earnings call that for the first 7 weeks of 2022, those real strong top line trends have continued, not giving any specifics, but kind of around the same zone of 70% year-over-year growth in the first 7 weeks of 2021. So we feel really great about the opportunities ahead. Even in this market where there's obviously a lot of uncertainty.

So how would you characterize your target consumer? Are they pulling back at all? Is anything normalizing because of inflation?

Yes, certainly mindful of what we're reading about in the environment and what we're seeing in the news every day and our heart goes out to everybody in the Ukraine and so on. But I just speak to what we saw in the first part of the first quarter and the trends were really, really strong across both Revolve and especially forward. And I think we're a little bit better positioned being getting this premium price point zone. I know there's some other companies who have talked about lower price point, consumers being more impacted. I don't want to suggest that we're not susceptible to what's happening in the market. But I think our -- especially in the luxury segment, our customer, I think, has the ability to withstand some inflation better than others.

So maybe for those who don't know the story as well, can you talk a little bit about Revolve versus FORWARD the customer trends and how you differentiate the 2 businesses?

Yes, great question. Thanks for asking. It's one of the areas of excitement. So Revolve is, call it, 84% of net sales last quarter and FORWARD, the other 16%. Revolve operates at a price point at around $250. So very premium or average order value. FORWARD is more like $650 and very much in that luxury zone, but they're very complementary in the sense that if you look at what we're selling on Revolve, we over-index and ready-to-wear, especially going out where like dresses and skirts, that's what we've really been known for. We don't have a whole lot in the zone of handbags and statement pieces like really fancy shoes. That's where we specialize at FORWARD in our luxury segment. And so there's a great cross-selling opportunity, particularly as we know that, that Revolve customer is spending on those items somewhere just hasn't historically been doing it at FORWARD as much. And so what we did to really capture this opportunity as we introduced a loyalty program at FORWARD for the first time just in the second quarter of 2021. And we had already had a loyalty program at Revolve. And so the idea was let's create incentives now and great opportunities for that Revolve customer to cross shop on FORWARD, and it really helped to drive fantastic growth in our forward segment. And to give you some numbers, FORWARD grew 83%, both in the fourth quarter year-over-year as well as in the full year 2021. And a good chunk of that growth really was driven by increased spending by that Revolve customer who now has greater incentives through those loyalty programs I mentioned.

And what is the overlap? I mean, what -- how do you think about that evolving over time?

Yes. No, it's still very, very exciting because it's early days as much as it drove those outstanding results in 2020 were contributed to them. It's still in the single digits, meaning that if you look at the Revolve active customers, what percentage of those are spending on FORWARD, it's in the single digits. But what's really encouraging is something I look at religiously every month is, is that percentage increasing and it has increased every single month since we've introduced that FORWARD loyalty program. So we've got a long runway to go. We believe it can go much, much higher, not putting a target on it, but really, really exciting in terms of the opportunity just to grow forward within our existing REVOLVE customer base. And part of why I see so much opportunity is that we have been known for providing a fantastic service experience to our customer. And that's driven fantastic loyalty overall. And so we know she trusts us. And so there's a lot of reasons why she would then want to buy more from us. And so the incentives we're providing for her to take a look at FORWARD and by the way, we think we've positioned the FORWARD merchandise in a really, really positive way. It gives her more reason to want to work with us and spend more over time, we believe.

So I think Revolve was one of the first real influencer-based technology-driven retailers. And it feels like that is getting a little bit more crowded. What do you think allows you to continue to stand out? And what's the next phase of how you think you'll differentiate the business?

