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What changed in Revolve Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Revolve Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+431 added−465 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-23)

Top changes in Revolve Group, Inc.'s 2023 10-K

431 paragraphs added · 465 removed · 355 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+9 added−8 removed38 unchanged
Biggest changeInfluencers can have a more powerful impact than traditional advertising methods because they bring their followers into their daily lives and share their personal tastes and preferences in an authentic way. This evolution in consumer behavior accompanies a significant transition of purchasing power to the Millennial generation. According to U.S.
Biggest changeThey look to social media and digital content from brands and influencers, as well as dialogue within their social network, as their source of inspiration and discovery and to inform their purchasing decisions. These influences can have a more powerful impact than traditional advertising methods because personal tastes and preferences are communicated in a more authentic way.
Our disciplined, data-driven merchandising approach allows us to offer a broad yet curated assortment of on-trend apparel, footwear, accessories and home and beauty products while managing fashion and inventory risk. We employ a “read and react” model that combines qualitative and quantitative decision-making to identify trends, curate assortments, facilitate our merchandise planning and re-order processes, and manage pricing.
Our data-driven merchandising approach allows us to offer a broad yet curated assortment of on-trend apparel, footwear, beauty, accessories and home products while managing fashion and inventory risk. We employ a “read and react” model that combines quantitative and qualitative decision-making to identify trends, curate assortments, facilitate our merchandise planning and re-order processes, and manage pricing.
The nature of consumer engagement with brands and retailers is evolving in tandem with the transition to digital channels. Next-generation consumers often aspire to express their individual style through fashion and beauty. More than older generations of consumers, they frequently seek an emotional connection with brands that are unique and on-trend and resonate with their values.
The nature of consumer engagement with brands and retailers is evolving in tandem with the continued transition to digital channels. Next-generation consumers often aspire to express their individual style through fashion and beauty. More than older generations of consumers, they frequently seek an emotional connection with brands that are unique and on-trend and resonate with their values.
This data is leveraged throughout our operations to provide an optimized product offering, tailor our marketing efforts and continually enhance the 9 experience on our sites. Our team of engineers, data scientists and business analysts continuously innovate to improve our platform and business processes to best serve our customers. Founder-led Management and Innovative Culture .
This data is leveraged throughout our operations to provide an optimized product offering, tailor our marketing efforts and continually enhance the experience on our sites. Our team of engineers, data scientists and business analysts continuously innovate to improve our platform and business processes to best serve our customers. Founder-led Management and Innovative Culture .
Our proprietary inventory tracking system creates a unique serial number for every individual item in our warehouse and enables our customers to receive real-time updates regarding the status of their orders. We offer free two-day shipping and free returns to customers in the United States and in certain areas of California we offer free next-day shipping.
Our proprietary inventory tracking system creates a unique serial number for every individual item in our warehouse and enables our customers to receive real-time updates regarding the status of their orders. We offer free two-day shipping and free returns to customers in the United States and in certain areas we offer free next-day shipping.
The success of our managerial strategies and innovative culture is evident in our long track record and our ability to manage through significant challenges in the macroeconomic environment, including the great recession in 2008 and 2009 and the more recent COVID-19 pandemic. Our Growth Strategies Continue to Acquire New Customers .
The success of our managerial strategies and innovative culture is evident in our long track record and our ability to manage through significant challenges in the macroeconomic environment, including the great recession in 2008 and 2009 and the more recent COVID-19 pandemic. 10 Our Growth Strategies Continue to Acquire New Customers .
Although we have not sought copyright registration for our technology or works to date, we rely on common law copyright and trade secret protections in relation to our proprietary technology, products and the content displayed on our sites, including our photography and fabric prints that we design.
Although we have not sought copyright registration for our technology or works to date, we rely on common law copyright and trade secret protections in relation to our proprietary technology, 14 products and the content displayed on our sites, including our photography and fabric prints that we design.
Our human capital resources objectives are focused on the retention and development of our existing employees and the recruitment of new employees. We are focused on building a team and culture that is diverse, respectful, socially engaged, digital-first, high energy, results driven and collaborative.
Our human capital resources objectives are focused on the retention, development and safety of our existing employees and the recruitment of new employees. We are focused on building a team and culture that is diverse, respectful, socially engaged, digital-first, high energy, results driven and collaborative.
Our investments have created a highly scalable, flexible infrastructure that optimizes inventory and order allocation, reduces shipping and fulfillment expenses and delivers merchandise quickly and efficiently to our customers. Our fulfillment, shipping and return processes create a seamless customer experience, which fosters customer loyalty.
Our investments have created a highly scalable, flexible infrastructure that optimizes inventory and order allocation, reduces shipping and fulfillment expenses and delivers merchandise quickly and efficiently to our customers. Our fulfillment, shipping and return processes create a seamless customer experience, which fosters 13 customer loyalty.
Our Customer Service, Fulfillment and Logistics A key driver of our profitable growth and strong customer loyalty is our ability to provide an exceptional customer experience throughout her purchasing journey. Our ability to fulfill orders and process returns quickly and accurately is critically important to the customer experience.
Our Customer Service, Fulfillment and Logistics A key driver of our profitable growth and strong customer loyalty is our ability to provide an exceptional customer experience throughout the purchasing journey. Our ability to fulfill orders and process returns quickly and accurately is critically important to the customer experience.
We face significant competition from eCommerce websites, including apparel and accessories-oriented eCommerce websites as well as the eCommerce websites of 13 traditional retailers and premium and luxury brands. We also face competition from brick-and-mortar stores and boutiques, including traditional retailers as well as fashion boutiques.
We face significant competition from eCommerce websites, including apparel and accessories-oriented eCommerce websites as well as the eCommerce websites of traditional retailers and premium and luxury brands. We also face competition from brick-and-mortar stores and boutiques, including traditional retailers as well as fashion boutiques.
In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically.
In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and 15 other information regarding issuers that file electronically.
For more information about laws and regulations applicable to our business, see the section titled “Risk Factors—Risks Related to Regulation and Taxation—Failure to comply with federal, state and international laws and regulations and our contractual obligations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.” Seasonality For information about the seasonality of our business, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Seasonality.” 14 Information About Segment and Geographic Revenue For information about segment and geographic revenue, see Note 11, Segment Information , to our consolidated financial statements included elsewhere in this report.
For more information about laws and regulations applicable to our business, see the section titled “Risk Factors—Risks Related to Regulation and Taxation—Failure to comply with federal, state and international laws and regulations and our contractual obligations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.” Seasonality For information about the seasonality of our business, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Seasonality.” Information About Segment and Geographic Revenue For information about segment and geographic revenue, see Note 12, Segment Information , to our consolidated financial statements included elsewhere in this report.
Through 20 years of continued investment in technology, data analytics and innovative marketing and merchandising strategies, we have built a powerful platform and brand that we believe is connecting with the next generation of consumers and is redefining fashion retail for the 21st century.
Through more than 20 years of continued investment in technology, data analytics and innovative marketing and merchandising strategies, we have built a powerful platform and brand that we believe is connecting with the next generation of consumers and is redefining fashion retail for the 21st century.
Our technology enables us to automate the rapid identification of new trends and emerging brands, allowing us to offer a vast and diversified product assortment that does not rely on any given trend or style and has minimal overlap with other retailers.
Our technology enables us to automate the rapid identification of new trends and emerging brands, allowing us to offer a vast and diversified product assortment that does not rely on any given trend or style and has limited overlap with other retailers.
We update our sites almost daily with new editorial content to generate a constant flow of fresh, high-quality, authentic and engaging content to provide an inspiring and engaging experience for our customers, driving frequent visits to our sites and helping to promote the discovery of new, relevant brands and products.
We update our sites almost daily with a constant flow of fresh, high-quality, authentic content to provide an inspiring and engaging experience for our customers, driving frequent visits to our sites and helping to promote the discovery of new, relevant brands and products.
We continuously provide our customers with aspirational and engaging content and amplify our message in a highly efficient manner through our network of thousands of influencers, elevated and aspirational social events and content that connects with her current lifestyle.
We continuously provide our customers with aspirational and engaging content and amplify our message in a highly efficient manner through our network of thousands of influencers, elevated and aspirational social events and content that connects with our customers’ current lifestyle.
Our algorithms analyze the billions of impressions generated by our influencer network and the number of click-throughs and conversion rates from our performance marketing efforts to cost-efficiently and effectively market to consumers. We utilize customer shopping and purchase behavior to personalize our email and retargeting efforts seamlessly across multiple customer touchpoints. • Site Experience .
Our algorithms analyze the billions of impressions generated by our influencer network and the number of click-throughs and conversion rates from our performance marketing efforts to cost-efficiently and effectively market to consumers. We use customer shopping and purchase behavior to personalize our email and retargeting efforts seamlessly across multiple customer touchpoints. 12 • Site Experience .
Our proprietary, scalable technology, data analytics, artificial intelligence and machine learning platform efficiently and seamlessly manages our merchandising, marketing, website experience, fulfillment, product development, sourcing, and pricing decisions. We have a proven history of leveraging our technology platform to flexibly expand capacity in a capital-efficient manner.
Proprietary, Scalable Technology Platform and Robust Data Net . Our proprietary, scalable technology, data analytics and artificial intelligence and machine learning-supported platform efficiently and seamlessly manages our merchandising, marketing, website experience, fulfillment, product development, sourcing, and pricing decisions. We have a proven history of leveraging our technology platform to flexibly expand capacity in a capital-efficient manner.
Our Marketing Approach We leverage a variety of marketing and advertising programs to build our brand, drive traffic to our websites and mobile applications, acquire new customers and engage with our existing customers.
Our Marketing Approach We leverage a variety of marketing and advertising programs to build our brands, drive traffic to our websites and mobile applications, acquire new customers and engage with our existing customers.
Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers and over 1,000 emerging, established and owned brands.
Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers and over 1,200 emerging, established and owned brands.
Our business is specifically targeted towards Millennial and Generation Z consumers, predominantly female, and we believe this more specific targeting results in a better experience for our customer, leading to strong customer loyalty and increases in market share over time.
Our business is specifically targeted towards next-generation consumers, predominantly female, and we believe this more specific targeting results in a better experience for our customer, leading to strong loyalty and increases in market share over time.
We utilize machine learning and artificial intelligence to optimize our assortment and personalize the website experience through advanced search and product recommendations. • Merchandising .
We use machine learning and artificial intelligence to optimize our assortment and personalize the website experience through advanced search and product recommendations. • Merchandising .
In 2022, we drove 48% of traffic for REVOLVE from free and low-cost sources, as measured by the number of visitors who landed on the REVOLVE website or mobile application directly, via email marketing links, or through paid branded search terms and organic search results.
In 2023, we drove 49% of traffic for REVOLVE from free and low-cost sources, as measured by the number of visitors who landed on the REVOLVE website or mobile application directly, via email marketing links, or through paid branded search terms and organic search results.
Our Merchandising, Assortment and Content We leverage a single platform to sell merchandise primarily through two retail segments, REVOLVE and FWRD, which offer complementary assortments. REVOLVE offers constant newness and discovery through a broad assortment of premium apparel, footwear, accessories and beauty and home products.
Our Merchandising, Assortment and Content We leverage a single platform to sell merchandise primarily through two retail segments, REVOLVE and FWRD, which offer complementary assortments. REVOLVE offers constant newness and discovery through a broad assortment that consists primarily of premium apparel, footwear, beauty and accessories.
Enhance and Broaden Our Offering . We intend to leverage our community and influencer network, owned brand capabilities and integrated, data-driven operating model to further expand our share of adjacent categories. Grow International Sales .
We intend to leverage our community and influencer network, owned brand capabilities and integrated, data-driven operating model to further expand our share of adjacent categories. Grow International Sales .
We complement our emotional brand marketing with sophisticated, data-driven performance marketing, the combination of which drives successful customer acquisition and retention that are key drivers of our customer lifetime value.
We complement our experiential brand marketing with sophisticated, data-driven performance marketing, the combination of which drives customer acquisition and retention that are key drivers of our customer lifetime value.
Furthermore, by introducing new products almost daily in limited quantities, we create a sense of urgency for our customers. As a result, sales of products at full retail price represented approximately 85%, 87%, 77% and 79% of total net sales in 2022, 2021, 2020 and 2019, respectively. 8 The REVOLVE and FWRD Brands .
Furthermore, by introducing new products almost daily in limited quantities, we create a sense of urgency for our customers. As a result, sales of products at full retail price represented approximately 79%, 85%, 87%, 77% and 79% of total net sales in 2023, 2022, 2021, 2020 and 2019, respectively. Our Brands .
Our strong net revenue retention rates and high average order values drive attractive customer lifetime value that expands over time and enables us to invest in customer acquisition and long-term brand building activities. Unique Owned Brand Platform .
Our strong net revenue retention rates and high average order values drive 9 attractive customer lifetime value that enables us to invest in customer acquisition and long-term brand building activities. Unique Owned Brand Platform .
We intend to further localize and improve the shopping experience and merchandise selection for our international customers and leverage the global reach of the REVOLVE brand and our influencer network to accelerate growth outside of the United States. Grow our Owned Brand Offering .
We intend to further localize and improve the shopping experience and merchandise selection for our international customers and leverage the global reach of our brand and our worldwide network of influencers to accelerate growth outside of the United States. Grow our Owned Brand Offering .
These algorithms also determine the most efficient manner to fulfill each order, including optimizing the way in which inventory is picked and when orders are shipped. We continually invest in our fulfillment footprint, capacity and automation to provide our customers with best-in-class service.
These algorithms also determine the most efficient manner to fulfill each order, including optimizing the way in which inventory is picked and when orders are shipped, and combining orders to reduce shipping costs whenever possible. We continually invest in our fulfillment footprint, capacity and automation to provide our customers with best-in-class service.
Our proprietary technology leverages data from a vast net of styles, attributes and customer interactions to create a strategic asset of hundreds of millions of data points. We have complemented these efforts with an organization built from the ground up to make decisions in a data-first, customer-centric way.
Our proprietary technology leverages a comprehensive data net that encompasses millions of styles, attributes and customer interactions forming a strategic asset of hundreds of millions of data points. We have complemented these efforts with an organization built from the ground up to make decisions in a data-first, customer-centric way.
Our average order value was $304 in 2022, which is reflective of our focus on premium merchandise and our differentiation from mass market, low price or value-based retailers.
Our average order value was $297 in 2023, which is reflective of our focus on premium merchandise and our differentiation from mass market, low price or value-based retailers.
