Revolve Group, Inc. (NYSE:RVLV) Q1 2021 Earnings Conference Call May 6, 2021 4:30 PM ET
Company Participants
Erik Randerson – Vice President-Investor Relations
Mike Karanikolas – Co-Chief Executive Officer
Michael Mente – Co-Chief Executive Officer
Jesse Timmermans – Chief Financial Officer
Conference Call Participants
Erinn Murphy – Piper Sandler
Oliver Chen – Cowen
Lorraine Hutchinson – Bank of America
Michael Binetti – Credit Suisse
Edward Yruma – KeyBanc Capital Markets
Bob Drbul – Guggenheim Securities
Kimberly Greenberger – Morgan Stanley
Mark Altschwager – Baird
Camilo Lyon – BTIG
Roxanne Meyer – MKM Partners
Ross Sandler – Barclays
Matt Koranda – Roth Capital
Alec Legg – B. Riley Securities
Operator
Good morning, and my name is Maria, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to Revolve’s First Quarter 2021 Earnings Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin your conference.
Erik Randerson
Good afternoon, everyone, and thanks for joining us to discuss Revolve’s first quarter results. Before we begin, I’d like to mention that we have posted a presentation containing Q1 financial highlights to our Investor Relations website located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements. These statements include our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations and financial results and our outlook for operating expenses and capital expenditures for 2021.
These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these forward-looking statements, including the risk mentioned in this afternoon’s press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2020, and our subsequent quarterly reports on Form 10-Q all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. We will use non-GAAP measures for some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. And our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to GAAP measures as well as the definitions of each measure, their limitations and our rationale for using them can be found in this afternoon’s press release and in our SEC filings.
Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we’ll open the call for your questions.
With that, I’ll turn the call over to Mike.
Mike Karanikolas
Good afternoon everybody. We’re excited to update you today on the momentum in our business and our record Q1 financial results. As we successfully managed through one of the most challenging times in our history, we’ve been eagerly preparing for the reopening of the economy, which we believe will be extremely positive for Revolve as a brand associated with an active social lifestyle. I am pleased to announce that if the economy began to reopen in the first quarter, we experienced a significant surge in demand, which drove the outstanding results for the first quarter.
Our top-line trends saw substantial acceleration as we entered March increasing from the low single-digit growth we experienced in January and February. Then as vaccines started to roll out restrictions, eased in additional stimulus payments were made by the federal government demand increased significantly. The strong close to the quarter continued into April with growth of over 100% compared to April, 2020 and over 30% compared to April, 2019. Even more exciting was that the accelerated net sales growth in March and April came from both the REVOLVE and FORWARD segments, as well as the domestic and international businesses.
With that, as an introduction, I’ll go into more detail on the first quarter results in recent developments. Net sales for the first quarter of 2021, we’re a record $179 million in increase of 22% from the first quarter of 2020, substantially ahead of the low single-digit growth we experienced for the months of January and February when we spoke during our last conference call. Particularly exciting is that the strong recovery and growth during March came from a return to growth installs associated with social outings, such as dresses, as well as continued strong growth in at-home related product categories, including beauty, intimates, inactive wear that have rapidly grown throughout the pandemic.
These results support our view that we can return to strong growth in our core offerings of occasion wear while continuing to drive growth in newer categories to pursue a deeper share of wallet. Also driving our top-line acceleration late in the quarter was strong performance and growth of new customers and a significant recovery in traffic during the month of March. In fact, March was the second highest month in our history for attracting new customers and delivered the highest year-over-year growth in traffic, and more than a year, despite mobility restrictions in most markets at the time. This gives me a great deal of confidence in our longer term outlook when the wind is fully at our backs again.
It is also very exciting to see the recovery in the U.S. market. On last quarter’s conference call, we talked about key international markets like Australia serving as a leading indicator of a potential recovery in the U.S., the domestic recovery we anticipated to COVID March would certainly benefited to a degree from government stimulus. Yet the domestic recovery remained on a healthy pace through the month of April as well when the U.S. growth outpaced the international business.
Our profitability and cash flow in the first quarter were outstanding. Net income was a record $22 million or $0.30 per diluted share more than 400% increase from the first of 2020 and also a more than 300% increase from the first quarter of 2019. Free cash flow was $32 million more than 300% increase from the first quarter of 2020. This cash generation further strengthened our balance sheet positioning us well to invest in future growth opportunities.
Turning to operations. This is we are able to read and react and adapt last year upon the onset of the pandemic, when demand was negatively impacted. We’ve been able to quickly react to the significant increase in demand as economies had begun to reopen and our customers began to socialize in person again, in plan for summer travel. Our fulfillment operations were able to scale up quickly and continue to meet our very high standards for customer satisfaction. The increase in demand combined with continued operational efficiencies were key contributors to our record profitability in the first quarter. We have, and we’ll continue to invest in technologies and tools to further raise the bar on service for our customers. For instance, in the past few months, we have significantly reduced the average timeframe for our customers to receive credit on their merchandise returns.
Our data driven merchandising function also continues to deliver what our customer needs, when she needs it during what has been a very challenging environment of rapidly shifting and customer demand and supply chain dynamics. Our inventory levels and assortment have been managed well illustrated by our financial results in a more than 20% increase in inventory turns in our REVOLVE segment. Our inventory health is best illustrated by our gross margin expansion, which reflects significant growth in net sales at full price.