Sure. So I think that -- we've done a very good job navigating through the pandemic in some difficult times. And there's a few things that are key core in my view, differentiators that have helped us to navigate as well as we have. I'll call out just 2 here. One is our technology platform and our data-driven approach is core to everything we do. And the second one I'll touch on is the strength of our brand. And I'll just talk real briefly about the technology platform, just to kind of lay the foundation. But Revolve was founded 19 years ago by our co-CEOs, who are still very actively involved today, Michael Mente and Mike Karanikolas, with a data-driven core, and we develop proprietary technology that's involved in almost everything that we do. And that has been particularly helpful in this really pandemic environment where things have been so disruptive and supply chains have been so backed up. And so to give you an example, just looking at the data-driven merchandising part of our technology, it's allowed us to automate many processes and to utilize data to move more quickly than we believe other companies have in a very accurate and very efficient way. And so what that means is we've been able to get access to inventory in the right categories while others have struggled. And not to say we haven't had any challenges, not to say we haven't had any delayed inventory receipts we have, but we put up fantastic numbers that I just talked about in 2021, ensuring that we had that going out where when that consumer was ready to go out again and really identify those trends through our data-driven merchandising and many other aspects of our technology that have been so core to delivering the results that we're so proud of. The second thing that I want to talk about is the strength of our brand. And so again, founded 19 years ago, and we've invested in this brand for all of those years, and it really, really means a lot to the consumer. So combined with the outstanding service levels that I talked about, we've earned her trust, and that's what gives me confidence that we can continue to sell her more items as we expand our assortment. And you could see that, by the way, if you look at our disclosures in our 10-K that we filed just recently, our customer retention was higher in 2021 than ever before. We retained on a revenue basis, more than 100% of the revenue of the prior cohorts in 2021. So really, really exciting. And I think those loyalty programs I mentioned were a key part of that. The second evidence of the strength of our brand, by the way, would be our ability to navigate pretty successfully through the challenges that the industry is facing with the iOS privacy changes. And so a lot of companies have talked about on recent conference calls, headwinds to marketing efficiency. By comparison in the fourth quarter, we delivered more than 1 point of marketing efficiency year-on-year versus the fourth quarter of 2020. And I think it's really the strength of our brand and the diversity of our marketing channels that has helped us. Again, we've seen some challenges for sure, but it's helped us navigate through this environment.

You highlighted the service experience driving loyalty. A question that I get a lot is the return rates over 50%. What will Revolve do to get that down? And I don't think that is part of your strategy. So can you talk a little bit about that?

Yes, for sure. So I think that one of the things that's important to know is that I feel great about the fact that our founders recognize how important it is to serve that customer from day 1. So it may surprise you that 19 years ago when the Internet was in its earliest days, we were offering free returns, free shipping in the U.S. It was part of, hey, let's serve the customer incredibly well and she'll be loyal and we'll continue to win business from her. And it's worked fantastically well. So that is the mission number one, is to provide her a great experience. We've always been about, let's let her use her home as the dressing room and -- but make it easier for her to return, and that drives growth. And so we're not focused so much on getting the return rate down. I mean there's opportunities to do that potentially using technology, and we'll look at those. But it's more about providing her a great experience. I think it's key to understand that we have a premium price point, overall blended average order value of $290 or whatever it was in Q4. So we can handle a 50-plus percent return rate and deliver the expansion of EBITDA margins we've enjoyed over the last couple of years, much more so than companies that are operating at an average order value in the sort of double digits below $100. So that's really, really key. What we actually want to do is provide that same great experience in the U.S. and international markets, and that's a key part of our opportunity is to remove the friction in some international markets to allow them to return items and have the confidence that they can buy from us knowing that they can return and ultimately have that same experience we've had in the U.S. And to give you an example of how we've done that. Canada is a market that we highlighted on the last earning's call. We just solve some of the friction to allow Canadian consumers to have hassle-free returns just before 2021 began. And we drove triple-digit growth in Canada and during 2021 during a time when this country was locked down for a good portion of it due to COVID.

So what's next on the international front?

Yes. So we want to take the same investments that we've made on a number of the international markets, to other markets where we haven't been able to make those investments. And so again, we're really trying to replicate that same great experience that we've had in the U.S., and we've done some great progress, made some great progress in the U.K., Australia and Canada to speak about some bigger markets where we've had some success. Other ones that are kind of more near term, where we see a lot of opportunity include the Middle East, some parts of Latin America and China, where we've had success, but there's still much more work to do there. And China is a market that obviously we're very excited about.

So you highlighted the record growth in active customers, which is not something we hear in the same sentence as marketing leverage. Can you talk about what's been most successful in driving your active customer growth?