As a trusted premium lifestyle brand and a go-to online source for discovery and inspiration, we deliver an engaging customer experience from a vast yet curated offering totaling over 90,000 apparel and footwear styles, as well as accessories and beauty and home products.
As a trusted premium lifestyle brand and a go-to online source for discovery and inspiration, we deliver exceptional service and an engaging customer experience with a vast yet curated offering totaling over 100,000 apparel and footwear styles, as well as beauty, accessories and home products.
We have a proven history of leveraging our technology platform to expand capacity and increase service levels in a capital-efficient manner. We will continue to evaluate opportunities to enhance our platform in the United States and internationally. Human Capital As of December 31, 2022, we had 1,384 employees, most of which are employed in the United States.
We have a proven history of leveraging our technology platform to expand capacity and increase service levels in a capital-efficient manner. We will continue to evaluate opportunities to enhance our platform in the United States and internationally. Human Capital As of December 31, 2023, we had 1,478 employees worldwide, most of whom are employed in the United States.
The broad reach of our social media–driven marketing and events generates consumer appeal and credibility for our owned brands, expanding our reach and driving incremental traffic to our sites. Net sales of owned brands represented 22.4%, 20.1%, 26.7% and 36.1% of REVOLVE segment net sales for 2022, 2021, 2020 and 2019, respectively. Proprietary, Scalable Technology and Data Analytics Platform .
The broad reach of our social media–driven marketing and events generates consumer appeal and credibility for our owned brands, expanding our reach and driving incremental traffic to our sites. Net sales of owned brands represented 20.0%, 22.4%, 20.1%, 26.7% and 36.1% of REVOLVE segment net sales for 2023, 2022, 2021, 2020 and 2019, respectively.
Unlike traditional private label offerings, our owned brands command pricing similar to third-party brands due to their brand equity, as demonstrated by their collective social media following, which exceeded 4.0 million followers on Instagram as of December 31, 2022.
Unlike traditional private label offerings, our owned brands command pricing similar to premium third-party brands due to their brand equity, as demonstrated by their collective social media following, which exceeded 4.1 million followers on Instagram and TikTok as of December 31, 2023.
FWRD offers a curated assortment of iconic and emerging luxury brands with a strong and differentiated point of view. We believe the combination of REVOLVE’s premium, trend-driven and ready-to-wear assortment and FWRD’s focus on luxury statement pieces provide a powerful head-to-toe assortment for the many aspects of her life.
FWRD offers a curated assortment of iconic designer and emerging luxury brands with a strong and differentiated point of view. We believe the combination of REVOLVE’s premium, trend-driven and ready-to-wear assortment and FWRD’s focus on luxury statement pieces, such as handbags and shoes, provide a powerful head-to-toe assortment for the many aspects of our customer’s life.
We are pioneers of social media and influencer marketing, using social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences featuring our premium merchandise to attract and retain customers. These efforts typically lead to higher earned media value relative to that of our competitors.
We are a leader in experiential and influencer marketing, using social media channels and cultural events designed to deliver authentic aspirational experiences featuring our premium merchandise to attract and retain customers. These efforts typically lead to higher earned media value relative to that of our competitors.
Our online presence includes over 10.3 million Instagram followers across REVOLVE, FWRD and the collective following of our individual owned brands as of December 31, 2022. We complement our powerful social media and influencer marketing with a robust digital performance marketing strategy.
Our online presence includes the collective following of over 11.6 million Instagram and TikTok followers across REVOLVE, FWRD and our individual owned brands as of December 31, 2023. We complement our powerful social media and influencer marketing with a robust digital performance marketing strategy.
Continue to Increase Customer Loyalty and Wallet Share . We intend to deepen our existing customer relationships to improve our already strong revenue retention and increase our wallet share through enhancing our customer experience, engaging with her in ways that address more aspects of her life, and expanding our loyalty program, ambassador program and preferred customer program for high-value consumers.
We intend to deepen our existing customer relationships to improve our already strong revenue retention and increase our wallet share through enhancing our customer experience, engaging with consumers in ways that address more aspects of their daily life, and expanding our loyalty program, brand ambassador program and preferred customer program for high-value consumers. Enhance and Broaden Our Offering .
Intellectual Property We primarily protect our intellectual property through the trademark, copyright and trade secret laws of the United States. As of December 31, 2022, we owned over 570 trademark registrations, over 350 trademark applications and over 70 Internet domain names.
Intellectual Property We primarily protect our intellectual property through the trademark, copyright and trade secret laws of the United States. As of December 31, 2023, we owned over 780 trademark registrations, over 160 trademark applications and over 70 Internet domain names.
Our customer service team, through interactions with our customers by phone, email, text or instant-message, primarily addresses questions relating to orders, deliveries and returns, and also answers questions regarding fit, color, size and other style matters to ensure customer satisfaction.
Our customer service team, through interactions with our customers by phone, email, chat, SMS, or social media messaging, primarily addresses questions relating to orders, deliveries and returns, and also answers questions regarding fit, color, size and other style matters to ensure customer satisfaction.
We complement our social media and community-driven brand marketing with sophisticated performance marketing efforts, including paid search and product listing ads, affiliate marketing, paid social, retargeting, personalized email marketing and mobile “push” communications through our mobile applications. Deep Connection with Our Loyal Customers . We understand the next-generation consumer, how she shops and where she seeks fashion and lifestyle inspiration.
We complement our social media and community-driven brand marketing with sophisticated performance marketing efforts, including paid search and product listing ads, affiliate marketing, paid social, retargeting, personalized email marketing and mobile “push” communications through our mobile applications. Deep Connection with Our Loyal Customers . We understand our consumers, how they shop and where they seek fashion and lifestyle inspiration.
Mobile sales in particular have rapidly increased as consumers leverage their ability to discover, browse and purchase anytime from anywhere through their mobile devices. In 2022, customer orders placed through mobile devices represented 66.6% of our total orders. Media Consumption and Shopping Behaviors of Next-Generation Consumers.
Mobile sales in particular have rapidly increased as consumers leverage advances in technology, further enhancing their ability to discover, browse and purchase anytime from anywhere. In 2023, customer orders placed through mobile devices represented 69.7% of our total orders. Media Consumption and Shopping Behaviors of Next-Generation Consumers.
Our efficient operations allow us to ship over 95% of orders on the same day if placed before noon Pacific Time. We are also able to ship to and service customers in over 150 countries and territories and are able to serve customers representing over 80% of our international sales within two to three business days.
Our efficient operations allow us to ship over 97% of orders on the same day if placed before 3 p.m. Eastern Time. We are also able to ship to and service customers in over 150 countries and territories and offer shipping within two to three business days for customers representing over 80% of our international sales.
We encourage our customers to use the home as a dressing room with a no-hassle free shipping and returns policy, which we have offered since our launch in 2003, making us one of the pioneers of free returns. She values this level of service and rewards our efforts with her loyalty, as demonstrated by our robust customer economics.
We encourage our customers to use the home as a dressing room with a no-hassle free shipping and returns policy, which we have offered since our launch in 2003, making us one of the pioneers of free returns. Our customers value this level of service and reward our efforts with their loyalty.
We further believe our scaled leadership position has strong network effects among our customers, brands and influencers because we are able to provide increasing value to each of those constituents as our scale and leadership position increases. Data-Driven Merchandising Model .
We further believe our brand and positioning in the market has strong network effects among our community of customers, brands and influencers, because we are able to provide increasing value to each of those constituents as our scale increases. Data-Driven Merchandising .
The following table sets forth the number of employees by team as of December 31, 2022: Team As of December 31, 2022 Fulfillment and logistics 682 Owned brand design and development 144 Customer service 131 Merchandising and planning 100 Creative photography, studio and editorial 93 Marketing 63 Technology and data science 49 Other 122 Total 1,384 Competition The online and offline retail markets generally, as well as the premium lifestyle and luxury product markets more specifically, are highly competitive and rapidly evolving.
The following table sets forth the number of employees by team as of December 31, 2023: Team As of December 31, 2023 Fulfillment and logistics 737 Customer service 172 Owned brand design and development 140 Merchandising and planning 104 Creative photography, studio and editorial 96 Marketing 63 Technology and data science 58 Other 108 Total 1,478 Competition The online and offline retail markets generally, as well as the premium lifestyle and luxury product markets more specifically, are highly competitive and rapidly evolving.
We have a global network of thousands of influencers who regularly create authentic REVOLVE and FWRD content. We believe we are a preferred partner for influencers, as their association with REVOLVE and FWRD enhances the influencers’ personal brands through our rich content.
We have a global network of thousands of influencers who regularly create branded REVOLVE and FWRD content. We believe we are a preferred partner for influencers, as their association with REVOLVE and FWRD enhances their personal brands through our exclusive events and premium product offering.
Through our recognized leadership position, deep relationships and history of mutually beneficial partnerships, we believe we have become a partner of choice for influencers worldwide, leading to a competitive advantage. These marketing efforts deliver authentic, aspirational experiences and lifestyle content that drive long-term loyalty and engagement.
Through our strong brand, deep relationships and history of mutually beneficial partnerships, we believe we have become a partner of choice for influencers worldwide. These marketing efforts deliver authentic, aspirational experiences and lifestyle content that drive long-term loyalty and engagement with our community of brands, customers and influencers.
In 2022, we further enhanced our influencer network with the launch of the FWRD brand ambassador program. We complement our social media efforts through a variety of brand marketing campaigns and in-person events, including the #REVOLVEfestival, #REVOLVEaroundtheworld and the REVOLVE Gallery. Our events are attended by top influencers who promote the REVOLVE and FWRD brands and the products we offer.
We complement our social media efforts through a variety of brand marketing campaigns and in-person events. Our events are attended by top influencers who promote the REVOLVE and FWRD brands and the products we offer.
We believe that our model, which is more targeted than department stores or mass-market online retailers and provides a greater selection and access than specialty retailers, allows us to more effectively serve consumers.
We believe that our model is more targeted and curated than premium department stores, and provides a greater selection and access than specialty retailers, which allows us to more effectively serve the next-generation consumer.
Specialty boutiques, while highly curated, often offer a narrow assortment and are limited in their reach. Many online retailers tend to deliver a purely transactional customer experience, with limited original fashion content and style advice to facilitate inspiration and discovery. Our Competitive Strengths Leading Millennial and Generation Z Destination for Online Fashion .
Specialty boutiques, while highly curated, often offer a narrow assortment and are limited in their reach. Many pure-play digital retailers tend to deliver a purely transactional customer experience, lacking original fashion content and style guidance essential for fostering inspiration and discovery. 8 Our Competitive Strengths Leading Destination for Premium Fashion for the Next-Generation Consumer .
Our approach facilitates constant newness, with over 1,500 new styles launched per week on average in 2022. Illustrating the efficacy of our data-driven merchandising, in 2022, approximately 85% of our net sales were at full price, which we define as sales with a price of not less than 95% of the full retail price.
Our approach facilitates constant newness, with over 1,500 new styles launched per week on average in 2023. Illustrating the efficacy of our data-driven merchandising, in 2023, approximately 79% of our net sales were at full price, which we believe is appreciably higher than industry benchmarks.
Our data-driven merchandising and innovative marketing competencies enable an owned brand strategy that further differentiates our merchandise assortment, provides increased control of our supply chain and has the opportunity to expand gross profit margins over the long-term. We have built a portfolio of 31 owned brands, each crafted with unique attributes and supported by dedicated marketing investments.
Our data-driven merchandising and marketing competencies enable an owned brand strategy that further differentiates our merchandise assortment, provides increased control of our supply chain and has the opportunity to expand gross profit margins over the long-term.
As our business grows, our brand value is increasingly becoming a significant point of differentiation with customers, influencers and brands. Innovative Marketing Approach . Our marketing approach is integrated across all parts of the customer funnel and allows us to efficiently increase brand awareness, promote customer acquisition, encourage retention and maximize customer lifetime value.
Our marketing approach is integrated across all parts of the customer funnel and allows us to efficiently increase brand awareness, promote customer acquisition, encourage retention and maximize customer lifetime value.
The loyalty program rewards and incentivizes cross shopping on our sites and affords participating customers benefits such as early access to new styles, early access to items on sale and invitations to exclusive events.
We also offer a loyalty program for our customers that leverages in-house technology, which incentivizes cross shopping on our sites and affords participating customers benefits such as early access to new styles, early access to items on sale and invitations to exclusive events.
Our digital performance marketing efforts are focused on acquiring and retaining customers through a variety of channels, including paid search and product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push” communications through our mobile applications. 11 Our Technology Platform Our technology integrates seamlessly across multiple functions throughout the organization, connecting in a way that allows constant iteration and optimization.
Our digital performance marketing efforts are focused on acquiring and retaining customers through a variety of channels, including paid search and product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push” communications through our mobile applications.
We engage with her through social media, events, press and other digital channels, generating multiple touchpoints in an authentic way.
We engage with consumers through social media, events, press and other digital channels, generating multiple touchpoints in an authentic way. We integrate our marketing content with our product curation, visual merchandising and editorial content.
In 2022, we generated $1.1 billion in net sales, served over 2.3 million active customers, offered over 1,000 brands and delivered over 219,000 unique styles, which we believe makes us one of the largest standalone fashion eCommerce businesses in the United States.
We believe we are the leading U.S. online destination targeted towards next-generation consumers seeking premium fashion. In 2023, we generated $1.1 billion in net sales, served over 2.5 million active customers, offered over 1,200 brands and delivered over 300,000 unique styles, which we believe makes us one of the largest standalone fashion eCommerce businesses in the United States.
Our systems also continue to learn about each customer through historical purchase behavior as well as direct customer feedback and these learnings are applied to future interactions. • Fulfillment . The algorithms we use in our fulfillment centers enable us to efficiently position inventory and combine orders to reduce shipping costs.
Our systems also continue to learn about each customer through historical purchase behavior as well as direct customer feedback and these learnings are applied to future interactions. • Fulfillment .
We then develop new styles for existing brands or launch new brands with a unique aesthetic or category focus to address these areas. When coupled with our innovative marketing approach, we develop strong brand equity for each owned brand. We bring new owned brand products to market by working with a flexible network of manufacturing partners and third-party suppliers.
When coupled with our innovative marketing approach, we develop strong brand equity 11 for each owned brand. We bring new owned brand products to market by working with a flexible network of manufacturing partners and third-party suppliers. We work with suppliers and manufacturers in China, the United States, India and other countries.
Our network is constantly evolving as we assess the breadth of individual influencers’ social media followings and resonance with our core demographic. In 2021, we enhanced our influencer network with the launch of the REVOLVE brand ambassador program, an extension of our relationship with the influencer that leverages our proprietary technology and offers a broader range of perks and incentives.