We also continue to remain agile on the marketing front, and we are laser focused on capitalizing on the reopening opportunity while restrictions have eased and we’ve conducted some smaller scale brand marketing activations, we still haven’t yet been able to fully deploy our optimal marketing investment. This is the right time for us to really invest in marketing. Our brand is squarely and positively positioned for the reopening in the post-COVID world. And we believe marketing investments in both REVOLVE and FORWARD this year will deliver strong returns over the long-term. We want to take full advantage of the pent up demand among consumers who are finally going to be able to get out of the house, socialize and celebrate in-person again. When this moment comes, they’re going to want to look and feel amazing with our latest fashion.
It’s also important to note that in the near-term, we do expect some headwinds on marketing efficiency, resulting from the recent Apple iOS privacy changes that may reduce our efficiency and targeting users on Apple devices, which are used by a substantial majority of our customers. The increased marketing investment this year will have an impact on short-term profitability measures, particularly relative to 2020, when our profitability benefited from temporary reductions in marketing as a percentage of sales due to COVID-19. In particular, we plan to scale up our brand marketing investments, which pay dividends over longer periods of time, building the brand, increasing awareness and driving continued long-term customer growth.
Lastly, our international business continues to perform very well and represents an exciting opportunity for future growth. International net sales grew 38% in the first quarter of 2021, relative to the prior year, driven by strength in all major regions and illustrating how well our brand is translating across cultures and geographies. Australia and Canada were among the top performing international markets in the quarter. In fact, Canada was our largest international contributor for the REVOLVE segment in the first quarter. A catalyst was our recent launch of all-inclusive pricing in Canada showing how our international investments can drive growth in customer satisfaction. This successful rollout of the more localized customer experience in Canada is another proof point that our international strategy is working and is particularly exciting since we planned to introduce all inclusive pricing in many other international markets.
In fact, I’m exciting to share that earlier this month we launched all inclusive pricing for customers located in the United Arab Emirates one of our largest markets in the fast-growing Middle East region. China is another exciting driver of our international success. In the first quarter, we began to see increased momentum in China, in the REVOLVE segment due in part to expanding our distribution to include a presence on Tmall Global, the largest cross-border business to consumer marketplace in China with nearly 800 million shoppers. The Revolve store on Tmall Global was powered by our differentiated merchandising strategy, which has driven strong organic traffic, particularly from consumers interested in our emerging brands that weren’t previously available on Tmall. It’s early yet we are encouraged by the opportunity to capture incremental growth in such an important market.
Before I turn it over to Michael, I would just reiterate that while there are still some uncertainties out there, we are very proud of our results. We are ready to invest, and we are excited about what lies ahead.
Michael Mente
Thanks Mike. It’s incredible to see the certain traffic and demand of the customers get back out and starting to join the social life they love and going to associate with the Revolve. After such a challenging past year this return to robust gratifying, particularly considering that we are now just joining up for some of that very exciting and impactful marketing events.
We have prime for the opportunity to capture demand during this unique moment in time and our events are critical part of demand creation. I am thrilled to share that we have continued to scale up our in-person marketing event, but are such a powerful marketing lever for building the brand long-term. Remember that in-person events have unfortunately been on hold for most of the 2020 creating a headwind to traffic, and new cut some acquisition last year.
In March of this year, we hosted an in-person marketing event Los Angeles attended by more than a 100 influencers over three days. To protect a community we adhere to nifty protocols that included COVID testing for all participants. One of the takeaways from this event was that the influencer community can’t wait to get back to doing in-person event. The desire to participate in this event was incredible amounting to way more interest than we could accompany, forcing us to unfortunately turn away a number of influencers. This is just the beginning for restarting our events calendar. We plan to meaningfully increase the frequency and scale of events to capitalize on this moment in time, expand our market reach and drive long-term returns. We are excited to get out there again in a more meaningful way as economies continue to open up.
We have several activations, 10 of the top influencers and aspirational lifestyle location that will help us to further expand our marketing reach and brand marketing in fact starting with an event in Turks and Caicos next week. Moving forward, I’m excited about the powerful combination of our aspirational in-person marketing events along with continued growth and diversification of our content on emerging digital channels, creating an expanded marketing playbook. Our data driven approach to merchandising has also business and as well to capitalize on the reopening ensuring we have the right products for our customer. We have the flexibility to efficiently scale up reading and reacting to data signals to quickly address shifts and consumer preference assortment to emerging trends, expand our style count and doubling down on successful styles through product reorders.
Our merchandising agility, how driving year-over-year growth rate that expanded from the low single-digits in January, February to over a 100% year-over-year growth in April. All with strong inventory turns in full plates mix of net sales. This successful inventory amount and shifting assortment is particularly impressive when considering that just a year ago, our merchandise focus shifted away from product associated with social outings and travel such as dresses. And now we are, again, we are starting back into those historical strong product categories while still driving back and growth in our newer at-home categories like beauty, which more than doubled in the quarter.
We have succeeded and providing her with the right product at the right time. Product that fits her current lifestyle, whether it’s socializing, traveling, or even being locked down at home. She recognizes this and as coming to us for more essence of our life, allowing us to expand our share of wallet over time. Our merchandising and marketing work hand-in-hand, we are continuing to innovate on our marketing and merchandising efforts to deepen relationships with our community. For instance, in the first quarter, we launched a new Revolve active handle on Instagram to create an intimate community of fitness, consumers, fans, and influencers. It’s in perfect alignment with the daily workouts we have hosted on Instagram live for the past year to engage our community. These workouts have generated 10 million views since the pandemic began.
As I mentioned beauty continues to perform very well and I’m excited to share that we recently data launch [indiscernible] program for our beauty customers who buy beauty products regularly. This enabled us to automatically ship a customer’s favorite products to them regularly scheduled things, promoting convenient, customer loyalty and repeat purchases.