Sure. I think it really speaks to the diversity of our marketing channels. It really helped us connect with our customer. But I think if you peel back the numbers, what you're seeing is record growth in new customers, which is fantastic. Really, really happy to see that, and we've had record growth in new customers for each of the last 2 quarters, but also great reactivations of existing customers. And so if you peel back the onion a little bit, you look at during 2020 during the depth of COVID, we had a lot of pre-existing customers that just didn't have those social occasions to shop with us. Really, a lot of times, customers come to Revolve they're saying, "I want to live my best life. I'm going to go on this vacation or you going to travel or go to a wedding or a festival or whatever, Revolve's the place to make me look and feel my best." But those occasions weren't happening in 2020. And so when I look at what happened, we were able to reconnect with those lapsed customers in 2021. For each quarter of the year, we saw more of those lapsed customers come back. And so a combination of really strong growth in new customers and reactivating those pre-existing customers who always were loyal, they just didn't have the occasion during 2021 to shop with us. And so kind of towards the third quarter of last year, we said, let's get back and do some of our big marketing events to create even more excitement. And Lorraine, I know you attended some of our New York Fashion Week events. And so it's really been positive for us to be able to get back to doing in-person events. Some of the marketing magic that we've been so well known for us is bringing our community together in person. And we're finally able to do that in a big way. And that's what makes me more excited about 2022 than ever is that we're able to get back to hosting our big in-person events, which I think are really an important part of the brand building.

And festivals resuming, I assume will be a nice addition to that event pace?

Yes. Thank you for asking. So our biggest marketing event, in-person event that we tend to host each year is in April next month, and we haven't had it in 3 years. And so I've been with the company 2.5 years, I have not experienced one of these because COVID, just did not allow us to have it. And it happens in connection with the Coachella Valley Music Festival and it's not part of the festival that it happens at the same time, and it's kind of the place to be during that time period, and it's the beginning of our peak season as well. So it's really kind of the fashion show for us to get people excited about all the travel and concerts and festivals in the months ahead. So typically, Q2 pre-COVID anyways has been our peak season, and we expect that to continue this year and really looking forward to the Revolve Festival happening next month as a way to kind of kick off that peak season and we couldn't be more excited about it.

How are categories trending? Revolve is one of the first to start selling going out, clothing back last spring. Are you seeing any waning in that trend? Or is that still ramping up?

Yes, for sure. So it's interesting, it's probably worth going back just a little bit. So we've always been known for the place to look your best for those most special moments in your life. And when COVID hit, we saw big changes. And so just to give you some numbers, call it 1/3 or almost 1/3 of the business was dresses, 30% in 2019. So in 2020 hit, March of 2020, everything changed overnight, nobody was buying grasses. And I'm really proud of our team for adjusting on the merchandising front and the marketing front to sort of get into categories that we're going to resonate with our customers during this time period. So we very aggressively and quickly moved into areas like beauty, People are doing more beauty treatments at home and saw beauty increased triple digits in 2020. We were able to get into active in a big way and connect with our consumers in different ways than ever before and really saw that growing nicely and loungewear and even masks, getting masks on the site very quickly. Such that even in a period when people just weren't looking to buy dresses and going out where we held our net sales relatively flat in 2020 down just a couple of percent. So what's been great is that we've been able to maintain strong growth in those categories, including beauty, which grew close to 150% or whatever as the dresses business has come back. And so to your point, what's happening now in the fourth quarter, we saw growth in the dresses of over 140%. That was really the headline category of what's really happening in our merchandise now, continued very strong in the first quarter. So our customer is going out, she wants to live her best life. These concerts and festivals are happening, things are reopening, but we're still seeing growth in these other categories, which tells me we can expand our range of serving our needs and we continue to do that over time. And really we've earned that trust. There's no reason why we can't sell more to her as we expand our assortments from here.

And what's happened with the active business? I mean, has that dropped off? Or has that held since everybody is shifting to going out?

No, it's continuing to grow. And interestingly, we're looking at very soon introducing active on our owned brands, which is an area that I'm excited about. So within our owned brands, it's been part of the business that's been very focused on going out where primarily. And we've looked at this as an opportunity to expand the range of categories that we offer, including those categories where we've connected with her during the COVID period. Why not -- in owned brands, it's worth just to mention is the designs that we create internally, and we work with third-party suppliers. It provides a higher gross margin. It's a source of differentiation. And it's an area that has connected very well with our customers. So last year, 5 of our top 10 selling brands on the Revolve site were our own brands. We don't believe our customer knows that they're owned brands. So just kind of use them as a really kind of hot brand that's on trend that she trusts us to show her.

And moving back to beauty. How big is that business now? And where do you see it going over time?