Our network is constantly evolving as we assess the breadth of individual influencers’ social media followings, relevance, engagement and resonance with our target demographics. We enhance our influencer network with our brand ambassador program that leverages our proprietary technology to offer a broader range of perks and incentives for the ambassador and provides us with unique data insights.
We offer a broad yet curated assortment of over 90,000 apparel and footwear styles, as well as accessories and beauty and home products, presented in a visually compelling manner to encourage discovery and engagement.
We offer a broad yet curated assortment of over 100,000 apparel and footwear styles, as well as accessories, beauty and home products, presented in a visually compelling manner to encourage discovery and engagement. Since our inception, we have attracted and maintained strong relationships with a diversified group of premium lifestyle and luxury brands, from emerging designers to globally recognized brands.
The FWRD preferred customer program enables our top-tier customers to receive dedicated, high-touch services to assist their shopping experience including products specifically curated for them by our stylists. Our technology platform is supplemented by our customer service, fulfillment and logistics teams.
The FWRD preferred customer program enables our top-tier customers to receive a personalized, high-touch shopping experience including early access and curated product selection created by their dedicated stylists. Our internally developed technology platform enables our customer service, fulfillment and logistics teams to provide a premium customer experience, driving customer satisfaction and loyalty.
We continuously identify new brands and refine the brands we feature to foster a sense of newness and encourage discovery. We optimize our assortment through the development of a portfolio of 31 owned brands that span multiple categories. We apply market insights and proprietary data analytics to identify gaps and emerging trends within the marketplace.
We optimize our assortment through the development of a portfolio of 25 owned brands that span multiple categories. We apply market insights and proprietary data analytics to identify gaps and emerging trends within the marketplace. We then develop new styles for existing brands or launch new brands with a unique aesthetic or category focus to address these areas.
We have established a deep connection with a loyal community of youthful, aspirational consumers through our premium positioning, strong consumer affinity and reputation as a key fashion influencer for the next-generation consumer. Our customers frequently engage with us, coming to us for our inspiring content and styling and our distinct and constantly changing assortment of on-trend fashion.
Through the REVOLVE and FWRD brands, we have established a deep connection with a loyal community of youthful, aspirational consumers through our premium positioning, strong consumer affinity and reputation as a key resource for fashion discovery and inspiration.
Our proprietary algorithms and technology infrastructure create the foundation for everything we do and include: • Data Science .
Our Technology Platform Our technology integrates seamlessly across multiple functions throughout the organization, connecting in a way that allows constant iteration and optimization. Our proprietary algorithms and technology infrastructure create the foundation for everything we do and include: • Data Science .
Although the apparel, footwear, accessories, home and beauty sectors are large, we believe the next-generation consumer is underserved by traditional brick-and-mortar and online retailers. Department stores and national retailers try to serve a broad demographic with ubiquitous brands and are slow to react to changing trends.
Although the apparel, footwear, beauty, accessories and home sectors are large, we believe the next-generation consumer remains underserved. Conventional national retailers aim to cater to a broad demographic with widely recognized brands, but they often lag in adapting to changing trends and have subpar customer service.
Since 10 our inception, we have attracted and maintained strong relationships with a diversified group of premium lifestyle and luxury brands, from emerging designers to globally recognized brands. These brand relationships provide customers with breadth across product categories and styles, while reinforcing REVOLVE’s position as the destination for discovery.
These brand relationships provide customers with breadth across product categories and styles, while reinforcing our position as the destination for discovery.
Our powerful brands and innovative marketing strategy connect with the Millennial and Generation Z demographics. We are recognized as a pioneer and a leader in social media and influencer marketing. We have built a large community of influencer and brand partners, including thousands of micro-influencers, as well as some of the most influential social media celebrities in the world.
We have built a large community of influencer and brand partners, including thousands of influencers enrolled in our proprietary brand ambassador program, as well as some of the most influential celebrities in the world such as our FWRD Creative Director Kendall Jenner.
We believe our consumers perceive these as highly desirable, independent brands, rather than private labels or house brands. In 2022, our owned brands represented five out of our top ten brands in the REVOLVE segment and contributed 22.4% of the REVOLVE segment’s net sales. Our Industry Large and Growing Addressable Market.
In 2023, our owned brands represented six out of our top ten brands in the REVOLVE segment and contributed 20.0% of the REVOLVE segment’s net sales. 7 Representative REVOLVE Owned Brands Our Industry Large and Growing Addressable Market. We participate in the large and growing apparel, footwear, beauty, accessories and home product sectors.
Federal Reserve data, the Millennials’ share of U.S. household net worth during the first nine months of 2022 increased by approximately 50% when compared to the same period in 2019. Next-Generation Consumers are Underserved by Retail and eCommerce.
This evolution in consumer behavior accompanies a significant transition of purchasing power to the Millennial generation. According to U.S. Federal Reserve data, the Millennials’ share of U.S. household net worth during the first nine months of 2023 more than doubled compared to the same period in 2019. We Believe There is an Opportunity to Better Serve Next-Generation Consumers.
The vast majority of our customer service and fulfillment operations are managed directly by us, giving us significant control of the customer experience. Customers can engage with us in 12 languages, use one of 20 payment methods and pay in over 50 currencies.
The vast majority of our customer service and fulfillment operations are managed directly by us allowing us to control the customer experience and provide a premium level of service to the customer.
Consumers are increasingly using digital channels to make purchases, a trend accelerated by the COVID-19 pandemic and, to a lesser extent, the closure of tens of thousands of physical retail stores in recent years. As a result, the growth of online sales has outpaced that of traditional brick-and-mortar channels when compared to pre-pandemic periods.
Over the past several years, consumers have increasingly used digital channels to make purchases, a trend supported by innovation in the digital shopping experience and by the closure of tens of thousands of physical retail stores in recent years.
Consumers, especially Millennials (born between 1981 and 1996) and Generation Z (born between 1997 and 2012), are spending more and more time on digital media and less time on more traditional forms of media. These consumers, who came of age in a hyper-connected, digital world, spend a particularly significant amount of time on social media.
Consumers, notably Millennials (born between 1981 and 1996) and Generation Z (born between 1997 and 2012), are increasingly dedicating a substantial portion of their time to digital media, mobile devices, and novel entertainment formats. Individuals from these demographic groups, having grown up in a highly interconnected digital environment, allocate a significant amount of their time to various social media platforms.
Removed
We participate in the large and growing apparel, footwear, accessories, home and beauty product sectors. We believe the key drivers shaping growth within these markets include favorable demographic trends, constant product newness and the proliferation of emerging brands, as well as an increased focus on fashion, beauty and lifestyle as a reflection of self-expression. 7 Significant Growth in Digital Channels.
Added
We define net sales at full price as sales with a price of not less than 95% of the full retail price. Our powerful brands and innovative marketing strategy connect with the growing next-generation customer demographics.
Removed
They look to social media and digital content from influencers as their source of inspiration and discovery and to inform their purchasing decisions. Influencers have an outsized impact on the purchasing behaviors of next-generation consumers. Influencers maintain a social media presence on platforms such as Instagram, TikTok and YouTube, and have thousands or even millions of engaged followers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the factors that may negatively influence consumer spending include COVID-19 outbreaks and resulting restrictions, war, high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, home foreclosures and reductions in home values, increasing inflationary pressures, fluctuating interest rates and credit availability, fluctuating currency exchange rates, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment and social unrest.
Biggest changeSome of the factors and events that have negatively influenced consumer spending, and may do so in the future, include inflationary pressures, fluctuating interest rates and credit availability, public health crises, such as the COVID-19 pandemic, high levels of unemployment, high consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, reductions in home values and home foreclosures, resumption of student loan payments, adverse developments affecting the financial services industry, labor strikes, fluctuating currency exchange rates, fluctuating fuel and other energy costs, fluctuating commodity prices, wars and conflicts in Ukraine/Russia, Israel/Gaza and the Middle East, other geopolitical tensions, general uncertainty regarding the overall future political and economic environment, and social unrest.
We add new apparel, footwear, accessories and beauty and home products to our sites every week and we depend on our forecasts of demand for and popularity of various products to make purchase decisions and to manage our inventory.
We add new apparel, footwear, beauty, accessories and home products to our sites every week and we depend on our forecasts of demand for and popularity of various products to make purchase decisions and to manage our inventory.
Customer and influencer complaints or negative publicity about our sites, products, product delivery times, customer data handling and security practices, customer support, brand marketing events or other actions taken by us, especially on blogs, social media websites and our sites, could rapidly and severely diminish consumer use of our sites and consumer and supplier confidence in us and result in harm to our brands.
Customer or influencer complaints or negative publicity about our sites, products, product delivery times, customer data handling and security practices, customer support, brand marketing events or other actions taken by us, especially on blogs, social media websites and our sites, could rapidly and severely diminish consumer use of our sites and consumer and supplier confidence in us and result in harm to our brands.
Our business is affected by general economic and business conditions in the United States, and conditions in international markets. In addition, we experience seasonal trends in our business and our mix of product offerings is highly variable from day-to-day and quarter-to-quarter.
Our business is affected by general economic and business conditions in the United States and in our international markets. In addition, we experience seasonal trends in our business and our mix of product offerings is highly variable from day-to-day and quarter-to-quarter.
These provisions include the following: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; • reflect the dual class structure of our common stock; and • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions include the following: • permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; 48 • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; • reflect the dual class structure of our common stock; and • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, our future growth and our results of operations could suffer if we experience difficulties in integrating our mobile applications into mobile devices, if problems arise with our relationships with providers of mobile operating systems or mobile application download stores, such as those of Apple Inc. or Google Inc., if those providers impose restrictions on the data collection or use practices or other functionality of our applications, if our applications receive unfavorable treatment compared to competing applications, such as the order of our products in the Apple App Store, or if we face increased costs to distribute or have customers use our mobile applications.
In addition, our future growth and our results of operations could suffer if we experience difficulties in integrating our mobile applications into mobile devices, if problems arise with our relationships with providers of mobile operating systems 28 or mobile application download stores, such as those of Apple Inc. or Google Inc., if those providers impose restrictions on the data collection or use practices or other functionality of our applications, if our applications receive unfavorable treatment compared to competing applications, such as the order of our products in the Apple App Store, or if we face increased costs to distribute or have customers use our mobile applications.
If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock would likely decline and we could be subject to 30 lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.
If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock would likely decline and we could be subject to lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.
Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum 49 provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our current or former directors, officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and other employees.
Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our current or former directors, officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and other employees.
If we experience significant increases in demand, or need to replace a significant number of existing suppliers or manufacturers, there can be no assurance that additional supply and manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any 22 supplier or manufacturer will allocate sufficient capacity to us in order to meet our requirements.
If we experience significant increases in demand, or need to replace a significant number of existing suppliers or manufacturers, there can be no assurance that additional supply and manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer will allocate sufficient capacity to us in order to meet our requirements.
Our operating results could be adversely affected by natural disasters, public health crises, political crises, social unrest or other catastrophic events. Our principal offices and data centers and two of our fulfillment centers, including our largest fulfillment center, are located in Southern California, an area which has a history of earthquakes and wildfires, and are thus vulnerable to damage.
Our operating results could be adversely affected by natural disasters, public health crises, political crises, wars, social unrest or other catastrophic events. Our principal offices and data centers and two of our fulfillment centers, including our largest fulfillment center, are located in Southern California, an area which has a history of earthquakes and wildfires, and are thus vulnerable to damage.
Failure to respond to changing customer preferences and fashion trends could negatively impact our brand image with our customers and result in diminished brand loyalty. 18 We have an established process for the identification, development, evaluation and validation of our new products. Nonetheless, each new product launch involves risks, as well as the possibility of unexpected consequences.
Failure to respond to changing customer preferences and fashion trends could negatively impact our brand image with our customers and result in diminished brand loyalty. We have an established process for the identification, development, evaluation and validation of our new products. Nonetheless, each new product launch involves risks, as well as the possibility of unexpected consequences.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, 37 regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
The satisfactory performance, reliability and availability of our sites, transaction-processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as maintain adequate customer service levels. 41 We currently use two redundant third-party data center hosting facilities in Los Angeles County, California.
The satisfactory performance, reliability and availability of our sites, transaction-processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as maintain adequate customer service levels. We currently use two redundant third-party data center hosting facilities in Los Angeles County, California.
In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory or appropriate assortment due to reduced inventory purchases or disruptions in the supply chain. Historically, a majority of our owned brand products and a substantial portion of the products we 16 source from third parties have been manufactured in China.
In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory or appropriate assortment due to reduced inventory purchases or disruptions in the supply chain. Historically, a majority of our owned brand products and a substantial portion of the products we source from third parties have been manufactured in China.
This bill, and other similar initiatives throughout the United States, could lead to additional challenges to the classification of influencers and models and a potential increase in claims, lawsuits, arbitration proceedings, administrative actions, government investigations and other legal and regulatory proceedings at the federal, state and municipal levels challenging the classification of any influencers or models as independent contractors.
This bill, and other similar initiatives throughout the United States, could lead to additional challenges to the classification of influencers and models and a potential 32 increase in claims, lawsuits, arbitration proceedings, administrative actions, government investigations and other legal and regulatory proceedings at the federal, state and municipal levels challenging the classification of any influencers or models as independent contractors.
Our net sales depend on the number of visitors who shop on our sites and the volume of orders we can handle. Unavailability of our sites or reduced order fulfillment performance would reduce the volume of goods sold and could also materially adversely affect consumer perception of our brand. We may experience periodic system interruptions from time to time.
Our net sales depend on the number of visitors who shop on our sites and the 41 volume of orders we can handle. Unavailability of our sites or reduced order fulfillment performance would reduce the volume of goods sold and could also materially adversely affect consumer perception of our brand. We may experience periodic system interruptions from time to time.
In addition, in some cases we may 45 be obligated to pay the attorneys’ fees for a plaintiff in a lawsuit filed against us. Such damages and attorneys’ fees, if any, could adversely affect our business, operating results and financial condition. Even if such claims were not valid, defending them could be expensive and distracting, adversely affecting our operating results.
In addition, in some cases we may be obligated to pay the attorneys’ fees for a plaintiff in a lawsuit filed against us. Such damages and attorneys’ fees, if any, could adversely affect our business, operating results and financial condition. Even if such claims were not valid, defending them could be expensive and distracting, adversely affecting our operating results.
