Thank you for standing by and welcome to REVOLVE Group First Quarter Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today. Erik Randerson, Vice President of Investor Relations. Thank you. Please go ahead sir.

Good afternoon, everyone, and thanks for joining us to discuss REVOLVE’s first quarter 2020 results. Before we begin, I would like to mention that we have a posted a presentation containing Q1 2020 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 expectations regarding risk related to the continued impact of the COVID-19 pandemic in our business, operations and financial results, demand for our products, general economic conditions, our fluctuating operating results, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, our ability to track customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders, financial results in our guidance, market opportunities, our owned brand mix, our inventory position, our dilutive share count, our investments in customer experiences and fulfillment centers. These statements, which are subject to various risks, uncertainties and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are detailed in this afternoon’s press release as well as in our filings with the SEC, including our registration statement on Form S-1 that was filed with the SEC, our Form 10-K that was filed with the SEC on February 26, 2020 and the Form 10-Q that will be filed 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, free cash flow. We use non-GAAP measures in some of our financial discussions, as we believe they more accurately represent the true operational performance in underlying results of our business. 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 GAAP to non-GAAP measures as well as the description, limitations and rationale for using each measure 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.

Thanks Erik. Good afternoon, everyone. Thanks for joining us today. We hope each of your and families are safe and healthy. Today we’re only going to spend a limited amount of time on full Q1 results. Instead we’ll focus our attention on more recent business trends and how we’ve taken swift action to respond to the impact on our business from the COVID-19 pandemic. In our effort to promote understanding of recent business performance we will make some one-time disclosures to help everyone follow the most recent trends in our business. With that I’ll start by touching on the first quarter. We started the quarter with some positive trends looking at January and February 2020 on a combined basis. We achieved net sales growth exceeding 20% year-over-year while improving inventory turns by approximately 20% year-over-year as well. The strong start to the year coupled with successful brand marketing events in January and February including participation in the ABC television program, The Bachelor. Gave us further confidence in our brand, messaging and assortment was resonating well with our customers. Taking a deeper look at the top line results for January and February. Year-over-year growth in both the REVOLVE and FORWARD segments accelerate through the first two months of Q1, 2020 with particular strength in our FORWARD business in the international markets. The improved sales growth for our REVOLVE segment of 17% year-over-year in the first two months of 2020 came with an inventory decrease year-over-year in line with the strategy that we outlined over the last couple of quarters to work through our inventory position and improved inventory turns. These positive trends remain through the first week of March before COVID-19 became widespread in the US and the related stay at home mandates changed the trajectory for us and many other…

Thanks Mike and hello, everyone. So much has changed in just the past eight weeks. We’re proud of the decisive actions we’ve taken across our business to help protect our people and optimize the business for such a dynamic environment. I’ll continue with the discussion of navigating through the COVID-19 challenges and will focus my remarks on three core areas; first our brand marketing initiative. Second, owned brand and third, while confident REVOLVE is well positioned to navigate through the current challenges and emerge even stronger. First, our brand marketing initiative. As I’m sure everyone knows REVOLVE is widely recognized for our impactful and aspirational brand marketing event that reach our customers through social media and our vast network of influencers. In a normal year, right now our brand marketing team and I would have just come off another successful REVOLVE festival and would be extremely busy planning and executing a series of events during our peak spring summer season. The 2020 is anything but a normal year. We quickly mobilize the team around the new opportunity of engaging with our customer during current lifestyle of staying at home. Our customers love REVOLVE and love interacting with our brand on social media on a daily basis. So, we’re confident we can adapt well. In mid-March we launched hashtag REVOLVE AROUND THE HOUSE creating a tremendous amount of engaging and inspirational live content shows produce daily on Instagram Live that feature influencers, designers and celebrities. REVOLVE AROUND THE HOUSE includes with some daily workouts, expert beauty tips, cooking classes and my favorite, the REVOLVE shopping network. Response has been exciting. For example, a recent episode feature [indiscernible] a global lifestyle influencer who is also fashion designer collaborating with REVOLVE for [indiscernible] own brand collection. Last week Ami [ph] hosted a live…

Thanks Michael. Given all the moving parts in the current environment I’m going to do a less detailed review of our first quarter results today. As they’re not representative of our current business trends. As a result and in the spirit of transparency I’ll spend some additional time providing color on business trends since the end of the first quarter and some updated assumptions for the balance of 2020. I’ll also discuss our cost structure, capital spending plans and our balance sheet. Starting with the first quarter results. For Q1, we reported 6% year-over-year growth in net sales continued GAAP and adjusted EBITDA profitability and we generated strong free cash flow of $8 million. Given the unprecedented change in the consumer demand environment late in the quarter due to the COVID-19 pandemic it’s important to look beyond the headline numbers. As Mike mentioned, we came out of the gate strong for the first nine weeks of the quarter. Net sales growth exceeded 20% for January and February on a combined basis. The first week of March remained strong and year-over-year growth and traffic to our sites and mobile apps was outstanding during this nine-week period. A higher growth rate than any quarter in 2019. During the second week of March, we experienced a significant negative change in trend on both net sales and traffic to our sites co-incident with the escalation of the COVID-19 pandemic in the US. As a result, by the time we exited the first quarter weekly net sales were nearly 50% less in the corresponding week in the prior year. This unprecedented change in our trajectory shows how much the stay at home mandates have impacted consumer spending. Turning into the top line, REVOLVE segment net sales in Q1 increased to 1% year-over-year for the full…