Yes. It's $30 million in 2021, kind of 3-ish percent of the overall business. It's not that we were calling it out as we think beauty is going to become the biggest thing. We think it's a great way to connect with our customer, and we're looking at ways to expand it. But I think it was the example of how well we feel like we can expand our range of serving her to other parts and aspects of her life is really the point we're trying to make there. But it is exciting. It's a great fit with what we're doing because we've been known as a pioneer in working with influencers. If you look at some of the data, the beauty is a really great category for introduction by influencers, and it's a way that customers find out about beauty brands. And so it's been a great fit. And so if you're a beauty brand, you can work with us and we can kind of get you access to some influencers that you probably couldn't get on your own. And so that's been a great fit. We do a lot of things on social media, working with influencers and beauty makeovers. Some of our events will include beauty makeovers and things like that. So it's been a really, really great fit with our customer and her lifestyle.

Interesting. So we are in an inflationary environment. Can you talk a little bit about how you're thinking about prices this year, both for your proprietary product and then also for your branded products?

Yes. Sure. So in terms of third-party brands, we've seen our brands increase prices and kind of just kind of rolled along with it for the most part. I think where you've seen it most notably, and we've seen some more significant increases in the luxury segment, and some other companies have talked about that. With our owned brands, we take a more active role where we're looking at what is the incoming cost of that product and then managing to a margin. So it varies by product. One of the areas where we've seen cost increase, and we've talked about this is an inbound freight. And I'm sure you've heard that from other companies. So our own brands, the biggest source of them is produced in China, and we've seen freight from regions like that increasing kind of 3x in the fourth quarter versus what it was pre-COVID. So that does cause us to take a look at increasing price to try to manage to a margin. I'm not going to give a specific number, but it's something we definitely look at and take into account when we go into our pricing decisions. .

And have you seen any pushback from the client?

Again, just talking to the trends we saw in the beginning part of the quarter, obviously, the results have been really strong. I think we're better positioned than others given our premium price point, especially in that luxury zone for forward.

Sure.

Yes.

So as we think about inventory up 80%, coming out of 4Q, seems pretty clear you have plenty of product for spring/summer. But does the supply chain situation limit your ability to chase? And how would you feel about your ability to buy and receive your inventory receipts for the next several quarters?

Yes. Boy, it's been a challenge for everyone. I feel like we've navigated through it better than most, and our results demonstrate that. One of the things that we've done that has been interesting, maybe you've noticed since the pre-IPO days, we had around 50,000 styles at any given time a couple of years ago. Today, that number is more like 70,000 styles on the site. And so just to know Revolve strategy, and it's really proven well is to buy very, very broad and really shallow and to use our proprietary technology to give us data signals to reorder into those winners. And having a broader selection has really served us well in this environment. So a greater portion of the business is coming from reorders than ever before. So we're actually finding we can get back into those products pretty quickly. Now if you can't get it from 1 vendor, the beauty of working with 1,000 vendors or whatever more is that we can find it from another one. And so it's really served us well. The fact that we have our technology giving us the data signals and they're able to move on it quicker than other companies has helped us in this environment. We feel good about the positioning of our inventory heading into our peak season. And we feel really good about our ability to get back into that inventory as we need to, leveraging that really broad and shallow approach and then reordering into the winners. .

And you mentioned some delayed receipts before. How do you handle that on the website?

Yes. So it's interesting. We will sometimes actually offer preorders. I think that may be what you're getting to. And so we want to capture that demand, and that's been effective for us. In a perfect world, we have the inventory that we're looking for all the time and ready for our customer. But there are times when we know our customers looking for something in a particular size and we know it's coming to us. And so we'll try to capture that demand, and we'll offer it as preorders. And we saw it particularly notable during our peak season last year in dresses. There are a fair amount of preorders on the site. People noticed that, and it gave us a bit of demand heading into the coming weeks or whatever when, obviously, when those orders then are fulfilled, that's when we generate revenue. So we don't take any revenue obviously until they're shipped. And the consumer has the ability to cancel that order for whatever reason, her plans change. But it does allow us to capture some of that incremental revenue and take advantage of us knowing that the product is coming to us, if that's what you're kind of getting at. .

Can you talk a little bit about the proprietary technology you have and how that helps build the assortment?

Yes. So we very much view our technology is allowing us to read and react to data trends. And so one of the things that we do is we have attributes on each style, up to 60 different attributes to help us to gather a whole bunch of data on what trends are working. And so it allows us to see more than just a style is working so let's reorder more of that. But what about certain styles that are moving, does that tell us about business trends and allow us to then -- maybe it's design a style and own brands to take advantage of that demand or reorder into third-party styles to take advantage of that demand. . And so we believe it's allowed us to move so quickly in this environment where people were going out and then they weren't going out and they're staying at home and then they were going out again to sort of identify through our styles and all the data that we take in to see what is happening and identify changes in consumer behavior and move much more quickly than I think a lot of the other companies out there. And so that's been really, really key. And so it's all proprietary technology that we've managed and sort of integrated for the past 19 years.