We may not be successful in expanding into international markets or in generating revenue from foreign operations for a variety of reasons, including: • localization of our merchandise offerings, including translation into foreign languages and adaptation for local practices; • navigating shipping and returns in a more fragmented geography, particularly following the UK’s departure from the EU and if the EU were to lose other members or change its policies regarding the flow of goods across country borders; • different consumer demand dynamics, which may make our model and the merchandise we offer less successful compared to the United States; • competition from local incumbents that understand the local market and may operate more effectively; • regulatory requirements, taxes, trade laws, trade sanctions and economic embargoes, tariffs, export quotas, custom duties or other trade restrictions or any unexpected changes thereto; • laws and regulations regarding anti-bribery and anti-corruption compliance; • differing labor regulations where labor laws may be more advantageous to employees as compared to the United States and increased labor costs; • more stringent regulations relating to privacy, data protection, and data security and access to, or use of, commercial and personal information, particularly in Europe; • changes in a specific country’s or region’s political or economic conditions; and • risks resulting from changes in currency exchange rates.
We may not be successful in expanding into international markets or in generating net sales from foreign operations for a variety of reasons, including: • localization of our merchandise offerings, including translation into foreign languages and adaptation for local practices; • navigating shipping and returns in a more fragmented geography, particularly following the UK’s departure from the EU and if the EU were to lose other members or change its policies regarding the flow of goods across country borders; • different consumer demand dynamics, which may make our model and the merchandise we offer less successful compared to the United States; • competition from local incumbents that understand the local market and may operate more effectively; • regulatory requirements, taxes, trade laws, trade sanctions and economic embargoes, tariffs, export quotas, custom duties or other trade restrictions or any unexpected changes thereto; • laws and regulations regarding anti-bribery and anti-corruption compliance; • differing labor regulations where labor laws may be more advantageous to employees as compared to the United States and increased labor costs; • more stringent regulations relating to privacy, data protection, and data security and access to, or use of, commercial and personal information, particularly in Europe; • changes in a specific country’s or region’s political or economic conditions; and • risks resulting from changes in currency exchange rates.
If we fail to execute on any of the above better than our competitors, our operating results may be adversely affected. 24 Competition, along with other factors such as consolidation within the retail industry and changes in consumer spending patterns, could also result in significant pricing pressure.
If we fail to execute on any of the above better than our competitors, our operating results may be adversely affected. Competition, along with other factors such as consolidation within the retail industry and changes in consumer spending patterns, could also result in significant pricing pressure.
If we grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than we anticipate, we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated.
If we grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than 26 we anticipate, we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated.
In addition, the loss of one or more of our key personnel or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business. In particular, our co-chief executive officers have unique and valuable experiences leading our company from its inception through today.
In addition, the loss of one or more of our key personnel or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business. In particular, our 27 co-chief executive officers have unique and valuable experiences leading our company from its inception through today.
European privacy and data protection laws, including the GDPR, regulate the transfer of personal data from Europe, including the European Economic Area, or EEA, the UK, and Switzerland, to third countries that have not been found to provide adequate protection to such personal data, including the United States, unless the parties to the 34 transfer have implemented specific safeguards to protect the transferred personal information.
European privacy and data protection laws, including the GDPR, regulate the transfer of personal data from Europe, including the European Economic Area, or EEA, the UK, and Switzerland, to third countries that have not been found to provide adequate protection to such personal data, including the United States, unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many eCommerce and other technology companies’ stock prices. Often, their stock prices have fluctuated in ways 46 unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many eCommerce and other technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely and cost-effective manner, our business, financial condition and operating results could be harmed. The retail industry is driven in part by fashion and beauty trends, which may shift quickly.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely and cost-effective manner, our business, financial condition and operating results could be harmed. The retail apparel industry is driven in part by fashion and beauty trends, which may shift quickly.
If our information technology systems suffer damage, disruption or shutdown and we do 42 not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected and we could experience delays in reporting our financial results. Our eCommerce operations are important to our business.
If our information technology systems suffer damage, disruption or shutdown and we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected and we could experience delays in reporting our financial results. Our eCommerce operations are important to our business.
To attract top talent, we offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees. We may also elect to increase compensation levels to remain competitive in attracting and retaining talented employees. We may not be able to hire new employees quickly enough to meet our needs.
To attract top talent, we offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees. We may also elect to increase compensation levels to remain competitive in attracting and retaining 16 talented employees. We may not be able to hire new employees quickly enough to meet our needs.
We have been, are and may in the future become involved in private actions, collective actions, investigations and various other legal proceedings by customers, employees, suppliers, competitors, government agencies, law enforcement, customs officials or others. The results of any such litigation, investigations and other legal proceedings are inherently unpredictable and expensive.
We have been, are and may in the future become involved in private actions, collective actions, investigations and various other legal proceedings by customers, employees, suppliers, competitors, government agencies, law enforcement, customs officials or others. The results of any such litigation, investigations and other legal proceedings 30 are inherently unpredictable and expensive.
The CCPA, which became effective January 1, 2020, provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
The CCPA, which became effective January 1, 2020, provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. 39 This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
As part of our ongoing business strategy, we expect we will need to continue to introduce new products in our traditional product categories of apparel, footwear, accessories and beauty products, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.
As part of our ongoing business strategy, we expect we will need to continue to introduce new products in our traditional product categories of apparel, footwear, beauty, accessories and home products, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.
It is not possible to prevent such behavior and the precautions we take to detect this activity may not be effective in 20 all cases. Our target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy.
It is not possible to prevent such behavior and the precautions we take to detect this activity may not be effective in all cases. Our target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy.
Further, the enforceability of similar exclusive forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and it is possible that a court of law could rule that these types of provisions are inapplicable or unenforceable if they are challenged in a proceeding or otherwise.
Further, the enforceability of similar exclusive forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and it is possible that a court of law could rule that these types of provisions 49 are inapplicable or unenforceable if they are challenged in a proceeding or otherwise.
As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications.
As existing mobile devices and other platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications.
Completed and future acquisitions may result in unforeseen operational difficulties and expenditures associated with: • incorporating new businesses and technologies into our infrastructure; • consolidating operational and administrative functions; • coordinating outreach to our community; • maintaining morale and culture and retaining and integrating key employees; • maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and • identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.
Completed and future transactions may result in unforeseen operational difficulties and expenditures associated with: • incorporating new businesses and technologies into our infrastructure; • consolidating operational and administrative functions; • coordinating outreach to our community; • maintaining morale and culture and retaining and integrating key employees; • maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and • identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.
Any of these incidents could lead to interruptions or shutdowns of our platform, loss, unavailability or corruption of data, or unauthorized access to or alteration, use, acquisition or 40 disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property.
Any of these incidents could lead to interruptions or shutdowns of our platform, loss, unavailability or corruption of data, or unauthorized access to or alteration, use, acquisition or disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property.
A lack of compliance could lead to reduced sales or recalls or damage 32 to our brand or cause us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
A lack of compliance could lead to reduced sales or recalls or damage to our brand or cause us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Our limited registered copyright and patent protection may restrict our ability to protect our technologies and processes from competition. We primarily rely on unregistered copyrights to protect our designs and products and on trade secret laws to protect our technologies and processes, including the algorithms we use throughout our business.
Our limited registered copyright and patent protection may restrict our ability to protect our technologies and processes from competition. We primarily rely on unregistered copyrights to protect our designs and products and on trade secret laws to protect our technologies and processes, including the algorithms 44 we use throughout our business.
There is no 35 harmonized approach to these laws and regulations globally. Consequently, international activities and operations increase our risk of non-compliance with applicable laws and regulations, and we would increase our risk of non-compliance with applicable foreign data protection laws by expanding internationally.
There is no harmonized approach to these laws and regulations globally. Consequently, international activities and operations increase our risk of non-compliance with applicable laws and regulations, and we would increase our risk of non-compliance with applicable foreign data protection laws by expanding internationally.
Risks Related to Our Class A Common Stock The market price of our Class A common stock may be volatile or may decline steeply or suddenly regardless of our operating performance, and we may not be able to meet investor or analyst expectations.
Risks Related to Our Class A Common Stock 45 The market price of our Class A common stock may be volatile or may decline steeply or suddenly regardless of our operating performance, and we may not be able to meet investor or analyst expectations.
If these third parties 21 continue to increase their rates and add surcharges, and we do not seek to pass them on to our customers, our financial results could be materially adversely impacted.
If these third parties continue to increase their rates and add surcharges, and we do not seek to pass them on to our customers, our financial results could be materially adversely impacted.
Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure.
Our results of operations may be affected by the timing, effectiveness and costs 43 associated with the successful implementation of any upgrades or changes to our systems and infrastructure.
We collect, transmit and store personal and financial information provided by our customers, such as names, email addresses, the details of transactions and credit card and other financial information. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
We collect, transmit, store and otherwise process personal and financial information provided by our customers, such as names, email addresses, the details of transactions and credit card and other financial information. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.
We believe that the sustainability of our recent revenue growth, and potential future growth, will depend upon, among other factors, our ability to: • address the short- and long-term macroeconomic challenges by adjusting our cost structure, meeting our customers’ service expectations, shifting our marketing strategy and maintaining a relevant merchandise assortment; • identify and develop new emerging, established and owned brands while maintaining the relationships and product curation with existing emerging, established and owned brands; • acquire new customers and retain existing customers; • provide a premium shopping experience for our customers; 26 • offer an assortment of merchandise that is attractive to consumers; • develop new features to enhance the consumer experience on our sites; • increase the frequency with which new and repeat customers purchase products on our sites through merchandising, data analytics and technology; • add new suppliers and deepen our relationships with our existing suppliers; • attract and retain personnel; • enhance and scale the systems our consumers use to interact with our sites and invest in our infrastructure platform; • target additional categories and price points beyond premium apparel for Millennial and Generation Z consumers, such as luxury, beauty and home products, and men’s apparel; • expand internationally; and • pursue strategic acquisitions.
We believe that the sustainability of our recent net sales growth, and potential future growth, will depend upon, among other factors, our ability to: 25 • address the short- and long-term macroeconomic challenges by adjusting our cost structure, meeting our customers’ service expectations, shifting our marketing strategy and maintaining a relevant merchandise assortment; • identify and develop emerging, established and owned brands while maintaining the relationships and product curation with existing, established and owned brands; • acquire new customers and retain existing customers; • provide a premium shopping experience for our customers; • offer an assortment of merchandise that is attractive to consumers; • develop new features to enhance the consumer experience on our sites; • increase the frequency with which new and repeat customers purchase products on our sites through merchandising, data analytics and technology; • add new suppliers and deepen our relationships with our existing suppliers; • attract and retain personnel; • enhance and scale the systems our consumers use to interact with our sites and invest in our infrastructure platform; • target additional categories and price points beyond premium apparel for Millennial and Generation Z consumers, such as luxury, beauty and home products, and men’s apparel; • expand internationally; and • pursue strategic acquisitions and investments.
Companies across all industries are facing increasing scrutiny related to their environmental, social and governance, or ESG, practices and reporting. Investors, customers, employees and other stakeholders have focused increasingly on ESG practices and placed increasing importance on the implications and social cost of their investments, purchases and other interactions with companies.
Companies across many industries are facing scrutiny related to their environmental, social and governance, or ESG, practices and reporting. Investors, customers, employees and other stakeholders have focused increasingly on ESG practices and placed increasing importance on the implications and social cost of their investments, purchases and other interactions with companies.
Future issuances of shares of our Class A common stock or the conversion of a substantial number of shares of our Class B common stock, or the perception that these sales or conversions may occur, could depress the market price of our Class A common stock and result in dilution to existing holders of our Class A common stock.
Future issuances of shares of our Class A common stock or the conversion of a substantial number of shares of our Class B common stock, or the perception that these sales or conversions may occur, could depress the market price of our Class A common stock and result in dilution to our existing stockholders.
Factors that could cause fluctuations in the market price of our Class A common stock include the following: • market volatility and economic disruption caused by macroeconomic factors, including but not limited to inflation, consumer confidence and events such as the COVID-19 pandemic; • actual or anticipated fluctuations in our customer base, the level of customer engagement, net sales or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our executive officers, directors and their affiliates; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our vendors and competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; • imposition of fines or other remedial measures as a result of the underpayment of customs duties; and • other events or factors, including those resulting from war, including Russia’s war against Ukraine, or incidents of terrorism, or responses to these events.
Factors that could cause fluctuations in the market price of our Class A common stock include the following: • market volatility and economic disruption caused by macroeconomic factors, including but not limited to inflation, consumer confidence and events such as the COVID-19 pandemic; • actual or anticipated fluctuations in our customer base, the level of customer engagement, net sales or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our executive officers, directors and their affiliates; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • repurchases of our Class A common stock pursuant to our stock repurchase program and any announcement of a termination of the program; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our vendors and competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; • imposition of fines or other remedial measures as a result of the underpayment of customs duties; and • other events or factors, including those resulting from war and geopolitical tensions, or incidents of terrorism, or responses to these events.
More specifically, the U.S. government has from time to time imposed significant tariffs on certain product categories imported from China, including apparel, footwear, accessories and beauty. Such tariffs could have a significant impact on our business, particularly the REVOLVE segment, within which a large portion of the merchandise offered for sale are 39 manufactured in China.
More specifically, the U.S. government has from time to time imposed significant tariffs on certain product categories imported from China, including apparel, footwear, beauty and accessories. Such tariffs could have a significant impact on our business, particularly the REVOLVE segment, within which a large portion of the merchandise offered for sale is manufactured in China.
Any further deterioration in the relations between the United States and China could exacerbate these actions and other governmental intervention. For example, the implementation of China’s national-security law in Hong Kong has created additional U.S.-China tensions and could potentially increase the risks associated with the business and operations of U.S.-based technology companies in China.
Any further deterioration in the relations between the United States and China could exacerbate these actions and other governmental intervention. For example, the implementation of China’s national-security law in Hong Kong created additional U.S.-China tensions and similar events could potentially increase the risks associated with the business and operations of U.S.-based technology companies in China.
Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, cyberattacks, data loss, acts of war, break-ins, earthquake and similar events.
Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, cyberattacks, data loss, acts of war, break-ins, earthquakes and similar events.
If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our Class A common stock could decline substantially.
If our operating results fall below the expectations of analysts or investors or below any forecasts we 46 may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our Class A common stock could decline substantially.
Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of social media platforms, our ability to use certain platforms, including TikTok in particular, as marketing tools may become limited or restricted, which could adversely impact our business and operating results.
Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of social media platforms, our ability to use certain platforms, including TikTok in particular, as marketing tools may become limited, restricted or more expensive or complicated, which could adversely impact our business and operating results.