Our own brand remains core to a long-term strategy of driving traffic, it’s hitting a unique assortment and expanding gross margin over the long-term. To capitalize in the growing consumer interest in sustainable fashion we recently introduced the Tularosa Green. Tularosa Green styles are made with all natural and chemical free diet with 100% organic cotton. The production uses a technology that jobs 40% less water and using the water to reduce the impact on the environment. This is just the beginning to a more sustainable production process we are pursuing within our own brand.
Another exciting product launch in recent weeks is our latest collection from GRLFRND available on both REVOLVE and FORWARD. Our new GRLFRND line on lines with the current fashion trend towards a more comfortable and looser fitting denim settlement and many customers are speaking today. We started reinvesting in own brands in late 2020 after a significant pullback early in the year. We will continue to invest heavily throughout 2021 to maximize our long-term opportunity. We bought in some great talent and while it’s still early in the rebuilt, we are very optimistic about the underlined budgets [indiscernible]
I’ll close that with the discussion of our luxury segment in FORWARD, while momentum has been quietly building for some time. FORWARD had an extended quarter growing net sale 24% in the first three quarter of 2021 relative to the prior year. This is on top of a very strong prior year comparison in the first quarter of 2020 when FORWARD net sales grew 47%, if you do the math that means that for the first quarter, FORWARD is to an 82%, in the first quarter of 2019. FORWARD also delivered record gross margins to increase 7% year-over-year on a full place self-made [ph] that was also an all time high.
We believe FORWARD was differentiated position in the market and serves up the destination for the next generation luxury consumer, in curation and its strong edit. Brands recognize our momentum and value our product curation and platform marketing engine, customer relates and best-in-class catalog and editorial photography. During the first quarter, we launched two coveted luxury brands with only limited wholesale distribution, the [indiscernible] additionally supermodel and actress hunting Whitney recently gave you to a new shoe collection with JIA, exclusively on FORWARD shooting, a special video to put on our [indiscernible]. With a great product curation the key lever and further expanding FORWARD is leveraging the REVOLVE customer rates and platform to class market and increased FORWARD share among existing customers. Even though the REVOLVE and FORWARD merchandise complimentary before over-indexing in handbags and shoes, only a low single digit percentage of REVOLVE customers are also FORWARD customers.
This speaks to the huge opportunity ahead of us then continues to pursue as illustrated by the launch of our FORWARD loyalty program earlier this one. The FORWARD program with fully integrated with the REVOLVE loyalty program we’ll wording incentivizing, cross shopping in both of our sites. We believe the program will create a great deal of customer excitement and engagement among that.
Like REVOLVE, FORWARD is a global brand and have been a key contributor to FORWARDs exceptional growth over the past three years. Were FORWARD has to check it a large following of more than 250,000 followers on Weibo, our leading social media platform in China. We view the global e-commerce market for luxury as a massive opportunity. And with the reopening of economies around the world, we think there was more opportunity to come. We will be making some exciting investments in FORWARD in the near term, the details of which I’m excited to show on future calls.
Also the recent momentum in our business across both REVOLVE and FORWARD segments have been incredible with our brand positioning, on point assignment and a strong financial position, we have time and ready for the reopening and beyond.
I’ll turn it over to Jesse now for review of the financials.
Jesse Timmermans
Thanks, Michael, and hello everyone. As you can tell, we are very pleased with the first quarter results and even more excited about the recent top-line trends. With that let’s start with the results for the quarter. Note that all of the comparisons I will discuss will be on a year-over-year basis, unless otherwise stated in certain cases I’ll speak to our growth compared to 2019 since the comparison to 2020 is skewed by the impacts of COVID.
Net sales were $179 million, an increase of 22% compared to the first quarter of 2020, which is a significant improvement from the low single-digit net sales growth trend we had been experiencing for the first seven weeks of the quarter that we disclosed during our last earnings call. Compared to the first quarter of 2019 net sales grew 30% for the first quarter and that an even higher rate for the month of March when our net sales growth meaningfully accelerated.
During January and February growth is primarily coming from categories and products like beauty, intimates and active wear, which more than offset the headwinds and products that are more focused on going out like dresses. We shifted in March when we experienced a meaningful increase in demand for products related to going out. This increase in demand combined with the continued strength in at-home products helped drive the strong overall top line results as we exited the quarter.
By territory, both the U.S. and international markets contributed to the strong top-line results for the quarter with domestic and international growth of 19% and 38% respectively, both regions also contributed to the growth acceleration in March. The international strength was broad-based with Australia, Canada, greater China, and the Middle East as key contributors.
By segment REVOLVE segment net sales increased 22% and FORWARD segment net sales increased 24% in the first quarter. The FORWARD sales increases particularly notable considering that FORWARD grew net sales 47% in the prior year comparable quarter, active customers were 1.5 million, the decrease of 3% consistent with our commentary on our last earnings call to expect further deceleration since active customers is a trailing 12-month measure. Importantly, active customers grew on a sequential basis compared to the fourth quarter of 2020 marking our first sequential quarterly growth in active customers in almost a year. Our customers placed 1.3 million orders in the quarter, an increase of 9%, the highest year-over-year growth rate in five quarters. Average order value is $256 flat with the fourth quarter and down 1% year-over-year.
Moving to gross profit consolidated gross margin was 54% the highest ever gross margin reported for a first quarter and an increase of 546 basis points year-over-year. This performance reflects the healthy inventory across both segments, particularly compared to the prior year, leading to an increase in the percentage of net sales at full price and a decrease in the depth of markdowns. These positive contributors to gross margin were partially offset by a decrease in the mix of own brands as a percentage of REVOLVE segment net sales consistent with the outlook we shared on recent investor conference calls.