And you mentioned owned brands. Can we just talk about the evolution there? Maybe got a little bit too big pre-COVID now you've been able to reset. Maybe walk us through the evolution and then how you feel positioned today and what the growth trajectory might look like.

Sure. So owned brands, just to sort of give you some color on where it's been from a penetration standpoint. In 2019, was 36% of the Revolve segment net sales. And we refer to it as a percentage of the Revolve segment net sales because there's very little owned brands in FORWARD. And that was the high point and it got to 27% in 2020 and then 20% for the full year of 2021. And what happened is we -- as you're just kind of pointed out, we got a little bit big in 2019. I think the key was it was in too few of categories. We're really focused on going out where -- and so too concentrated in dresses in particular at certain price points. And so our intention was always to pull it back a little bit and invest in additional categories and bring on some design expertise to allow us to expand in additional categories and price points. When COVID hit, we pulled back on inventory receipts across the board, including owned brands and especially owned brands, knowing that so much of the assortment was focused on dresses and going out wear, which we didn't think would be of demand, for during this COVID period. Additionally, there's also a bigger purchase quantity that's required in owned brands. And so we felt like we wanted to have more flexibility, and to be working with third-party brands more will allow us that flexibility. So having said that, we've begun the process and actually well into the process of investing in the additional capabilities to allow us to expand categories. And so today, even though it's much lower as a percentage of net sales, the per style productivity metrics look as good as they ever have. Looking at full price selling, we're looking at how many of the styles that we've developed are generating reorders, and that hit rate is really, really strong. And so we brought on some really great talent and we're expanding the categories. As we bring it back up, we believe that we're going to be able to maintain a really strong per style kind of productivity metrics. And that is our expectation. We're not expecting to get back to that 36 percentage anytime soon. So we're taking a more moderate -- at a moderate pace and expecting that we'll see good gains there, but really doing it in the right way and being careful about it and measured about it.

And then can you just talk to the margin differential between your own brands and third party?

Yes, it's significant. It's not a number that we specifically speak to. I mean, we've been asking, is it more than 10 points of gross margin. The answer is yes. It's definitely a healthy differential. I think the one thing I would point out is that there are investments that we make underneath the gross margin line. So we have -- and you can see in our 10-K disclosure, obviously, headcount and own brands for design and quality control, working with the suppliers and all of those. So any way you slice it, it's a very accretive margin. But it's not just like it all falls down below the gross margin because there are investments that we make and also to support the brand that you were asking about earlier. .

Yes. And then full price selling has been really strong for Revolve and across the industry. Have you seen any change to the promotional environment as we've hit maybe a little bit of a tougher patch from a consumer sentiment standpoint?

So I guess I would back up just to remind folks of what our full price selling has been. We disclose once a year the percentage of our net sales that happened at full price, and I wish other companies did because I think ours is going to be at the top of the list, right? And so pre-COVID for 2018 and 2019, 79% of our net sales were at full price, which we think is pretty phenomenal. And it's one of the reasons our gross margins have been as attractive as they had. When COVID hit in 2020, it took a step back, went down a couple of points to 77%, where it's a little bit more promotional just to kind of move dresses, if you will, when people weren't buying dresses in that time. And in 2021, with the consumer coming back and inventories being tight, we saw incredible full price selling at 87%, so much, much higher than ever before. As we look forward, we talked about in our conference call about not wanting to have people model that as the new normal going forward. We think it was phenomenal. But as we've invested in inventory and build our inventory proceeds, as you talked about, we do see some normalization back towards where it was pre-COVID. We think we can stay ahead of where it was even pre-COVID levels as strong as they were, so somewhere between that kind of 79% where we were in 2019 and the 87%. But 87%, we don't think that, that's going to be sort of where we'll be. Just as we build up inventory, there's more opportunity to move -- some of that inventory to move into the markdown cadence. I want to caution you, though. It's not like we feel like we have to be responsive to a promotional environment really as much. We've never felt that way because our inventory and our assortment is so diverse and there's very little overlap with ever retailers, our customers coming to us for what's on trend and not so much to price compare.