In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce in shopping for apparel and may prefer alternatives to our offerings, such as traditional brick-and-mortar retailers and the websites of our competitors.
In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce in shopping for apparel and may prefer alternatives to our offerings, such as traditional brick-and-mortar retailers, the websites of our competitors and the direct websites of the brands we carry.
Any errors or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of customers, disruption to our eCommerce channels, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.
Any errors or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of customers, disruption to our eCommerce channels, loss of net sales or liability for damages, any of which could adversely affect our growth prospects and our business.
Use of social media and influencers may materially and adversely affect our reputation or subject us to tax obligations, fines or other penalties. We use third-party social media platforms as, among other things, marketing tools. For example, we maintain Instagram, Facebook, TikTok, Pinterest, YouTube and Twitter accounts.
Use of social media and influencers may materially and adversely affect our reputation or subject us to regulatory and tax obligations, fines or other penalties. We use third-party social media platforms as, among other things, marketing tools. For example, we maintain accounts on Instagram, Facebook, TikTok, Pinterest, YouTube and X (formerly Twitter).
Demand may be affected by macroeconomic factors such as inflation, consumer confidence and events like the COVID-19 pandemic, seasonality, new product launches, rapid changes in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, political instability and social unrest, and our consumers may not purchase products in the quantities that we expect.
Demand may be affected by macroeconomic factors such as high inflation and low consumer confidence, events such as the COVID-19 pandemic and wars, seasonality, new product launches, rapid changes in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products, and various other factors, such as political instability and social unrest, and our consumers may not purchase products in the quantities that we expect.
For example, in some cases, the FTC has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.
For example, in some cases, the Federal Trade Commission, or the FTC, has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.
As such, we are in process of implementing, and will continue to invest in and implement, significant modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools.
As such, we will continue to invest in and implement significant modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools.
Furthermore, economic downturns could lead to reduced liquidity, decreases in the market price of our securities and decreases in the fair market value of our financial or other assets, any of which could have a material adverse effect on our business, operating results and financial condition.
Furthermore, economic downturns could lead to reduced liquidity, decreases in the market price of our Class A common stock and decreases in the fair market value of our financial or other assets, any of which could have a material adverse effect on our business, operating results and financial condition.
In addition to the GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive.
The European Commission also has a draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive.
Further, our third-party manufacturers, suppliers, distributors, fulfillment centers and other vendors may: • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, and to comply with applicable regulations, including those regarding the safety and quality of products; • have financial difficulties, including as a result of negative economic conditions; • encounter raw material or labor shortages; • encounter increases in raw material or labor costs which may affect our procurement costs; • encounter difficulties with proper payment of custom duties or excise taxes; • misuse our confidential information or intellectual property or disclose them to competitors or third parties; • engage in activities or employ practices that may harm our reputation; and • work with, be acquired by, or come under control of, our competitors.
Further, our third-party manufacturers, suppliers, distributors, fulfillment centers and other vendors may: • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, and to comply with applicable regulations, including those regarding the safety and quality of products; • have financial difficulties, including as a result of negative economic conditions; • encounter raw material or labor shortages; • encounter increases in raw material or labor costs which may affect our procurement costs; • encounter difficulties with proper payment of custom duties or excise taxes; • misuse our confidential information or intellectual property or disclose them to competitors or third parties; • engage in activities or employ practices that may harm our reputation; and • work with, be acquired by, or come under control of, our competitors. 22 Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.
Risks Related to Privacy, Cybersecurity and Our Technology If sensitive information, including such information about our customers, is disclosed or accessed without authorization, or if we or our third-party providers are subject to real or perceived cyberattacks or other security breaches or incidents, our customers may curtail use of our platform, we may be exposed to liability and our reputation would suffer.
If sensitive information, including such information about our customers, is disclosed or accessed without authorization, or if we or our third-party providers are subject to real or perceived cyberattacks or other security breaches or incidents, our customers may curtail use of our platform, we may be exposed to liability and our reputation would suffer.
See also “—If sensitive information, including such information about our customers, is disclosed or accessed without authorization, or if we or our third-party providers are subject to real or perceived cyberattacks or other security breaches or incidents, our customers may curtail use of our platform, we may be exposed to liability and our reputation would suffer.” We must successfully maintain, scale and upgrade our information technology systems and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.
See also “—If sensitive information, including such information about our customers, is disclosed or accessed without authorization, or if we or our third-party providers are subject to real or perceived cyberattacks or other security breaches or incidents, our customers may curtail use of our platform, we may be exposed to liability and our reputation would suffer.” We must successfully maintain, scale and improve our information technology systems and personnel, and failure to do so could have a material adverse effect on our business, financial condition and results of operations. 42 We must successfully maintain, scale and improve our information technology systems and personnel to support our current operations and future growth.
We are further dependent on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or give preferential treatment to competitive products could adversely affect the usage of our sites on mobile devices.
We also depend on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or give preferential treatment to competitive products could adversely affect the usage of our sites on mobile devices.
Product safety, labeling and licensing concerns, including consumer disclosure and warning regarding chemical exposure, may require us to voluntarily remove selected merchandise from our inventory.
Product safety, labeling and licensing regulations, including consumer disclosure and warning regarding chemical exposure, may require us to remove selected merchandise from our inventory.
As of December 31, 2022, our co-chief executive officers and MMMK Development, Inc., an entity controlled by our co-chief executive officers, collectively beneficially owned approximately 45% of the outstanding shares of common stock and collectively controlled approximately 89% of the voting power of our outstanding common stock.
As of December 31, 2023, our co-chief executive officers and MMMK Development, Inc., an entity controlled by our co-chief executive officers, collectively beneficially owned approximately 46% of the outstanding shares of common stock and collectively controlled approximately 89% of the voting power of our outstanding common stock.
We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences such as #REVOLVEfestival, #REVOLVEaroundtheworld and the REVOLVE Gallery, as well as short-term pop-up retail experiences. Our marketing initiatives have and may continue to become increasingly expensive as competition increases and generating a meaningful return on those initiatives may be difficult.
We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences, as well as short-term pop-up retail experiences. Our marketing initiatives have and may continue to become increasingly expensive as competition increases and generating a meaningful return on those initiatives may be difficult.
Various health and safety restrictions imposed by state and local authorities in response to the COVID-19 pandemic have, in the past, adversely impacted our ability to staff our Los Angeles fulfillment center.
Various health and safety restrictions imposed by state and local authorities in response to public health crises such as the COVID-19 pandemic have in the past adversely impacted our ability to staff our Los Angeles fulfillment center.
Accordingly, these shares are able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements and subject to compliance with applicable securities laws.
Accordingly, these shares will be able to be freely resold in the public market upon issuance as permitted by any applicable vesting requirements and subject to compliance with applicable securities laws.
For example, Apple has imposed requirements for consumer disclosures regarding privacy practices and has implemented an application 29 tracking transparency framework that requires opt-in consent for certain types of tracking. This transparency framework was launched in April 2021. This transparency framework has and may continue to negatively impact the effectiveness of our advertising practices.
For example, Apple has imposed requirements for consumer disclosures regarding privacy practices and has implemented an application tracking transparency framework that requires opt-in consent for certain types of tracking. This transparency framework was launched in April 2021 and has negatively impacted the effectiveness of our advertising practices.
These reasons include those described in these risk factors as well as the following: • fluctuations in net sales generated from the brands on our sites, including as a result of macroeconomic factors, seasonality trends and the timing and success of large, in-person events that we host, such as the #REVOLVEfestival; • fluctuations in product mix, including between sites and between product categories; • our ability to effectively launch and manage new sites and brands; • fluctuations in the levels or quality of inventory; • fluctuations in the percentage of returns, full price sales, levels of markdowns and gross margins; • fluctuations in capacity as we expand our operations; • our success in engaging existing customers and attracting new customers; • the amount and timing of our operating expenses; • our ability to attract and retain personnel; • the timing and success of new products and brands we introduce; • the impact of competitive developments and our response to those developments; • our ability to manage our existing business and future growth; • rising inflation and our ability to control our costs, including employee wages and benefits, shipping costs, other selling costs and other operating expenses; • disruptions or defects in our sites, or actual or perceived privacy or data security breaches or incidents; and • economic and market conditions, particularly those affecting our industry.
These reasons include those described in these risk factors as well as the following: • fluctuations in net sales generated from the brands on our sites, including as a result of macroeconomic factors, seasonality trends and the timing and success of large, in-person events that we host; • fluctuations in product mix, including between sites and between product categories; • our ability to effectively launch and manage new sites and brands; • fluctuations in the levels or quality of inventory; • fluctuations in the percentage of returns, full price sales, levels of markdowns and gross margins; • fluctuations in capacity as we expand our operations; • our success in engaging existing customers and attracting new customers; • the amount and timing of our operating expenses; • our ability to attract and retain personnel; • the timing and success of new products and brands we introduce; • the impact of competitive developments and our response to those developments; • our ability to manage our existing business and future growth; • inflation levels and our ability to control our costs, including employee wages and benefits, shipping costs, other selling costs and other operating expenses; • disruptions or defects in our sites, or actual or perceived privacy or data security breaches or incidents; • the effect on our business of claims, lawsuits, government investigations, other legal or regulatory proceedings or commercial or contractual disputes that we are or may become involved in; and • economic and market conditions, particularly those affecting our industry.
For example, the United States enacted the Inflation Reduction Act of 2022 which, among other provisions, imposed a one-percent excise tax on certain stock buybacks by public companies. The Organization of Economic Cooperation and Development proposed implementing a global minimum tax of fifteen percent, which is being adopted or considered by many jurisdictions.
For example, the Inflation Reduction Act of 2022, among other things, imposed a one percent excise tax on certain stock repurchases by public companies. The Organization of Economic Cooperation and Development proposed implementing a global minimum tax of fifteen percent, which is being adopted or considered by many jurisdictions.
We derive a significant portion of our owned brand merchandise from third-party manufacturing and supply partners in foreign countries and territories, including countries and territories perceived to carry an increased risk of corrupt business practices. The U.S.
We derive a significant portion of our owned brand merchandise from third-party manufacturing and supply partners in foreign countries and territories, including countries and territories perceived to carry an increased risk of corrupt business practices. We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K.
For example, in December 2021, a vulnerability in a popular logging software, Log4j, was publicly announced. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business and operating results.
For example, in December 2021, a vulnerability in a popular logging software, Log4j, was publicly announced. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business and operating results. Our software is highly complex and may contain undetected errors.
If we are unable to adequately staff our fulfillment centers to meet demand or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, COVID-19-related shelter-in-place orders and other business restrictions, international expansion or other factors, our operating results could be harmed.
If we are unable to adequately staff our fulfillment centers to meet demand or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes and other business limitations and restrictions, international expansion or other factors, our operating results could be harmed.
The imposition by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes, whether for prior years or prospectively, could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could have a material adverse impact on our business and operating results. 37 Risks Related to Our International Operations We have operations and do business in China, which exposes us to risks inherent in doing business there.
The imposition by state governments of sales tax collection obligations on out-of-state retailers in jurisdictions where we do not currently collect sales taxes, whether for prior years or prospectively, could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could have a material adverse impact on our business and operating results.
We have and may continue to experience increased levels of returns due to changes in consumer shopping behavior and discretionary spending as a result of changes in macroeconomic conditions or consumer confidence in future economic conditions, including levels of unemployment, the size and timing of federal stimulus programs, salaries and wage rates, increasing inflation, rising interest rates, recession and fears of recession, housing costs, energy and fuel costs, income tax rates and the timing of tax refunds, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels.
We have also experienced and may continue to experience increased levels of returns due to changes in consumer shopping behavior and discretionary spending as a result of changes in macroeconomic conditions or consumer confidence, including levels of unemployment, the size and timing of federal stimulus programs, salaries and wage rates, high inflation, high interest rates, recession or fears of recession, housing costs, energy and fuel costs, the resumption of student loan repayments, income tax rates and the timing of tax refunds, consumer perceptions of personal well-being and security, availability of consumer credit and consumer debt levels.
Such recalls or voluntary removal of merchandise can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could have a material adverse effect on our operating results. We purchase our merchandise from numerous domestic and international vendors.
Such recalls or removal of merchandise can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could have a material adverse effect on our operating results.
Adverse economic changes reduce consumer confidence and have, and in the future could, negatively affect our operating results. In challenging and uncertain economic environments, we cannot predict when macroeconomic 15 uncertainty may arise, whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business.
Adverse economic changes reduce consumer confidence and could negatively affect our operating results. We cannot predict when macroeconomic uncertainty may arise, whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the UK ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the EEA to the UK.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the UK ensures an equivalent level of data protection to the GDPR, which generally permits continued personal data flows from the EEA to the UK.
Natural disasters, such as earthquakes, wildfires, hurricanes, tornadoes, floods and other adverse weather and climate conditions; unforeseen public health crises, such as the COVID-19 pandemic; political crises, such as terrorist attacks, war and other political instability; including Russia’s war against Ukraine; worsening U.S.-China relations; social unrest; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations or the operations of one or more of our third-party providers or vendors.
Natural disasters, such as earthquakes, wildfires, hurricanes, tornadoes, floods and other adverse weather and climate conditions; unforeseen public health crises, such as the COVID-19 pandemic; political crises; terrorist attacks; wars and geopolitical tensions; worsening U.S.-China relations; social unrest; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations, or the operations of one or more of our third-party providers or vendors, and adversely affect our operating results.
Bribery Act of 2010, or any of the anti-corruption and anti-bribery laws in the countries and territories where we and our vendors do business, we could suffer severe fines and 38 penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting certain business, and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
Bribery Act of 2010 or any of the anti-corruption and anti-bribery laws in the countries and territories where we and our vendors do business, could result in severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, prosecution, enforcement actions, fines, damages, investigations, loss of export privileges, bans on transacting certain business, and other consequences that may have a material adverse effect on our business, financial condition, results of operations and prospects.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest change(2) Approximately 26,000 square feet is sublet to a third-party through the remainder of the lease term. We believe that our facilities are adequate for our needs and believe that we should be able to renew any of the above leases or secure similar property without an adverse impact on our operations.
Biggest changeWe believe that our facilities are adequate for our needs and believe that we should be able to renew any of the above leases or secure similar property without an adverse impact on our operations.