Our operating expenses expressed as a percentage of net sales were lower year-on-year across all line items in the first quarter, our fulfillment and selling and distribution expenses continued to realize a meaningful short-term benefit from a lower return rate year-over-year. We do not expect this benefit to repeat in upcoming quarters as product mix shift back towards going out categories. Additionally, we realized marketing efficiency in the first quarter, as we have not yet fully re-engaged on the marketing front. It is important to note that we intend on aggressively ramping our marketing investment for the balance of the year for both REVOLVE and FORWARD. The strong top-line results, gross margin expansion and operating efficiencies resulted in record net income of $22.3 million or $0.30 per diluted share for the quarter five times higher than the $0.06 of diluted EPS in the prior year.
Net income was also four times greater than the first quarter of 2019. We reported adjusted EBITDA of $23.3 million and increased of 316% with a margin of 13%. Adjusted EBITDA was nearly three times greater than the first quarter of 2019.
Moving to the balance sheet and cash flow statement. During the first quarter, we continue to invest in inventory to position our assortment for an anticipated increase in consumer demand. As a result, inventory increased by $5 million from year end to $100 million that decreased 1% year-over-year. This compares favorably to the 22% increase in net sales for the first quarter of 2021, illustrating our higher inventory turns year-on-year and improved inventory health. Even with the investment in inventory, we generated $32 million in free cash flow in the first quarter, a more than fourfold increase from the prior year.
Cash and cash equivalents, net of borrowings at March 31 were $183 million, an increase of $109 million or 149% from $74 million as of March 31, 2020.
Now looking ahead with the return to growth in Q1 and very strong trends in March and April, we are confident that we can continue to deliver net sales growth in excess of our long-term growth target of 20%, just as we were prior to the onset of COVID-19. However, considering the recent acceleration in net sales growth represents a small sample size and that there are still many moving parts and uncertainties in the short term, we will hold off on providing formal guidance at this time. Instead, let me update you on some recent trends in the business since the first quarter ended and provide some direction on our cost structure for the balance of the year, to help in your modeling at the business for 2021.
Starting from the top. The significantly improved trends we experienced in the month of March continued through to the month of April. In fact, April net sales grew over 100% year-over-year against a relatively easy comparison in April, 2020, when our net sales had declined approximately 40% year-over-year, as we previously disclosed. As compared to April of 2019, net sales grew over 30%. We are very excited about the recent top-line trends and the prospect for a continuation of these trends. But we also want to temper this optimism as we remain some uncertainty related to COVID-19, there are potential headwinds from the recent Apple iOS changes that Mike mentioned, and we would anticipate that tailwinds from the government stimulus will subside.
Shifting to gross margin. We are extremely pleased with our gross margin performance in recent periods, for context for three quarters in a row, we have generated a full price mix of greater than 80% meaningfully exceeding historical ranges. The very high, full price mix of net sales and our inventory health have benefited from our successful inventory rebalancing and response to COVID-19 last year, which significantly skewed the mix of our inventory to full price. However, we want to caution that as we rebuild inventory to support future growth, we expect our full price mix of net sales and the depth of our markdowns to revert closer to historical norms over time with this taken into consideration for the full year 2021, we expect gross margin of 53.5% to 54% at the midpoint this reflects an increase of more than a full percentage point compared to gross margin of 52.6% for full year 2020, and is also higher than the 53.6% for the full year 2019.
Fulfillment, we expect fulfillment costs in the second quarter to increase sequentially as a percentage of net sales, as our return rate moves higher year-over-year due to our sales mix, shifting to the products and categories related to going out. For the full year 2021, we expect fulfillment to be approximately 2.9% of net sales. This implies a decrease of 30 basis points compared to fulfillment representing 3.2% of net sales in 2019, as a result of the automation efficiencies implemented, which are more than offsetting macro cost increases.
For our selling and distribution costs similar to our fulfillment costs. We expect to sequential increase as a percentage of net sales in the second quarter. And for the full year of 2021, we would expect to be in the same range as the 14.6% of net sales we achieved for the full year 2019. This implies a significant year-over-year increase in selling and distribution costs consistent with our prior commentary and driven by two main factors.
First, as we have now anniversary of the COVID-19 outbreak, we expect our return rate to be higher year-over-year in the near term, particularly as we comp the very low return rate in the prior year and since addresses, which have a much higher return rate than average have recently returned to growth, a higher return rate results in increased costs for shipping, handling, packaging and payment processing for returned items with shipping and handling costs representing a majority of this line item. Second, our average shipping costs per package have increased in recent months with the increase in shipping demand industry-wide.
Moving to marketing with our customer coming back in a very powerful way. It’s time to invest. We plan to be more aggressive than ever and anticipate a compelling return on this investment over the long-term. We now expect marketing expenses as a percentage of net sales for the full year, 2021 to be at least a full percentage point higher than the 14.8% of net sales reported for the full year, 2019.
General and administrative. In 2021, we are reinvesting in our own brand platform and other functions to support our next phase of growth and expansion. As a result, we expect G&A to continue to grow sequentially each quarter for the balance of the year.
Lastly, let me touch on our tax rate. Our effective tax rate in the first quarter in 2021 and 2020 each reflect the benefit from the excess tax benefits realized as a result of the exercise of non-qualified stock options, absent such tax benefits and future quarters. We expect our effective tax rate to be around 24% to 26%.
To recap, we are incredibly excited about the amount of progress we’ve made in just the past couple of months since our Q4 earnings call. We delivered record net sales, record net income, and a fourfold increase in free cash flow during the quarter. Consumers are coming to us in a very strong way. And with our balance sheet position, we are investing in this unique moment in time centered around the reopening and the long-term market opportunity ahead.