Okay. I wanted to just touch on the ambassador program that you launched at Revolve and you're going to roll out forward. Can you just describe a little bit about what that is?

Sure. It's another example of us leveraging our proprietary technologies. This was developed on our technology stack and so really provide differentiation and growth opportunities. And it's really exciting because it's an extension of our influencer marketing strategy that we've been so well known for, and we've been viewed as a pioneer of working with influencers for many, many years. And having come on as VP of Investor Relations 2.5 years ago, the question I got a lot was like, "Hey, wait a minute, so you guys are a leader in working with influencers. How do you stay ahead of the game? How do you continue to innovate when a lot of folks are working with influencers?" I would suggest to you that this is our way to do that and to really prove that we're leading the pack. And so give you an example of why I'm excited about it, if I look at the data, it's providing incremental traffic and incremental revenue above and beyond other marketing channels. And so it's kind of like a brand-new channel for us. And so that's really, really exciting. And because it's on our technology platform, we see more data and more insights than ever before. And I don't see any other peers doing this, so I'd love to know if you are. But this is really exciting. When we look at where this may go, I think it could be a really nice driver for us. And to give you an example of the excitement that we're seeing from the community, we announced it in November. And of course, being Revolve, we encouraged you folks to promote it on social, we put out a press release. But within 24 hours, we had 10,000 sign-ups. And so now our teams still have to go vet them and make sure that they're on brand and all those things. But that's a lot of activity. And that's one of the reasons why we've seen really nice increases in traffic and revenue from this program. And so it really looks to need to be incremental. And we've got it today just on REVOLVE, and the plan is to introduce it on FORWARD in the coming months as well, which I think is also exciting.

And who -- what's an example of like who would an influencer be, how many followers would you have versus your typical influencer?

Yes. So I think what's really interesting is this is open to anybody. And so I think that if you look at some of the early data, around 1/3 of the folks that were in the ambassador program -- kind of newly launched ambassador program, we're in what we call the micro influencer space, where we think there's a lot of opportunity. We define that as having less than 150,000 followers. And so you think about it, if you're a Revolve customer and you're really happy, you've earned a lot of loyalty. You may look at this as like, "Hey, wait a minute, I can tell everyone I like Revolve on social. And if I generate commissions, I can actually get paid for this." And I do that already. And wait a minute, I can actually get more if I decide to use that as a clothing credit? And so one of the options we give them is if you are successful and you earn commissions, we can pay you in cash or we can pay you in credit to buy more Revolve clothing. And it's interesting that in the early going, we've seen actually more interest from our ambassadors and Revolve clothing credit, really speaks to the love for the brand.

And then would you look for a different type of ambassador for FORWARD?

Yes. I think it would be similar in the same respect. And ultimately, it's an interesting question because we've spent so much of our investment in our time on brand marketing generally on the Revolve segment for years. As we've kind of positioned forward to get it the way we want it and the really to make the investments in brand marketing. We feel like we're there now. And I haven't mentioned yet, but Kendall Jenner was brought on as our Creative Director for FORWARD, which is very exciting. It's been a real catalyst for our growth and our exposure as well. And so we're at the point now where it makes sense to invest in brand marketing dollars in FORWARD, whereas we've been focusing primarily on REVOLVE. So that's a really exciting opportunity we see ahead of us.

And just sticking with FORWARD, there's a lot of places to buy luxury goods, right? What attracts your customer to the site? Is it seeing Kendall promote the brand? Is it your unique assortments? Like what do you think differentiates that concept?

Boy, a couple of things. I think it's the curation, if I had to just pick one thing. I mean, if you were to go to a marketplace and there's some folks that offer similar products, a wide range. If you know exactly what you're looking for, maybe that's the place to go. If you're looking for discovery, we believe FORWARD is absolutely the place to be in that regard. And we've got the best of the best brands and do a really great job with the imagery. One of the reasons the brands like us so much is, obviously, we have very high full price selling. But we do such a great job with the imagery. Every image is shot in-house at our internal studio. And Kendall Jenner being part of this is absolutely important. We have brands that are more interested in working with us today than ever before after having announced that news. It's a lot of momentum. But I think the curation on the side, just the look and feel on the site, I would encourage you to take a look at ours and others and tell me what you think. .

And you've been focused on expanding the breadth and depth of the FORWARD assortment over the past couple of years. Where are you in that journey?