PR OPERTIES The following table sets forth information with respect to our facilities, all of which are used by both our REVOLVE and FWRD segments: Location Type Square Footage (approximate) Lease Expiration Cerritos, California Corporate headquarters and fulfillment center 281,100 2023 Berks County, Pennsylvania Fulfillment center 95,600 2027 La Palma, California (1) Fulfillment center 75,000 2027 Los Angeles, California Office space 42,200 2027 Cerritos, California (2) Office space 38,700 2023 Cerritos, California Office and studio space 37,000 2032 Cerritos, California Office space 23,700 2023 Los Angeles, California Office and studio space 6,100 2027 (1) Approximately 30,000 square feet is sublet to a third-party on a month-to-month basis.
PR OPERTIES The following table sets forth information with respect to our facilities, all of which are used by both our REVOLVE and FWRD segments: Location Type Square Footage (approximate) Lease Expiration Cerritos, California Corporate headquarters and fulfillment center 281,100 2028 Berks County, Pennsylvania Fulfillment center 95,600 2027 La Palma, California (1) Fulfillment center 75,000 2027 Los Angeles, California Office space 42,200 2028 Cerritos, California Office and studio space 37,000 2032 Los Angeles, California Office and studio space 6,100 2027 (1) Approximately 30,000 square feet is sublet to a third-party on a month-to-month basis.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. MINE SAF ETY DISCLOSURES Not applicable. 50 PAR T II
Biggest changeThe results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. MINE SAF ETY DISCLOSURES Not applicable. 51 PAR T II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities None. 51 Cumulative Stock Performance Graph The following graph and table compare the performance of (1) an investment in our Class A common stock over the period of June 7, 2019 through December 31, 2022, beginning with an investment at the $34.00 closing market price on June 7, 2019, the end of the first day our Class A common stock traded on the NYSE following our initial public offering at $18.00 per share, and thereafter based on the closing price of our Class A common stock on the NYSE, with (2) an investment in the S&P 500 and the S&P Retail Select Industry, in each case beginning with an investment at the closing price on June 7, 2019 and thereafter based on the closing price of the index.
Biggest changeThe following table summarizes repurchases of shares of our Class A common stock for the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2023 to October 31, 2023 556,520 $ 13.89 556,520 $ 79,704,982 November 1, 2023 to November 30, 2023 560,166 $ 13.74 560,166 $ 72,006,959 December 1, 2023 to December 31, 2023 174,949 $ 14.77 174,949 $ 69,423,627 Total 1,291,635 1,291,635 (1) Exclusive of broker fees and excise taxes. 52 Cumulative Stock Performance Graph The following graph and table compare the performance of (1) an investment in our Class A common stock over the period of June 7, 2019 through December 31, 2023, beginning with an investment at the $34.00 closing market price on June 7, 2019, the end of the first day our Class A common stock traded on the NYSE following our initial public offering at $18.00 per share, and thereafter based on the closing price of our Class A common stock on the NYSE, with (2) an investment in the S&P 500 and the S&P Retail Select Industry, in each case beginning with an investment at the closing price on June 7, 2019 and thereafter based on the closing price of the index.
(in dollars) June 7, 2019 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Revolve Group, Inc. $ 100.00 $ 54.00 $ 91.68 $ 164.82 $ 65.47 S&P 500 $ 100.00 $ 113.67 $ 134.58 $ 173.21 $ 141.84 S&P Retail Select Industry $ 100.00 $ 113.11 $ 160.19 $ 229.03 $ 156.39 The graph and the table above shall not be deemed “filed” with the SEC for the purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by us with the SEC, regardless of any general incorporation language in such filing. 52 Item 6. [ RESERVED] 53
(in dollars) June 7, 2019 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Revolve Group, Inc. $ 100.00 $ 54.00 $ 91.68 $ 164.82 $ 65.47 $ 48.76 S&P 500 $ 100.00 $ 113.67 $ 134.58 $ 173.21 $ 141.84 $ 179.13 S&P Retail Select Industry $ 100.00 $ 113.11 $ 160.19 $ 229.03 $ 156.39 $ 190.07 The graph and the table above shall not be deemed “filed” with the SEC for the purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by us with the SEC, regardless of any general incorporation language in such filing. 53 Item 6. [ RESERVED] 54
Holders of Record As of February 15, 2023, we had two registered holders of record of our Class A common stock and two registered holders of record of our Class B common stock.
Holders of Record As of February 20, 2024, we had two registered holders of record of our Class A common stock and two registered holders of record of our Class B common stock.
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Issuer’s Repurchases of Equity Securities In August 2023, our board of directors authorized a stock repurchase program of up to $100 million of our outstanding Class A common stock.
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The timing and amount of any stock repurchases is determined based on market conditions, stock price and other factors, and the program does not require us to repurchase any specific number of shares of Class A common stock. The program has no expiration date but it may be modified, suspended or terminated at any time.
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The stock repurchase program is funded from available cash and cash equivalents.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

105 edited+20 added−51 removed53 unchanged
Biggest changeYear Ended December 31, 2022 2021 2020 (in thousands) Net sales $ 1,101,416 $ 891,390 $ 580,649 Cost of sales 509,093 401,567 275,369 Gross profit 592,323 489,823 305,280 Operating expenses: Fulfillment expenses 31,804 21,322 16,471 Selling and distribution expenses 190,419 133,506 80,496 Marketing expenses 181,648 140,398 76,371 General and administrative expenses 115,312 89,306 70,876 Total operating expenses 519,183 384,532 244,214 Income from operations 73,140 105,291 61,066 Other (income) expense, net (3,476 ) 563 994 Income before income taxes 76,616 104,728 60,072 Provision for income taxes 17,919 4,888 3,282 Net income $ 58,697 $ 99,840 $ 56,790 Year Ended December 31, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 46.2 45.0 47.4 Gross profit 53.8 55.0 52.6 Operating expenses: Fulfillment expenses 2.9 2.4 2.8 Selling and distribution expenses 17.3 15.0 13.9 Marketing expenses 16.5 15.8 13.2 General and administrative expenses 10.5 10.0 12.2 Total operating expenses 47.2 43.2 42.1 Income from operations 6.6 11.8 10.5 Other (income) expense, net (0.3 ) 0.1 0.2 Income before income taxes 6.9 11.7 10.3 Provision for income taxes 1.6 0.5 0.5 Net income 5.3 % 11.2 % 9.8 % Comparison of Years Ended 2022 and 2021 Net Sales Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Net sales $ 1,101,416 $ 891,390 $ 210,026 23.6 % The increase in net sales for 2022 compared to 2021 was primarily due to an increase in the number of total orders placed by customers of 25.1% and increase in average order value of 12.2% as compared to 2021, partially offset by a higher proportion of returned purchases. 64 Net sales in the REVOLVE segment increased 23.7% to $921.7 million in 2022 compared to net sales of $745.1 million in 2021.
Biggest changeYear Ended December 31, 2023 2022 2021 (in thousands) Net sales $ 1,068,719 $ 1,101,416 $ 891,390 Cost of sales 514,520 509,093 401,567 Gross profit 554,199 592,323 489,823 Operating expenses: Fulfillment expenses 36,654 31,804 21,322 Selling and distribution expenses 197,052 190,419 133,506 Marketing expenses 171,774 181,648 140,398 General and administrative expenses 126,585 115,312 89,306 Total operating expenses 532,065 519,183 384,532 Income from operations 22,134 73,140 105,291 Other (income) expense, net (15,627 ) (3,476 ) 563 Income before income taxes 37,761 76,616 104,728 Provision for income taxes 9,614 17,919 4,888 Net income $ 28,147 $ 58,697 $ 99,840 Year Ended December 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 48.1 46.2 45.0 Gross profit 51.9 53.8 55.0 Operating expenses: Fulfillment expenses 3.4 2.9 2.4 Selling and distribution expenses 18.4 17.3 15.0 Marketing expenses 16.1 16.5 15.8 General and administrative expenses 11.9 10.5 10.0 Total operating expenses 49.8 47.2 43.2 Income from operations 2.1 6.6 11.8 Other (income) expense, net (1.4 ) (0.3 ) 0.1 Income before income taxes 3.5 6.9 11.7 Provision for income taxes 0.9 1.6 0.5 Net income 2.6 % 5.3 % 11.2 % Comparison of Years Ended 2023 and 2022 Net Sales Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Net sales $ 1,068,719 $ 1,101,416 $ (32,697 ) (3.0 %) The decrease in net sales for 2023 compared to 2022 was primarily due to a higher proportion of returned purchases, partially offset by an increase in the number of orders placed by customers.
Through REVOLVE, we offer an assortment of premium apparel, footwear, accessories, beauty and home products from emerging, established and owned brands. Through FWRD, we offer an assortment of curated and elevated iconic and emerging luxury brands.
Through REVOLVE, we offer an assortment of premium apparel, footwear, beauty, accessories and home products from emerging, established and owned brands. Through FWRD, we offer an assortment of curated and elevated iconic and emerging luxury brands.
Adjusted EBITDA To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this report Adjusted EBITDA, a non-GAAP financial measure that we calculate as net income before other (income) expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and certain non-routine items.
Adjusted EBITDA To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this report Adjusted EBITDA, a non-GAAP financial measure that we calculate as net income before other income, net; taxes; and depreciation and amortization; adjusted to exclude the effects of equity-based compensation expense and certain non-routine items.
We plan to continue to conduct in-person events at varying levels of scale in the future and make opportunistic investments in marketing initiatives that could increase marketing as a percentage of net sales to levels in excess of historical levels for certain quarters or periods of time.
We plan to continue to conduct in-person events at varying levels of scale in the future and make opportunistic investments in marketing initiatives that could increase marketing as a percentage of net sales to levels in excess of historical levels for certain quarters or periods of time in the future.
The brands we sell on our platform consist of a mix of emerging third-party, established third-party (including iconic luxury brands) and owned brands. Our product mix consists primarily of apparel, footwear, accessories and beauty products. Our merchandise mix across our two reporting segments carry a range of margin profiles and may cause fluctuations in our gross margin.
The brands we sell on our platform consist of a mix of emerging third-party, established third-party (including iconic luxury brands) and owned brands. Our product mix consists primarily of apparel, footwear, beauty and accessories products. Our merchandise mix across our two reporting segments carry a range of margin profiles and may cause fluctuations in our gross margin.
No significant interest or penalties related to sales taxes are recognized in the accompanying consolidated financial statements. We have exposure to losses from fraudulent credit card charges. We record losses when incurred related to fraudulent charges as such amounts have historically been insignificant. Inventory Inventories are stated at the lower of cost and net realizable value.
No significant interest or penalties related to sales taxes are recognized in the accompanying consolidated financial statements. We have exposure to losses from fraudulent credit card charges. We record losses when incurred related to fraudulent charges as such amounts have historically been insignificant. 70 Inventory Inventories are stated at the lower of cost and net realizable value.
This incremental investment may not deliver a meaningful return in the short term and may adversely impact our operating income in the short term. Customer Retention 59 Our success is impacted not only by efficient and effective customer acquisition and growth in brand awareness, but also by our ability to retain customers, engage with our community and encourage repeat purchases.
This incremental investment may not deliver a meaningful return in the short term and may adversely impact our operating income in the short term. Customer Retention Our success is impacted not only by efficient and effective customer acquisition and growth in brand awareness, but also by our ability to retain customers, engage with our community and encourage repeat purchases.
We expect fulfillment expenses to fluctuate as a percentage of net sales due to pressure from increased costs such as wages and other input cost pressure, expansion of our fulfillment network footprint and capacity, and our customers' propensity to return merchandise, to 62 be partially offset by operating efficiencies from increased scale as well as automation of the fulfillment center workflow.
We expect fulfillment expenses to fluctuate as a percentage of net sales due to pressure from increased costs such as wages and other input cost pressure, expansion of our fulfillment network footprint and capacity, and our customers’ propensity to return merchandise, to be partially offset by operating efficiencies from increased scale as well as automation of the fulfillment center workflow.
For further information on all of our significant accounting policies, please see Note 2, Significant Accounting Policies , of the accompanying notes to our consolidated financial statements included elsewhere in this report. Net Sales Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue.
For further information on all of our significant accounting policies, please see Note 2, Significant Accounting Policies , of the accompanying notes to our consolidated financial statements included elsewhere in this report. 69 Net Sales Revenue is primarily derived from the sale of apparel merchandise through our sites and, when applicable, shipping revenue.
Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of our purchase price of merchandise sold to customers and includes import 55 duties and other taxes, inbound freight costs, receiving costs, defective merchandise returned from customers, inventory valuation adjustments, and other miscellaneous shrinkage.
Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of our purchase price of merchandise sold to customers and includes import duties and other taxes, inbound freight costs, receiving costs, defective merchandise returned from customers, inventory valuation adjustments, and other miscellaneous shrinkage.
We have maintained a high percentage of sales that occur at full price, which we believe reflects our data-driven merchandising strategy, customer acceptance of our merchandise and the sense of urgency we create through frequent product introductions in limited quantities.
We have maintained a high percentage of sales that occur at full price, which we believe reflects our data-driven merchandising strategy, customer acceptance of our merchandise and the 56 sense of urgency we create through frequent product introductions in limited quantities.
Our inability or failure to do so could harm our business, financial condition and results of operations. 72 Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.
Our inability or failure to do so could harm our business, financial condition and results of operations. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.
In any particular period, we determine our number of active customers by counting 57 the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.
In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.
Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the sections titled “Risk Factors” and “Forward-Looking Statements.” For discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Part II, Item 7.
Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the sections titled “Risk Factors” and “Forward-Looking Statements.” For discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7.
We believe these investments will yield positive returns in the long term; however, we cannot be certain that these efforts will grow our customer base or be cost-effective in the short term.
We believe these investments will yield positive returns in the long 61 term; however, we cannot be certain that these efforts will grow our customer base or be cost-effective in the short term.
Through 20 years of continued investment in technology, data analytics, and innovative marketing and merchandising strategies, we have built a powerful platform and brand that we believe is connecting with the next generation of consumers and is redefining fashion retail for the 21st century. We sell merchandise through two complementary segments, REVOLVE and FWRD, that leverage one platform.
Through more than 20 years of continued investment in technology, data analytics and innovative marketing and merchandising strategies, we have built a powerful platform and brand that we believe is connecting with the next generation of consumers and is redefining fashion retail for the 21st century. We sell merchandise through two complementary segments, REVOLVE and FWRD, that leverage one platform.
We believe these increasing metrics are reflective of our ability to engage and retain our customers through our differentiated marketing and compelling merchandise offering and shopping experience. The increasing share of our net sales from existing customers reflects our customer loyalty and the net sales retention behavior we see in our customer cohorts.