Now we’ll open it up for your questions.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question comes from the line of Erinn Murphy from Piper Sandler. Your line is open.
Erinn Murphy
Great. Thank you and good afternoon. I guess my first question for the team is on the quarter to date trend, super encouraging what you’re seeing here in April. Can you talk a little bit more about the customer cohorts that you’re seeing is it more new customers, existing customers? Are you starting to see some lapse consumers back in the fold and then I have to follow-up?
Mike Karanikolas
It’s really a mix of all of those. April represents a continuation of the trends that we saw in March. And we’re continuing to move more volume on a daily basis than ever before. And it’s coming from all cohorts, it’s coming from, existing customers or bring more frequently. It’s coming from last customers coming back into the fold and it’s coming from some really nice acceleration on the new investment side.
Erinn Murphy
Great. And then just on the return rates is Jesse, as you were speaking about kind of expecting that to normalize. Are you already seeing that in March and April as dresses and some of the other going out categories have accelerated and then I have just a follow-up bigger picture on the fashion cycle. You guys talked a little bit about the denim silhouette change. I’m curious if you’re seeing with the denim orders, are you seeing a higher attach rate on other items in the wardrobe as consumers kind of think about that silhouette change from skinny to maybe more of a looser, a straight leg. Thank you.
Jesse Timmermans
Yes, I’ll take the first one here. This is Jesse and then kick it over to Michael for the more fashion-forward question. On the return rate, we have seen that start to take up, and if you go back through the quarters, we saw that drop down to the low, very low 40s at the depths of COVID given the mixed in the shift in mix. And then that started to tick up even through the back half of last year. And we’re in the mid 40s in Q4 and it hung out in that same mid 40 range for Q1.
And then in the most recent periods of March and April, we have seen that tick up as dresses did return to grow. And that’s some of the commentary we’re getting for the forward-looking information as well as that we do expect dresses to come back in a meaningful way, and that will increase return rate sequentially that said, the other categories are holding and we do expect, and optimistically hope that return rate will be lower than it’s been in the past, in the past it’s been in that 50% to 55% zone. So, I think with the assortment, we can balance that going forward.
Michael Mente
Yes. Michael here, how’s it going. The performance across the board, really improving, we’re seeing, strong performance in a number of categories from going out the type of clothes, dresses that would up, well, of course not as popular, event dresses, we’re seeing a lot of strength in terms of like all those the pent up demand for our kind of occasions, weddings and graduation type things and whatnot. Specifically with regards to denim, we’re really anticipating this to be a nice cycle and a long-term trend. We see that these type of trends, particularly denim things that years upon years. So we’re positioning ourselves right now for the beginning of something new. I think of course, we’ve seen no skinny jeans were important for our customer, for our, many, many years. So we are excited about the beginning of a new cycle with kind of looser with denim,
Operator
And your next question comes from the line of Oliver Chen from Cowen. Your line is open.
Oliver Chen
Thank you very much. Your inventory position looks really clean. What are your thoughts on balancing inventory versus sales going forward? And as you invest in more inventory, I mean, your full-price selling level is very high right now, but which category might be the driver for taking that lower, as you balance those investments.
And then the second question Tmall is a huge deal. Do you have parameters or thoughts for how you will approach that on a, multi-year basis and also any statistics around your Chinese audience on social media and what you see happening? Thank you.
Michael Mente
Yes, definitely. So from an inventory position standpoint we’re later on the inventory side, but with our model, we’re able to react very quickly to consumer trends. So as I think the, we see more stability in the trends we should expect to see the inventory levels climb a bit just because that’ll be a more optimal position for us to maximize the economics.
But we came into the quarter later on the inventory side compared to where growth means, and we were able to react quickly. And I think, leverage inbound demand that we saw in a really healthy way. In terms of the categories that we’re looking at, growth for this year is definitely going to be in those growing out categories. That everyone’s been missing out on and that we’re seeing a lot of pent up demand, but I think what’s really exciting for us is that we’re seeing continued really strong sales in the categories that we need a huge hedge within last year during the pandemic. Beauty continues to be strong through the month of April active continues to be strong. So those categories that we gain strengthen, we’re seeing those sales hold up with the one exception, maybe being that on the wound side, we’re seeing mounds where sales tip her off a little bit.
And then turning to the Tmall question. It’s still very early on Tmall, but we’ve been really encouraged by the trends that we see there. And we think long-term in China, it’s going to be a very important part of our strategy just because it has such a huge mind share among consumers. And what’s really exciting for us is, we’ve seen actually that new customers that have come in on Tmall have been later converted off of the REVOLVE website itself. So it serves not only to kind of expose us initially, and it is really a very low cost channel for us. But it also converts people through REVOLVE platform over the long term. So, we’re just getting started there, but we’re optimistic about a game that we can drive.
Operator
And your next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is open.
Lorraine Hutchinson
Thanks, good afternoon. Encouraging to hear that the meaningful sales acceleration. I just wanted to follow-up on the inventory commentary and get your view on the availability of product in both third party, branded product and own brand to meet this demand. If it continues to accelerate?
Michael Mente
Yes, so we feel really good about our ability to meet the increased demand. It’s not to say there aren’t some hiccups and challenges under the covers, but if you’re talking to a whole broad base, we feel really good about our ability to react to the shifts in demand that we saw is get the right products for consumers and continue to do that.
Lorraine Hutchinson
Thank you.
Operator
And your next question comes from the line of Michael Binetti from Credit Suisse. Your line is open.