Thanks Jesse. We’d like to take this opportunity to once again thank our great team for their dedication, agility, hard work and sacrifice demonstrated through this difficult time. This is one of the most challenging periods we’ve experienced in our 17 years of operating the business, yet our experience has proven that business is not a straight line. Our successful track record has been established through numerous business cycles and we’re confident in our ability to manage through this and come out stronger on the other side. With that, I’ll turn it over to the operator for your questions.

Your first question comes from the line of Oliver Chen from Cowen. Your line is open.

It’s encouraging that trends have been less bad and also the traffic momentum. What are your thoughts for going forward in terms of how traffic may manifest and also the step down in AOV? When might AOV stabilize and how do you see dresses as a percentage of mix trending in that context? Would also love your thoughts on some uncontrollable factors around mark downs and mark down management and how to do that in a brand appropriate way so that the customer loves you for the long-term? Thank you.

Definitely, thanks Oliver Mike Karanikolas here. So a lot of questions there, I may forget some of them. I’ll start with from the top. So with regards to traffic, we’ve seen some really encouraging traffic trends in the past four to six weeks with traffic continue to increase each week and positive year-over-year traffic trends in the most recent weeks. So we feel good about that going forward and what’s really encouraging about that traffic. Is a lot of deposit trends are being driven by organic traffic and our marketing teams have really done a great job connecting with the consumer in the primary, so we would expect those trends to continue? I feel with regards to rest of the year, it’s a highly uncertain environment. So with regards to dresses for example, we’ve seen a definite recovery there. But at the same time next coming months are going to be very difficult to predict. And so it’s difficult for us to say what dress demand is going to look like in the fall and the very reason that we’re shifting our inventory buys little bit towards products with the half shot on minimums so we can take our reduced risk there.

Thanks Mike and on mark downs, what is the best way to manage it in this dynamic environment. The gross margin guidance is very helpful. What are your expectations for how the market plays may look as a lot of competitors are likely over inventoried?

Yes definitely, so we have seen - being a very promotional environment out there. And it’s dynamic. So, we react on a weekly basis to what we see out there. I think in the current environment consumers are expecting more promotions and mark downs and they’re gravitating towards promotions and mark downs. So, we’re kind of trying down to straddle a fine line. Well we make sure we do give consumers what they want and right now that is more mark down products. But also, be careful about, protecting our brand and being very targeted with the mark downs and promotions and trying to make them interesting versus, more kind of mass type promotions where anything [technical difficulty].

Okay and my last question is about permanent changes from the at home experiential. What are your thoughts on permanent changes in terms of how you may approach marketing or not? With what you’re doing and what may stay for the long-term whether that be the live streaming or the shopping network and what kind of positive learning’s have you had from the crisis? Thank you.

Oliver, Michael Mente. Hi, everyone. Hope you guys are all safe and healthy. When it comes to engaging with the consumer we really just have to kind of dance with - be their best friends, when times were a different day she was wanting to travel, wanting to go music festivals, we’re there with her. When she’s at home we’re providing her that experience. We’re working out with her. We’re giving her comfortable clothes to wear and whatnot. So, it’s really going to unpredictable. It’s going really be a reflection of how the world REVOLVE is what, we feel really good that these new methods that we’re connecting with Instagram Live and IGTV, areas that we were investing before, all things that we will continue to nurture overtime. We think ultimately this has really allowed us to expand our relationship and deepen our relationship across - the way we communicate, quite similarly to the way across our merchandizing categories we were able to deepen that relationship by providing her other categories that we weren’t particularly known for, we really had that emotional connection for her. So ultimately, this is blessing in disguise. We’re looking back despite all of the pain that of course we’re experiencing in the short-term of really having a deeper broader relationship in just the REVOLVE that you knew of times passed.

Thanks job on all the agility, best regards.

Your next question comes from Mark Altschwager from Baird.

And thanks for taking my question and hope everyone is doing well. I was hoping you could talk about your strategies on client acquisition and how, if at all those strategies are changing in light of the current backdrop and specifically, I was hoping you can comment on digital marketing and whether the decline in cost in some channel to something. You may be able to lean into in the months ahead.

