RVLV Q2 Deep Dive: Margin Gains and International Growth Counter Tariff Headwinds

August 12, 2025 at 22:57 PM EDT

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Online fashion retailer Revolve (NASDAQ: RVLV) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 9.4% year on year to $309 million. Its non-GAAP profit of $0.15 per share was 14.7% above analysts’ consensus estimates.

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Revolve (RVLV) Q2 CY2025 Highlights:

Revenue: $309 million vs analyst estimates of $298 million (9.4% year-on-year growth, 3.7% beat)
Adjusted EPS: $0.15 vs analyst estimates of $0.13 (14.7% beat)
Adjusted EBITDA: $22.89 million vs analyst estimates of $15.1 million (7.4% margin, 51.6% beat)
Operating Margin: 5.8%, in line with the same quarter last year
Active Customers : 2.74 million, up 166,000 year on year
Market Capitalization: $1.47 billion

StockStory’s Take

Revolve’s second quarter performance exceeded Wall Street’s expectations for both revenue and profit, but the market responded unfavorably, reflecting investor concern over external headwinds and the durability of recent gains. Management attributed the quarter’s results to a combination of strong international sales—particularly in China—continued expansion of owned brands, and improved inventory efficiency. Co-CEO Michael Karanikolas highlighted, “Our net sales growth rebounded strongly from mid-single digits in April into the low double-digit growth territory for the months of May and June,” citing broad-based category strength and lower return rates as supporting factors. While gross margin outperformed expectations due to tariff mitigation and improved markdown algorithms, management was cautious about ongoing volatility in the tariff environment and its potential impact in the second half of the year.

Looking ahead, management believes Revolve’s prospects will be shaped by its ability to navigate continued tariff uncertainty, expand its owned brand mix, and drive further international growth. Co-CEO Michael Mente said the company is “investing with confidence ahead of the launch of some exciting new owned brands in the next few quarters,” and expects physical retail expansion to contribute over time. CFO Jesse Timmermans warned that “comps do get tougher in the back half of the year,” and flagged that gross margin guidance remains sensitive to shifting tariff rates and mitigation effectiveness. The company is also focused on leveraging artificial intelligence (AI) to enhance site personalization and operational efficiency, with several new AI-driven initiatives in the research and development pipeline.

Key Insights from Management’s Remarks

Management attributed Q2’s performance to international momentum, the growing mix of owned brands, and operational improvements offsetting tariff impacts. They discussed how these factors, alongside new merchandising and marketing strategies, shaped both the latest results and the company’s evolving long-term priorities.

International market acceleration: Net sales outside the U.S. grew 17% year-over-year, with China highlighted as a key driver after a dedicated local team and marketplace partnerships doubled sales over two years. Management described China as “very early stages” in its growth, with other international regions also showing double-digit increases.
Owned brands margin lift: The mix of owned brands, which are exclusive to Revolve and generate higher gross margins, reached its highest level yet, contributing meaningfully to margin expansion. CEO Michael Mente noted five consecutive quarters of owned brand growth, with upcoming launches expected to further improve category diversification and profitability.
Operational improvements and inventory efficiency: Management credited improved inventory turns and a 1.5-point drop in product return rates for boosting cash flow and operating leverage. CFO Jesse Timmermans called out a “healthy and clean” inventory position, with net sales up 9% while inventory declined 6% year-over-year.
Tariff mitigation strategies: Revolve offset much of its increased tariff exposure through partnerships with brands, sourcing diversification, and enhancements to markdown algorithms. Karanikolas stated that these efforts “should be favorable through our long-term margin structure,” despite ongoing volatility in tariff policy.
AI-driven enhancements: The company expanded its use of internally developed AI, including new search algorithms that lifted conversion rates and voice-to-text support in customer service. Management described ongoing AI investments as central to future growth and operational efficiency, with further R&D in personalization and marketing underway.

Drivers of Future Performance

Revolve’s guidance for the coming quarters hinges on its ability to manage tariff volatility, expand owned brands, and sustain international momentum amid a more challenging comparison base.

Tariff and pricing dynamics: Management warned that gross margins remain exposed to changes in tariff policy and the timing of mitigation efforts, with the mix of owned and third-party brands influencing the pace and acceptance of price increases. CFO Jesse Timmermans emphasized that current guidance reflects best estimates, but “there are a lot of moving pieces and a considerable amount of uncertainty that remains.”
Owned brand launches and physical retail: The company plans to invest in new owned brands and will open a permanent Los Angeles store in the next quarter, aiming to leverage in-store momentum and expand product reach. Mente believes owned brand penetration will rise steadily and that physical retail will become a more important growth lever over time.
AI and category diversification: Ongoing investments in AI are expected to further improve site personalization, conversion, and operational efficiency, while continued expansion into categories like beauty, men’s, and home goods should drive revenue per customer. Management highlighted that these initiatives are in early stages but are already showing positive early results.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) execution on new owned brand launches and their impact on margin and category expansion, (2) progress on opening and scaling the Los Angeles physical retail store as a testbed for broader retail growth, and (3) continued effectiveness of tariff mitigation strategies, especially as global trade policy remains volatile. Additional attention will be given to the ongoing rollout of AI-powered site enhancements and their contribution to conversion and customer engagement.

Revolve currently trades at $20.59, in line with $20.65 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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