Michael Binetti
Hey guys, congrats on a nice quarter. Thanks for taking all our questions here. I guess, as you Jesse, do you think about where the post-COVID mix of businesses going and then the legacy categories come back? Can you point to any numerical evidence that you’re looking at to inform you where gross margins go and also, I guess return rates is since they’re so influential on the P&L I’d be curious there, how much you mentioned, I know you mentioned a few takes there with some of the inflation in shipping rates lately, but I didn’t hear much on the east coast facility that you guys have been contemplating. Is there any help that on a per order basis that could help the economics of return as we kind of returned to that? We kind of normalize here?
Jesse Timmermans
Yes, for sure. So there’s a lot in there in terms of both margin and return rate, but maybe if we start with gross margin, as we stated in on the prepared remarks, margins been really strong. We had full price sales in excess of 80% for three quarters in a row, which is phenomenal. And we’re very pleased with that, but we do expect as we build an inventory and things normalize over time that, that full price sales mix will come down slightly back towards, the historical norms of, in that mid 70s range. Also mark down margins have been extremely strong with the lighter markdown inventory. So we’ve been able to really deliver on the markdown margin side again, as we build the new inventory things will normalize over time. So those are two kind of pressure points.
As we look ahead on gross margin also the own brands, as we’ve talked about over the last couple of calls, owned brands have been compressed as a percentage of the REVOLVE segment net sales that will continue through the, the next couple of quarters before it starts to reaccelerate. So we’ll see some near term pressure there before it starts to reaccelerate and add some gross margin, in late 2021 into 2022. So, a number of things going on there, but structurally over the long-term still feel really good about our gross margin target of that 55% plus, and then on return rate, that’s largely a product mix story where, as dresses, fell off a cliff last year, around this time in the depths of COVID, and we saw a mix shift towards beauty, which has a low single digit return rate.
Now we’re seeing that dresses come back with that higher return rate. So seeing some pressure, which will add to the cost structure, especially on a year-over-year basis, as we comp those COVID time periods. But we are doing things in the background to help manage that one. You know, the mix will be more diversified, so that will have some positive impact on the overall return rate and then to just, making it a great experience for the customer and making it easy. But also, trying to manage that return rate to a certain extent and on the cost front, doing things like you mentioned that east coast returned facility and full shipping over from the east coast, which would give us, some benefit in the future. So a lot going on there, but again, we feel good about balancing return rate to a rate that’s not at that peak 55% that we were at in the, in the pre-COVID days.
Michael Binetti
Got it. And then can I just.
Jesse Timmermans
Nope, I got cut off.
Operator
And your next question comes from the line of Edward Yruma from KeyBanc Capital Markets. Your line is open.
Edward Yruma
Hey guys, thanks for taking the question and thanks for all the color on this, on the P&L, especially relates to marketing expense, I guess two questions on that front. One, I know that you historically do a lot of these events during the summertime. It should be assumed that the cadence, the marketing spend shifts from the historical pattern, given that kind of the ongoing reopening and two I know you guys are expecting that the iOS changes may have an impact again, any early learning’s that you’re staying in terms of marketing efficacy, I given the changes took place a couple of weeks ago. Thanks.
Mike Karanikolas
Yes. So in terms of the timing of the marketing spend yes, you’re going to see a different cadence than in historical. Historically April is a very big spend month for us on the brand marketing side. And in this year we weren’t able to do anything comparable to certainly what we did in 2019. But if all goes well and according to plan, because it is an uncertain environment out there you’re going to start to see significant brand marketing investments in the coming months, through the summer and through the fall. And so there’s a little bit different cadence there. And then with regards to the iOS changes we haven’t really seen anything yet, but it’s, it’s very early. So, we’ll just have to see how that all plays out. I think that’s a potential headwind that all our money commerce shops. Yes.
Operator
And your next question comes from the line of Bob Drbul from Guggenheim Securities. Your line is open.
Bob Drbul
Hey guys. Good afternoon. Congratulations on a great quarter. I guess my question is on the categories, when you think about dresses or, I think that there was a vaccine ready category. When you look sort of pricing around where you were historically, is the customer willing to go to higher price points? Are you seeing, is it a steady price point? I’m just trying to understand how you guys are positioned and I guess sort of lean that into on the FORWARD side, in terms of the brand offering there, as you skew more towards luxury, are you getting, there was a story around getting better brands and newer brands. Has that been the case in anything that you’re pretty excited about as you look for the rest of the year, from that perspective? Thanks.
Jesse Timmermans
Yes. Hey Bob, thanks for the questions. I’ll take the first one. And then pass it off. I think, you’re seeing AOV call it stable with Q4 and there’s a lot of going into that. AOV and that’s a gross number on a net AOV basis. We’re seeing that increase pretty meaningfully year-over-year and sequentially. So, I think that’s one point, the second point in more to your question is, the customer is willing to spend, call it the same amount as she was before. We’re not seeing any significant shifts in, that initial price. And then to your point, seeing FORWARD performer really well, especially when you look at that two year stack in Q1 where we grew 47% last year, and then 24% on top of that this year. So luxurious performing wells, we see a lot of opportunity and cross-marketing forward to that REVOLVE customer. And we see that already in the numbers that, she is willing to spend up and she’s willing to compliment her wardrobe and some of those more statement pieces.
Mike Karanikolas
Yes. And when it comes to new brands, I think it’s exciting to see that, it’s slower change in the luxury world, but I think everyone’s understanding that, historic players and the historic points of distribution, aren’t as strong and aren’t what they, once in a while, and ultimately, forward as a preferred partner moving forward. So, brands, like for the mention, like the, and [indiscernible] these are brands that when we found it forward, we’re kind of at the pinnacle of our wishlist things that we really respected from a design perspective, from a luxury perspective. So very proud that we have that, as part of kind of our state without grants, and I’m super optimistic that more will be coming. I think that, ultimately there’s only a handful of bands that we don’t carry, and I think, optimistic that to be coming our way.