We believe these increases are reflective of our ability to engage and retain our customers through our differentiated marketing and compelling merchandise offering and shopping experience. The increasing share of our net sales from existing customers reflects our customer loyalty and the net sales retention behavior we see in our customer cohorts.
Borrowings under the credit agreement accrue interest, at our option, at (1) a base rate equal to the highest of (a) the federal funds rate, plus 0.50%, (b) the prime rate and (c) an adjusted LIBO rate determined on the basis of a one-month interest period, plus 1.00%, or (2) an adjusted LIBO rate, subject to a floor of 0.00%, in each case, plus a margin ranging from 0.25% to 0.75% per year in the case of base rate loans, and 1.25% to 1.75% per year in the case of LIBO rate loans.
Borrowings under the credit agreement accrue interest, at our option, at (1) a base rate equal to the highest of (a) the federal funds rate, plus 0.50%, (b) the prime rate and (c) an adjusted term SOFR rate determined on the basis of a one-month interest period, plus 1.00%, or (2) an adjusted term SOFR rate, subject to a floor of 0.00%, in each case, plus a margin ranging from 0.25% to 0.75% per year in the case of base rate loans, and 1.25% to 1.75% per year in the case of term SOFR rate loans.
The credit agreement also contains customary covenants restricting our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness or grant liens or negative pledges on our assets, make loans or make other investments.
The credit agreement also contains customary covenants restricting certain of our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, obtain letters of credit, incur indebtedness, repurchase stock or grant liens or negative pledges on our assets, make loans or make other investments.
Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock. We were in compliance with all financial covenants as of December 31, 2022 and 2021.
Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock. We were in compliance with all financial covenants as of December 31, 2023 and 2022.
Failure to attract new visitors to our sites and convert them to customers would impact future net sales growth. If our marketing efforts do not connect with our customer or fail to cost-effectively promote our brand or convert impressions into purchases of our product, our net sales growth and profitability will be adversely affected.
Failure to attract new visitors to our sites and convert them to customers would impact future net sales growth. If our marketing efforts do not connect with our customer or fail to cost-effectively promote our brand or convert impressions into new customers, our net sales growth and profitability will be adversely affected.
Revenue recognized in net sales on breakage on store credit and gift cards was $1.7 million and $1.2 million for 2022 and 2021, respectively. Sales taxes and duties collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Revenue recognized in net sales on breakage on store credit and gift cards was $2.6 million and $1.7 million for 2023 and 2022, respectively. Sales taxes and duties collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
REVOLVE has historically been focused on the discovery of trend-driven, ready-to-wear styles, while FWRD has been more heavily weighted toward the statement pieces in her wardrobe such as shoes and handbags.
REVOLVE has historically been focused on the discovery of trend-driven, ready-to-wear styles, while FWRD has been more heavily weighted toward the statement pieces in our customers’ wardrobe, such as shoes and handbags.
The increase in fulfillment expenses as a percentage of net sales was primarily due to customers returning a higher proportion of their purchases, higher wages for fulfillment staff, the mix of units processed and the expansion of our fulfillment network footprint and capacity.
The increase in fulfillment expenses as a percentage of net sales was primarily due to customers returning a higher proportion of their purchases, higher wages for fulfillment staff and the expansion of our fulfillment network footprint and capacity.
Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for year ended 2021, which was filed with the SEC on February 28, 2022. Overview REVOLVE is the next-generation fashion retailer for Millennial and Generation Z consumers.
Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for year ended 2022, which was filed with the SEC on February 23, 2023. Overview REVOLVE is the next-generation fashion retailer for Millennial and Generation Z consumers.
We believe that FWRD provides our customer with a unique destination for luxury products as her spending power increases and her desire for fashion and inspiration remains central to her self-expression.
We believe that FWRD provides our customer with a unique destination for luxury products as our customers’ spending power increases and their desire for fashion and inspiration remains central to their self-expression.
Existing customers typically place more orders annually than new customers and at higher average order values, resulting in existing customers representing approximately 77% of orders and approximately 79% of net sales in 2022, up from 76% of orders and 77% of net sales in 2021 and 57% of orders and 58% of net sales in 2014, again having increased in each year since 2014.
Existing customers typically place more orders annually than new customers and at higher average order values, resulting in existing customers representing approximately 79% of orders and approximately 80% of net sales in 2023, up from 77% of orders and 79% of net sales in 2022, and 57% of orders and 58% of net sales in 2014, again having increased in each year since 2014.
Existing customers, whom we define as customers in a year who have purchased from us in any prior year, account for a greater and greater share of active customers over time. Existing customers as a percentage of total active customers were 50%, 49%, 49% and 45% for 2022, 2021, 2020 and 2019, respectively.
Existing customers, whom we define as customers in a year who have purchased from us in any prior year, account for a greater and greater share of active customers over time. Existing customers as a percentage of total active customers were 52%, 50%, 49% and 49% for 2023, 2022, 2021 and 2020, respectively.
Competition for social media and influencer-based marketing channels continues to increase, making it more difficult to differentiate our business and cost effectively acquire customers.
Competition for social media and influencer-based marketing channels continues to increase, making it more difficult to differentiate ourselves and cost-effectively acquire customers.
Cost is determined using the specific identification method. Cost of inventory includes import duties and other taxes and transport and handling costs. We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory.
Cost is determined using the specific identification method. Cost of inventory includes import duties and other taxes and transport and handling costs. We make inventory valuation adjustments where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory.
Segment and Geographic Performance Our financial results are affected by the performance across our two reporting segments, REVOLVE and FWRD, as well as across the various geographies in which we serve our customers. The REVOLVE segment contributes to a majority of our net sales, representing 83.6% of our net sales for both 2022 and 2021.
Segment and Geographic Performance Our financial results are affected by the performance across our two reporting segments, REVOLVE and FWRD, as well as across the various geographies in which we serve our customers. The REVOLVE segment contributes to a majority of our net sales, representing 84.6% and 83.7% of our net sales for 2023 and 2022, respectively.
Cohort net sales retention is calculated as net sales attributable to a given customer cohort divided by the total net sales attributable to the same customer cohort from one year prior. Cohort net sales retention was 97% in 2022 as compared to 120% in 2021, 74% in 2020 and 89% in 2019.
Cohort net sales retention rate is calculated as net sales attributable to a given customer cohort divided by the total net sales attributable to the same customer cohort from one year prior. Cohort net sales retention rate was 77% in 2023 compared to 97% in 2022, 120% in 2021 and 74% in 2020.
In 2022, average order value for merchandise sold through the REVOLVE and FWRD segments was approximately $279 and $690, respectively, reflecting the brands sold and typical profile of the shoppers on such sites. We believe our high average order value demonstrates the premium nature of our product assortment.
In 2023, average order value for merchandise sold through the REVOLVE and FWRD segments was approximately $274 and $692, respectively, reflecting the brands sold and typical profile of the shoppers on such sites. We believe our high average order value demonstrates the premium nature of our product assortment.
Inflation We have been impacted by rising levels of inflation in recent periods resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased merchandise and labor costs and other disruptions caused by the COVID‐19 pandemic and general economic and market conditions.
Inflation We have been impacted by high levels of inflation in recent periods resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased merchandise and labor costs and other disruptions caused by general economic and market conditions.
Apple has imposed requirements for consumer disclosures regarding privacy practices, and has implemented an application tracking transparency framework that requires opt-in consent for certain types of tracking. This transparency framework was launched in April 2021 and has made it more difficult and costly to acquire and retain customers, which may adversely affect our operating results.
Apple Inc. has imposed requirements for consumer disclosures regarding privacy practices, and has implemented an application tracking transparency framework that requires opt-in consent for certain types of tracking. This transparency framework was launched in April 2021 and has made it more difficult and costly to acquire and retain customers.
We support our logistics network with proprietary algorithms to optimize inventory allocation, reduce shipping and fulfillment expenses and deliver merchandise quickly and efficiently to our customers, which allows us to ship over 95% of orders on the same day if placed before noon Pacific Time.
We support our logistics network with proprietary algorithms to optimize inventory allocation, reduce shipping and fulfillment expenses and deliver merchandise quickly and efficiently to our customers, which allows us to ship over 97% of orders on the same day if placed before 3 p.m. Eastern Time.
During 2022 and 2021, net sales to customers outside of the United States were $187.1 million and $165.1 million, respectively, representing an increase of 13.2%. Net sales to customers outside of the United States are impacted by various factors including import and export taxes, currency fluctuations and other macroeconomic conditions described in “—Overall Economic Trends” above.
During 2023 and 2022, net sales to customers outside of the United States were $198.3 million and $187.1 million, respectively, representing an increase of 6.0%. Net sales to customers outside of the United States are impacted by various factors including import and export taxes, currency fluctuations and other macroeconomic conditions described in “—Overall Economic Trends” above.
Our returns reserve as of December 31, 2022 and 2021 was $63.4 million and $49.3 million, respectively, and the provisions recorded for returns were $1,410.5 million and $894.1 million, during 2022 and 2021, respectively. Actual levels of returns may vary from our estimates as of period ends and would be recorded in future periods.
Our returns reserve as of December 31, 2023 and 2022 was $63.8 million and $63.4 million, respectively, and the provisions recorded for returns were $1,505.9 million and $1,410.5 million, during 2023 and 2022, respectively. Actual levels of returns may vary from our estimates as of period ends and would be recorded in future periods.
The following table presents a reconciliation of free cash flow to net cash provided by operating activities, as well as information regarding net cash used in investing activities and net cash provided by financing activities, for each of the periods indicated: Year Ended December 31, 2022 2021 2020 (in thousands) Net cash provided by operating activities $ 23,436 $ 62,313 $ 73,773 Purchases of property and equipment (5,167 ) (2,195 ) (2,324 ) Free cash flow $ 18,269 $ 60,118 $ 71,449 Net cash used in investing activities $ (5,167 ) $ (2,195 ) $ (2,324 ) Net cash provided by financing activities $ 887 $ 12,766 $ 8,660 Active Customers We define an active customer as a unique customer account from which a purchase was made across our platform at least once in the preceding 12-month period.
The following table presents a reconciliation of free cash flow to net cash provided by operating activities, as well as information regarding net cash used in investing activities and net cash (used in) provided by financing activities, for each of the periods indicated: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 43,342 $ 23,436 $ 62,313 Purchases of property and equipment (4,198 ) (5,167 ) (2,195 ) Free cash flow $ 39,144 $ 18,269 $ 60,118 Net cash used in investing activities $ (4,198 ) $ (5,167 ) $ (2,195 ) Net cash (used in) provided by financing activities $ (30,377 ) $ 887 $ 12,766 Active Customers We define an active customer as a unique customer account from which a purchase was made across our platform at least once in the preceding 12-month period.
Net Cash Provided by Financing Activities Our financing activities primarily consist of proceeds from the exercise of stock options and borrowings and repayments related to the existing line of credit, when applicable.
Net Cash (Used in) Provided by Financing Activities Our financing activities primarily consist of proceeds from the exercise of stock options, borrowings and repayments related to the existing line of credit, when applicable and repurchases of our Class A common stock.
Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers, and more than 1,000 emerging, established and owned brands.
Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers and over 1,200 emerging, established and owned brands.
We believe that our existing cash and cash equivalents, cash flows from operations as well as the available borrowing capacity under our line of credit will be sufficient to meet our anticipated cash needs for at least the next 12 months.
As of December 31, 2023, the majority of our cash and cash equivalents was held for working capital purposes. We believe that our existing cash and cash equivalents, cash flows from operations as well as the available borrowing capacity under our line of credit will be sufficient to meet our anticipated cash needs for at least the next 12 months.
The decrease in our operating cash flow was primarily due to a $40.2 million decrease in net income adjusted for non-cash items and a $29.4 million decrease from changes in other working capital, partially offset by a $30.7 million increase due to reduced investments in inventory.
The increase in our operating cash flow was primarily due to a $55.6 million net increase due to reduced investments in inventory, partially offset by a $28.7 million decrease in net income adjusted for non-cash items and a $7.0 million decrease from changes in other working capital.
Over the long-term, we expect general and administrative expenses to continue to increase moderately in absolute dollars to support business growth and meet our obligations as a public company with general and administrative expenses as a percentage of revenue declining over the long-term as we leverage our investments and as our business scales.
Over the long-term, we expect general and administrative expenses to continue to increase in absolute dollars to support business growth with general and administrative expenses as a percentage of net sales declining over the long-term as we leverage our investments and as our business scales.
We have included Adjusted EBITDA in this report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.
We have provided below a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure. We have included Adjusted EBITDA in this report because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.
We generated $23.4 million of operating cash flow in 2022 compared to $62.3 million in 2021.
We generated $43.3 million of operating cash flow in 2023 compared to $23.4 million in 2022.
Macro factors that can affect consumer confidence, shopping behavior and spending patterns, and thereby our near-term and long-term results of operations, include inflation, employment rates, business conditions, changes in the housing market, changes in the stock market, the availability of credit, U.S. government stimulus payments, interest rates, foreign currency exchange rates, fuel, energy and raw material costs, supply chain challenges and Russia’s war against Ukraine.
Macro factors that can affect consumer confidence, shopping behavior and spending patterns, and thereby our near-term and long-term results of operations, include inflation levels, employment rates, business conditions, changes in the housing market, changes in the stock market, adverse developments affecting the financial services industry, the availability of credit, resumption of student loan payments, U.S. government stimulus payments, interest rates, foreign currency exchange rates, fuel, energy and raw material costs, supply chain challenges, and wars and geopolitical tensions.
Customer Acquisition and Retention and Growth in Brand Awareness Our focus since inception has been on profitable growth, which has created our disciplined approach to acquiring new customers and retaining existing customers at a reasonable cost, relative to the contributions we expect from such customers.
In addition, during periods of low unemployment, we generally experience higher labor costs. Customer Acquisition and Growth in Brand Awareness Our focus since inception has been on profitable growth, which has created our disciplined approach to acquiring new customers and retaining existing customers at a reasonable cost, relative to the contributions we expect from such customers.
In March 2020 we launched the REVOLVE Loyalty Club within the REVOLVE segment and in April 2021 we expanded the program to include the FWRD segment. Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $20 reward once they earn 2,000 points.
We have a Loyalty Club program within the REVOLVE and FWRD segments. Eligible customers who enroll in the program will generally earn points for every dollar spent and will automatically receive a $20 reward once they earn 2,000 points.
As a trusted, premium lifestyle brand, and a go-to online source for discovery and inspiration, we deliver an engaging customer experience from a vast yet curated offering of apparel, footwear, accessories, beauty and home products.