Well, we've made a fair amount of progress there. I mean so some things I'd call out. We've actually oftentimes taken a look at what's worked on Revolve and say we should introduce to FORWARD as one example. So we've launched a very curated and careful way of beauty on FORWARD in the last kind of year, done really well, select brands that we think makes sense and connect with our consumer. And again, as a way to expand our reach and serving more of her needs, we've launched active on FORWARD, that's done really well. . And then from a brand perspective, some of the more notable brands, we've had great success with The Row, and interestingly, introduce them both on The women's side and on the men's inside. Alaia is another newer brand in the last couple of quarters has done really, really well. And then I mentioned Kendall Jenner is our Creative Director. One of the areas that she is most passionate about is helping us to discover and curate emerging luxury brands. And so she's brought us on some site visits and helped to bring on new designers that are much smaller, kind of off the radar, but they're really hot. And she knows fashion and what's going to work well with consumers better than anybody. And so it's been great. And some of those include exclusive collections made available only to FORWARD's exclusive style. So that's been really exciting as well.

And you mentioned a men's line. What proportion of your business right now is men's? Is that a growth opportunity for you? .

Yes. And thanks for asking. It's a small portion overall. And you haven't heard us talk a lot about men's, but we've always had an offering and it's more significant on FORWARD than it is on REVOLVE. And we've always talked about it is this is a longer-term opportunity. And the reason I feel like it's a real opportunity is that trust we've earned with the consumer and the loyalty you can see in our retention rates and just as our historical cohorts. But it's becoming a little bit more of a focus now as we see a lot of brand relationships like The Row I mentioned, where we offer men and women's wear. And Nike is another one we just kind of launched on the inside and REVOLVE. . And we do feel like, hey, that Revolve woman that we've got that great connection with is going to look to have her man look good as well. And so we think that this is an area of opportunity. It's more longer term, but we're beginning to focus on it a bit more. So stay tuned. It's still today very small kind of low single-digit percentage of the overall business. But I think longer term, definitely an opportunity there.

Okay. We only have a few minutes left, but I wanted to see if there are any questions from the audience. Okay. We're going to grab a quick microphone.

You talked about a couple of things, but what about -- where was your churn rate in terms of rollover of customers at the end of the year? And where do you see that going?

Sure. So just to kind of back up a little bit, we've seen a lot of movement in the return rate given what's happened with COVID. And it's really category-specific. So pre-COVID, we got -- it's not a number of weeks disclosed explicitly, but pretty close to kind of 55% return rate. And then when COVID hit.

Churn.

Oh, churn rate. Oh, I'm sorry, churn rate. Yes, that's not a number that we get to. What we do is we sort of report on is this retention rate. And we talk about it on a retention basis, and it's something that we disclosed in our 10-K each year. And we look at on a revenue basis of the prior year existing cohorts, what percentage of that revenue are we retaining? And that was at record levels in 2021, really higher than it's ever been. And admittedly, in 2020, it was lower. But great to see it come back stronger than ever in 2021.

Yes. Other questions? Maybe one more.

Erik. Just a question on the active customer growth. So obviously, we saw a pretty nice acceleration in terms of net active customer growth in the past several quarters. I'm an Instagram follower of the Revolve brand and see there's 5 million followers of Revolve on Instagram versus, I think -- I think we're about roughly 2 million of active customers. So talk to me about how should we think about the pace of active customer growth going forward given that there's like already 5 million who follows your brand on Instagram. How do you better capture that we see very low hanging fruit and convert them into active customers?

Yes. So we're excited about it. It's not an area that we guide for, but we're excited about the momentum we've had in active customers for sure. And so that's part of our plan to invest in marketing and continue going after that opportunity this year. I think longer term, we'll see that converge with the rate of revenue growth. I think in the near term, you can expect growth in the first quarter to be higher than it was in the fourth quarter on a year-over-year basis. And remember that the active customer growth is a trailing 12-month measure, right? So it's a little bit of a lag effect. And so part of the benefit we're seeing is that you're adding a really strong period, what we certainly have seen, and we talked about in the first 7 weeks of the quarter for the overall business. And we're taking off a period in March a year ago, which was partially strong. It really started to pick up in March of 2021. So that you should see an increased growth rate in active customers in the first quarter relative to the 25% growth that we had in the fourth quarter. But longer term, it's going to converge more and be a lot like the growth of the revenue overall, we believe. .

All right. I think we are about out of time. So thanks so much for pitching for us today and joining.

Thank you.