Operator
And your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your line is open.
Kimberly Greenberger
Great. Thank you so much. I wanted to ask about the in-person marketing events and if I’m remembering correctly back in 2019 Michael, I think you held over 100 events that year, if I’m not mistaken. And Obviously it’s early days for the in-person events, but as you think about the rest of this year, would you expect to get back to the same kind of in-person events, by the time we get to the third quarter this year or the fourth quarter this year, I’m just trying to, understand how long is the past, back to normal when it comes doing some of these really impactful marketing things?
Mike Karanikolas
Yeah, I think it’ll be A steady ramp up. We’ll definitely, get a lot more active, starting next week with our first REVOLVE around the world ship and well over a year, almost about a year and a half, I guess, so that’s super exciting. We’ll definitely see more and we’ll definitely see more and it’ll be the same kind, but I think there’ll be more exciting and better than ever. I think that team has had a lot of time to really think and plan and improve on what we had done. And there was a period where what we were doing was working incredibly well. So, with this long pause, I think the teams have the opportunity to really iterate and improve so exciting things coming similar to times past improved and better, and some things that we’ve never done before which can we to – for you guys to see coming up.
Kimberly Greenberger
Fantasic. And Jesse, just a follow up for you on the higher shipping costs. I think you talked about the constraints in last mile delivery and just capacity overall that that we’re raising shipping costs. Do you view these higher costs as a permanent part of the cost structure, or is it more sort of short-term surge pricing that when the world is back to normal and the level of in-store shopping returns these extra costs are likely to come out of the P&L?
Jesse Timmermans
Yes, we don’t fully know yet. We have seen these costs increase year-over-year pretty consistently, but we are seeing a surge just given everything that’s going on out there. So, I think a piece of it will be temporary, but a large portion will just be cost increases overtime. That said we do have some things in the works and with the AOV increasing as well, that helps alleviate some of that pressure, but not counting on a significant release there at least for the balance of the year.
Operator
And your next question comes from the line of Mark Altschwager from Baird. Your line is open.
Mark Altschwager
Good afternoon. Thanks for taking my question. Maybe Jesse is another follow-up on the margin, but kind of a bigger picture one, is the guidance implied some more significant reinvestment this year, which obviously makes sense. But if we were to assume a more normalized kind of low-20s top-line I mean, do you expect a business to leverage or would you plan leverage moving beyond 2021, I guess any big picture thoughts on how you’re thinking about the normalized EBITDA margin after all the learnings over the past year?
Jesse Timmermans
Yes, over time, we expect to increase EBITDA margin. We’re seeing some – we saw some under investment last year, which meaningfully added to the EBITDA margin. We’re going to reinvest it this year. So, you’re going to see some pressure there and really on that marketing line item. So, if you look longer term, we expect to continue to increase gross margin, which gives us a lot of headroom and then as the other line item balance out and we get leveraged, especially on the more fixed line items like G&A will we expect to see EBITDA margin expand overtime, and still targeting those long-term targets of a 55% gross margin and 14% EBITDA margin. But this year will be a year of reinvestment and again, especially, really just doubling down on that marketing and capturing this kind of return to normal and post-COVID world.
Operator
And your next question comes from the line of Camilo Lyon from BTIG. Your line is open.
Camilo Lyon
Thank you. Good afternoon. It’s one of the take a little deeper into the [indiscernible] around where the demand for occasion where it’s coming from? If there’s any regional differences that you’ve never seen, that a particular call-outs for example our justice doing better in Texas and Florida than in the Northeast or is there just this pent up demand across the state it’s pretty similar that people are feeling more comfortable in buying that type of that sort of product.
Mike Karanikolas
Yes. So from a timing perspective, we certainly saw some states that reopened earlier ahead of others in terms of trends in demand both overall and kind of by category. But as we moved into April, we started to see those trends being largely broad based across all states with obviously small sample size you’re going to have differences up and down, but kind of broadly speaking the strength is across the U.S. versus just certain states.
Operator
And your next question comes from the line of Roxanne Meyer from MKM Partners. Your line is open.
Roxanne Meyer
Congrats on a strong quarter, and thanks for taking my questions. My first question is on marketing, you mentioned that in March, you had the second highest month in the company’s history for new customer acquisition, and that occurred without fully stepping your foot on the gap from a marketing spend perspective. So, I’m just curious if you can provide a breakdown of was that for REVOLVE and for FORWARD, and what do you attribute to the strength of new customer acquisition?
Mike Karanikolas
So, the new customer acquisition was again, fairly broad based really across all our business segments. We started seeing a very broad based strength, particularly as we entered in April. And we attributed by and large to the reopening and consumers wanting to get out again and get back to their previous lifestyles. And our hope is that often we continue in a big way throughout the year. And our hope is that as we to layer on really impactful marketing investments that we’ll see that accelerate even further. So we feel good about the trends.
Roxanne Meyer
Great. And then I just want to follow-up at a previous question on events. Obviously you’re not doing events yet like perhaps you have historically, but are you able to share the lift that you’ve seen from some of the recent events you’ve done in the prior quarter, or maybe quarter-to-date and give us aside from the Revolve around the world, any other, a preview of some of the events you may have planned in the next quarter or two?