As a trusted premium lifestyle brand and a go-to online source for discovery and inspiration, we deliver exceptional service and an engaging customer experience with a vast yet curated offering totaling over 100,000 apparel and footwear styles, as well as beauty, accessories and home products.
Purchases of property and equipment may vary from period-to-period due to the timing and extent of the expansion of our operations. Net cash used in investing activities was $5.2 million and $2.2 million in 2022 and 2021, respectively. The increase was primarily due to capital expenditures related to our new fulfillment centers.
Purchases of property and equipment may vary from period-to-period due to the timing and extent of the expansion of our operations. Net cash used in investing activities was $4.2 million and $5.2 million in 2023 and 2022, respectively.
Overall Economic Trends The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending on our sites, while economic weakness, which generally results in a reduction of customer spending, may have a more pronounced negative effect on spending on our sites.
In general, positive conditions in the broader economy promote customer spending on our sites, while economic weakness, which generally results in a reduction of customer spending, may have a more pronounced negative effect on spending on our sites.
Free Cash Flow To provide investors with additional information regarding our financial results, we have also disclosed in the table above and elsewhere in this report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used in purchases of property and equipment.
Non-routine items in 2022 included $6.3 million in legal fees and charges for a settled legal matter and $0.1 million in other non-routine items. 57 Free Cash Flow To provide investors with additional information regarding our financial results, we have also disclosed in the table above and elsewhere in this report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used in purchases of property and equipment.
Year Ended December 31, 2022 2021 2020 (in thousands, except average order value and percentages) Gross margin 53.8 % 55.0 % 52.6 % Adjusted EBITDA $ 90,234 $ 114,585 $ 69,257 Free cash flow $ 18,269 $ 60,118 $ 71,449 Active customers 2,340 1,840 1,472 Total orders placed 8,304 6,636 4,499 Average order value $ 304 $ 271 $ 236 Adjusted EBITDA and free cash flow are non-GAAP measures.
Year Ended December 31, 2023 2022 2021 (in thousands, except average order value and percentages) Gross margin 51.9 % 53.8 % 55.0 % Adjusted EBITDA $ 43,409 $ 90,234 $ 114,585 Free cash flow $ 39,144 $ 18,269 $ 60,118 Active customers 2,543 2,340 1,840 Total orders placed 8,701 8,304 6,636 Average order value $ 297 $ 304 $ 271 Adjusted EBITDA and free cash flow are non-GAAP measures.
Marketing Expenses Marketing expenses consist primarily of targeted online performance marketing costs, such as paid search/product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push” communications through our mobile applications.
Marketing Expenses Marketing expenses consist primarily of targeted online performance marketing costs, such as paid search/product listing ads, affiliate marketing, paid social, retargeting, search engine optimization, personalized email marketing and mobile “push” communications through our mobile applications. Marketing expenses also consist of investment in brand marketing channels, including events, payments to influencers and other forms of online and offline marketing.
We use proprietary algorithms and 20 years of data to efficiently manage our merchandising, marketing, product development, sourcing and pricing decisions. Our platform works seamlessly across devices and analyzes browsing and purchasing patterns and preferences to help us make purchasing decisions, which when combined with the small initial orders for new products, allows us to manage inventory and fashion risk.
Our platform works seamlessly across devices and analyzes browsing and purchasing patterns and preferences to help us make purchasing decisions, which when combined with the small initial orders for new products, allows us to manage inventory and fashion risk.
Average order value increased during 2022 as compared to 2021, primarily due to a shift in mix back to higher price point merchandise combined with an increase in the price of products as a result of the increase in the cost of goods and other input costs, partially offset by a lower percentage of full price sales.
Average order value decreased slightly during 2023 as compared to 2022, primarily due to a lower percentage of full price sales year over year, partially offset by an increase in the price of products year over year as a result of the increase in the cost of goods and other input costs.
Selling and Distribution Expenses Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Selling and distribution expenses $ 190,419 $ 133,506 $ 56,913 42.6 % Percentage of net sales 17.3 % 15.0 % The increase in selling and distribution expenses in 2022, as compared to 2021, was primarily due to an increase in the number of orders shipped.
Selling and Distribution Expenses Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Selling and distribution expenses $ 197,052 $ 190,419 $ 6,633 3.5 % Percentage of net sales 18.4 % 17.3 % The increase in selling and distribution expenses in 2023, as compared to 2022, was primarily due to an increase in the number of orders shipped and returned.
We continue to modify and expand our fulfillment network to support our growth and the demand for our products. To date, we have primarily focused on expanding our U.S. business and have grown internationally with limited investment and no physical presence.
We continue to modify and expand our fulfillment network to support our growth and the demand for our products. To date, we have successfully expanded internationally with limited investment and physical presence.
We have also sold our REVOLVE products on two large international marketplaces, Tmall Global in China and Nykaa Fashion in India, beginning in 2020 and 2022, respectively. For 2022 and 2021, we generated $187.1 million and $165.1 million, respectively, in net sales shipped to customers internationally, or 17.0% and 18.5% of total net sales, respectively.
We also offer REVOLVE products on two large international marketplaces, Tmall Global in China and Nykaa Fashion in India, to expand our distribution reach in these key geographies. For 2023 and 2022, we generated $198.3 million and $187.1 million, respectively, in net sales shipped to customers internationally, or 18.6% and 17.0% of total net sales, respectively.
Key Operating and Financial Metrics We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and longer-term performance of our business.
We intend to continue to invest in and develop international markets while maintaining our focus on the core U.S. market. Key Operating and Financial Metrics We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and longer-term performance of our business.
The FWRD segment contributes to a smaller portion of our overall net sales, representing 16.4% of our net sales for both 2022 and 2021. During 2022 and 2021, FWRD generated $179.7 million and $146.3 million in net sales, respectively, representing an increase of 22.9%.
The FWRD segment contributes to a smaller portion of our overall net sales, representing 15.4% and 16.3% of our net sales for 2023 and 2022, respectively. During 2023 and 2022, FWRD generated $164.2 million and $179.7 million in net sales, respectively, representing a decrease of 8.6%.
Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase and average order value.
Net sales represent the sales of these items and shipping revenue when applicable, net of estimated returns and promotional discounts. Net sales are primarily driven by growth in the number of our customers, the frequency with which customers purchase and average order value.
We expect selling and distribution expenses to fluctuate as a percentage of net sales reflecting pressure from elevated return rates due to product mix and consumer behavior, investments in international markets to offer hassle-free returns as well as increases in shipping costs, including the impact of fuel prices incurred through variable surcharges from our shipping partners, partially offset by efficiencies realized from optimized shipping methods.
We expect selling and distribution expenses to fluctuate as a percentage of net sales reflecting input cost pressures, particularly freight charges and fuel surcharges, from elevated return rates due to consumer behavior, investments in international markets to offer hassle-free returns, partially offset by efficiencies realized from optimized shipping methods.
Rewards generally expire 90 days after they are issued and unconverted points generally expire if a customer fails to engage in any activity that generates points for a period of one year or if their participation in the program is otherwise terminated. 73 We may also issue store credit in lieu of cash refunds or exchanges and sell gift cards without expiration dates to our customers.
Rewards generally expire 90 days after they are issued and unconverted points generally expire if a customer fails to engage in any activity that generates points for a period of one year or if their participation in the program is otherwise terminated.
The increase in selling and distribution expenses as a percentage of net sales was due to customers returning a higher proportion of their purchases as compared to the comparative period in the prior year combined with increased average shipping and handling fees per package through increases in carrier rates and fuel surcharges.
The increase in selling and distribution expenses as a percentage of net sales was primarily due to customers returning a higher proportion of their purchases, higher shipping rates and a lower average order value as compared to the comparative period in the prior year.
Fulfillment Expenses Fulfillment expenses represent those costs incurred in operating and staffing our fulfillment centers, including costs attributed to inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment. Fulfillment expenses also include the cost of warehousing facilities.
We have recently experienced and may continue to experience an increase in the cost of goods due to an increase in the cost of materials. 63 Fulfillment Expenses Fulfillment expenses represent those costs incurred in operating and staffing our fulfillment centers, including costs attributed to inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment.
Uses of Cash Our short-term and long-term liquidity requirements primarily arise from operating costs such as merchandise purchases, compensation and benefits, lease obligations, marketing and other expenditures necessary to support our business growth. We used a substantial portion of the proceeds from the IPO to repurchase shares of our Class B common stock.
Uses of Cash Our short-term and long-term liquidity requirements primarily arise from operating costs such as merchandise purchases, compensation and benefits, lease obligations, marketing and other expenditures necessary to support our business growth. In addition, in August 2023, our board of directors authorized a stock repurchase program of up to $100 million of our outstanding Class A common stock.
Fulfillment Expenses Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Fulfillment expenses $ 31,804 $ 21,322 $ 10,482 49.2 % Percentage of net sales 2.9 % 2.4 % Fulfillment expenses in 2022 were higher as compared to 2021, primarily due to an increase in the number of units processed.
Fulfillment Expenses Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Fulfillment expenses $ 36,654 $ 31,804 $ 4,850 15.2 % Percentage of net sales 3.4 % 2.9 % Fulfillment expenses in 2023 were higher as compared to 2022, primarily due to an increase in the number of units processed and increased rent cost for existing facilities.
We expect our cost of sales to fluctuate as a percentage of net sales primarily due to how we manage our inventory and merchandise mix. We have recently experienced and may continue to experience an increase in the cost of goods due to an increase in the cost of materials.
We expect our cost of sales to fluctuate as a percentage of net sales primarily due to how we manage our inventory and merchandise mix.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Our financial results included certain items that we consider non-routine and not reflective of the underlying trends in our core business operations.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.
Line of Credit On March 23, 2021, we amended and restated our existing credit agreement to, among other things, extend the expiration date from March 23, 2021 to March 23, 2026. The line of credit provides us with up to $75.0 million aggregate principal in revolver borrowings, based on eligible inventory and accounts receivable less reserves.
The line of credit provides us with up to $75.0 million aggregate principal in revolver borrowings, based on eligible inventory and accounts receivable less reserves.
Income Taxes Year Ended December 31, 2022 2021 (dollars in thousands) Income before income taxes $ 76,616 $ 104,728 Provision for income taxes 17,919 4,888 Effective tax rate 23.4 % 4.7 % The increase in the effective tax rate for 2022 compared to 2021 was primarily due to a decrease in excess tax benefits related to the exercise of non-qualified stock options.
Income Taxes Year Ended December 31, 2023 2022 (dollars in thousands) Income before income taxes $ 37,761 $ 76,616 Provision for income taxes 9,614 17,919 Effective tax rate 25.5 % 23.4 % The increase in the effective tax rate for 2023 compared to 2022 was primarily due to an increase in state income taxes and non-deductible expenses combined with a decrease in excess tax benefits related to the exercise of non-qualified stock options, partially offset by a higher proportion of foreign-derived intangible income.
We are pioneers of social media and influencer marketing, using social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences to attract and retain Millennial and Generation Z consumers, and these efforts have historically led to higher earned media value than competitors.
We use social channels and cultural events designed to deliver authentic and aspirational, yet attainable, experiences to attract and retain next-generation consumers, and these efforts have historically led to higher earned media value than competitors. We complement our social media efforts through a variety of brand marketing campaigns and events, which generate a constant flow of authentic and inspiring content.
Total orders placed and total orders shipped in any given period may differ slightly due to orders that are in process at the end of any particular period.
We believe that total orders placed is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. Total orders placed and total orders shipped in any given period may differ slightly due to orders that are in process at the end of any particular period.
The increase in cost of sales as a percentage of net sales was due to a lower percentage of full price sales and higher routine inventory adjustments, partially offset by a higher mix of owned brand sales.
The increase in cost of sales as a percentage of net sales was primarily due to a lower percentage of full price sales combined with a higher mix of third party brand sales.
Shipping and handling costs increased $36.0 million, merchant processing fees increased $8.4 million, other selling expenses increased $4.7 million, packaging costs increased $4.0 million and customer service costs increased $3.8 million during 2022 as compared to 2021.
Shipping and handling costs increased $7.3 million and other selling expenses decreased $0.7 million during 2023 as compared to 2022.
For a description of our leases, please see Note 5, Leases , to our consolidated financial statements included elsewhere in this report.
Contractual Obligations As of December 31, 2023, our principal contractual obligations consist of obligations under operating leases for office and fulfillment facilities. For a description of our leases, please see Note 5, Leases , to our consolidated financial statements included elsewhere in this report.
Liquidity and Capital Resources The following table shows our cash and cash equivalents, accounts receivable and working capital as of the dates indicated: As of December 31, 2022 December 31, 2021 (in thousands) Cash and cash equivalents $ 234,724 $ 218,455 Accounts receivable, net 5,421 4,639 Working capital 337,131 279,620 (1) Working capital for all periods presented above is defined as current assets less current liabilities. 70 As of December 31, 2022, the majority of our cash and cash equivalents was held for working capital purposes, we had no borrowings under our line of credit and were in compliance with all financial covenants.
Liquidity and Capital Resources The following table shows our cash and cash equivalents, accounts receivable and working capital as of the dates indicated: As of December 31, 2023 December 31, 2022 (in thousands) Cash and cash equivalents $ 245,449 $ 234,724 Accounts receivable, net 12,405 5,421 Working capital 338,969 337,131 (1) Working capital for all periods presented above is defined as current assets less current liabilities.
The net sales increase in 2022 compared to 2021 was primarily due to an increase in the number of total orders placed by customers combined with an increase in average order value. 61 Net sales to customers outside of the United States contributed to 17.0% and 18.5% of our net sales for 2022 and 2021, respectively.
The net sales decrease in 2023 compared to 2022 was primarily due to a decrease in the number of orders shipped. 62 Net sales to customers outside of the United States contributed to 18.6% and 17.0% of our net sales for 2023 and 2022, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs the U.S. dollar strengthens, prices for customers in these regions may be more expensive relative to that of competition in those markets, thus adversely impacting consumer demand for our products. Furthermore, the general purchasing power of consumers in foreign countries is weakened by a stronger U.S. dollar.
Biggest changeAs the U.S. dollar strengthens, prices for customers in these regions may be more expensive relative to that of competition in those markets, thus adversely impacting our demand. Furthermore, the general purchasing power of consumers in foreign countries is weakened by a stronger U.S. dollar.
Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of income. To date, foreign currency 74 transaction gains and losses have not been material to our consolidated financial statements and we have not engaged in any foreign currency hedging transactions. 75
Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of income. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements and we have not engaged in any foreign currency hedging transactions. 71

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