Michael Mente
Without events we think it’s no super crucial for our strategy. So super excited about what’s the common, of course that’d be mentioned many times I’ve answered, but there’ll be more to come. Our marketing team would kill me if I started to blab my mouth about all the exciting things they have working on, but there’s going to be a lot of exciting things coming on, things that you’ve never seen before. And Revolve around the world coming up going to trusted kind of tried and true approach next week will be great, but looking at past events and such the real – the real impact is really in that brand equity in that brand awareness over the long-term. We do see sales, bumps and increases in a very, very short term for sure, but the real meaningful impact that’s really gaining that awareness, and the increased frequency of events and upcoming cadence, I think is really what we see the value in the investments compound when we’re doing things now, not once in a while, but one where they’re unavoidable, but we’re really just a part of entertainment and a part of your life. So we’ll be full swing very, very soon.
Roxanne Meyer
Great, thanks a lot. And best of luck.
Michael Mente
Thank you.
Operator
And your next question comes from the nine of Ross Sandler from Barclays. Your line is open.
Ross Sandler
Hi guys, just the question on the marketing. So the 200 bps of deleverage this year you told us revenue growth. Is that mostly the idea facing how big of an impact is that going to have, and does this change in kind of how marketing works in the internet? Does it change how you think about potentially moving transactions inside of other apps like Instagram or wherever or is it more strategic to just keep everything in your own app and you can have your marketing be less efficient. And then one more on the marketing is the mix of re-engagement marketing versus new customer acquisition changing in that 200 bps of deleverage. That’s it. Thanks guys.
Mike Karanikolas
Yes. So I guess certainly answer your question about the iOS components. We’ve simply highlighted that as a potential risk factor and we’ll have to see how that plays out. I think if you look at the marketing budget as a whole, the driver there is our strategy that we can get time to reinvest. We think the reopen wall is going to be perfect for the Revolve brands, and we think those investments pay strong dividends overtime. But the full impact is over the long-term, not the short-term. So we see there just being a great opportunity to invest large amounts of marketing dollars this year. And so that’s what we would like to do if things continue to play out of the way currently seen them. And it’s consistent with comments that we made in the past where we expected the marketing to be at least at historical levels and as we’ve seen things unfold we see the opportunity to invest even more.
Operator
And our next question comes from the line of Matt Koranda from Roth Capital. Your line is open.
Matt Koranda
Hey guys, thanks. Lot of had been asked, but just wanted to ask about the interlinking between Revolve the loyalty program and forward if you could provide a little bit more color on some of the steps you’re taking to kind of convert some of the folks from Revolve over to the Ford platform would be helpful.
Mike Karanikolas
Yes definitely. So, we recently launched that Ford loyalty program and we cross promoted it to our revolve softwares. And so we’re really excited about the potential of a long-term to continue to move more and more revolve shoppers to the Ford platform. Somewhat quiet over the course of the past year or so has been a really strong thing that we’ve seen in the Ford platform where on a two-year basis, it’s grown 82%. And so there’s a lot of reasons for that. We think it has a lot of momentum internationally and a lot of momentum from a brand standpoint, but also a really big reason for that is our ability to move those Revolve customers over to Ford for their luxury purchases. So, we feel great about it over the long-term. We heard more and more of those customers and the loyalty program will be a very helpful.
Matt Koranda
Great. And just one more on cast upon that if I could it just seems like, even though you’re signaling, there’s this uptick in marketing expense on a go-forward basis and maybe a little bit of uptick in terms of fulfillment, it seems like you’ve more than cover those cash deployment requirements with the existing business. And so you’re going to continue to kind of stack cash for the foreseeable future. Are there any capital investments that you can going to highlight that would require additional cash on the balance sheet going forward? Or should we start thinking about sort of cash deployment and department dividends or other M&A just wanting to get your latest thoughts on how you think that’s playing cash here?
Jesse Timmermans
Yes, no, we’ve been really happy with the cash flow dynamics over the past year. Now, some of that is due to the inventory shift and being able to really successfully aggressively cut inventory in the early days of COVID. So, there is a cash draws we invest in inventory, now and into the next few months, also a cash draw those marketing investment that to your point, it’s still really healthy cash flow dynamics. So, we’re going to continue to see a really healthy cash balance. No significant internal tech projects, we remain very capital-efficient in terms of our CapEx is very low single digit as a percentage of net sales, and we expect it to remain there for the foreseeable future. So then kind of to the point of your question, I think it’s too early to start talking about dividends and buybacks, probably the next logical place that we’ll look is opportunistic M&A, but, you know, emphasizing the opportunistic. We want to make sure it’s right long-term move for. So, we’ll continue to review opportunities and but until then we’ll just maintain that strong balance sheet
Operator
And we will take our final question from Susan Anderson from B. Riley Securities. Your line is open.
Alec Legg
Hi Alec Legg on for Susan. Thanks for taking my question. So kind of piggybacking off of Ross’s question on Instagram, in your own mobile app, are you able to provide any details on the sales penetration through those alternative channels? And then also just what are the metrics on those platform relative to your own websites such as AOV conversion rate a new customer acquisition? Any details would be helpful. Thanks.
Michael Mente
Yes, so, starting with it with our own app, our own app is a very significant portion of our sales represents, call it roughly a quarter-over-quarter sales. And then with regards to customer shopping through the Instagram app, we have seen some increased momentum there in weeks and periods. It’s still a very small portion of the business. In terms of economics there there’s, they’re very favorable, but you’re generally not going to see the same level of order size on their website. But the long term it’s a part of the overall suite of options that we have from customers.
Alec Legg
Thank you.
And there are no further questions at this time. I will now turn it back to the management for the closing remarks.
Michael Mente
Thank you everyone for joining us today. And we’d also like to thank all of our investors for your continued support over this past year. We look forward to meeting again on our conference call next quarter
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect your lines.
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