Definitely Mike Karanikolas here. So there hasn’t been - I would say high level change to our strategy, but assuming a lot of tactical changes as we reacted quickly to the situation. So, we have seen the cost of traffic could go down substantially since this pandemic started. It’s the same time we’ve also seen the consumers have been converting less. Consumers still have time to shop and look at things, but they’re little bit more hesitant to pull the trigger. Particularly for a brand like ours where a lot of the merchandize historically and even currently is geared towards merchandize you wear when you’re going out and you’re going into an event, time to look your best and consumers just aren’t there yet. So, on the positive side I’d say we’ve seen marketing costs stabilized. Marketing costs were up a little bit year-over-year on the digital side as we - as the crisis first hit and then actually in recent weeks, we’ve seen some efficiencies there. So, it’s not we’re going to take on a week-by-week basis. Traffic is cheap but also consumers aren’t converting as well, so we’re trying to be disciplined there.

And your next question comes from Ross Sandler from Barclays.

Couple questions. If you had this your revenue between the stuff that’s working right now at home, beauty and loungewear you mentioned and everything else kind of your legacy normal stuff. How big would that first bucket be in terms of revenue? Can you talk about how quickly given your kind of more nimble supply chain? How quickly can you move that direction if we’re going to stay in this mode for a little while? And then second question is, Jesse if we back out REVOLVE Fest which was I think in late April last year and we try to compare kind of underlying growth rate excluding big events that down 25 from May might be kind of down like a lot less than that on a go forward basis once you get past the peak of your seasonality. So, is that right way to think about it because you see potentially like a flat type growth rate as we get into 3Q, any color there just on the impact from REVOLVE fest on that down 25 in May? Thank you.

Yes, sure. Thanks Ross. So, starting with the first one in that category mix and maybe focusing it on the REVOLVE segment since that is the biggest and we’ll pick on dresses. Dresses has historically been over a third of the business on REVOLVE and that’s been very more highly penetrated on the owned brand. So to give you some content on the largest category and then if you look at some of the smaller ones like beauty that’s been growing triple digits in the recent period since COVID hit, that’s been in the low single-digit percentage of total net sales for REVOLVE and with that triple digit sales growth that’s definitely taking share and there’s some puts and takes on that, benefit in terms of return rates where dresses is the highest return rate category offset then with the benefit of beauty which is the lowest return rate category. We also have the negative impact of AOVs and ASPs shifting from what has historically been very high price point for us, the dresses in that $130, $140 price range down to a beauty product that’s in the 40s. So that’s some color on the product mix. And then in terms of seasonality in REVOLVE Festival. There definitely some impact there historically April and May have been two of our strongest months of the year and without those big events like REVOLVE Festival we’re losing out on a lot of [indiscernible], a lot of impressions and lot of just exposure. So, if you take what we’ve been drilling out in the recent period and especially in April when compared that to non-April month of last year that could you give some indication of what that might look like. I think it’s pretty aggressive to say we’d get to flat if you do that comparison, but there definitely is an impact there.

I can go and touch a little bit I think there was a middle question there in terms of supply chain and I think we still are very excited and quite proud of the how the team has responded and I think when it comes to Q3, we view what we have a much more balanced, a much more well-rounded and adjusted merchandizing mix in relation to this new period that we all are experiencing together. It just as - this crisis has accelerated things such as e-commerce in a lot of the way our lives are adjusted has accelerated some of our internal initiative as well. As early as next month we’ll be seeing some of the loungewear product coming from local supply chain which we’re very excited and very proud of, both the product that we’ve coming as well as. The way the team has responded. Going into the back half of the year and next year, we’ll be activated and adjusted to the new life and our customers new needs.

Your next question comes from Kimberly Greenberger from Morgan Stanley.

Thanks for all the great details and transparency, you’ve provided on the call. It’s been extremely helpful. I wanted to start since with the FORWARD segment if I could. Looking to the first quarter you had 47% growth at FORWARD. And you gave some of the January, February for REVOLVE as opposed to March. Did you see a similar pattern in the FORWARD segment with growth in January and February and then a decline in March? Or were the three months more similar on the FORWARD segment? And then just reflecting on the April and the May month today, color that you gave. Are you seeing a different trend between the REVOLVE segment and the FORWARD segment here in the second quarter or are the trends relatively similar to one and other?

Thanks Kimberly. It was a pretty extreme impact there starting in the second part of March. Definitely did impact on all segments. We did see strong growth especially in the first two months from both segments and then we saw that significant hit in March that extended through April. FORWARD is a smaller part of the business and a little bit more skewed internationally and a little bit more skewed on the mark down side. So, on the week-to-week there is a little bit noise on February seasons pluses and minuses and that comes through, especially on international where we saw international perform better relative to the domestic business. Again, on FORWARD probably a little bit better than the REVOLVE segment just based on those dynamics plus the calms [ph] in the prior year.

Okay, great Jesse. And then just a follow-up question on the gross margin. You indicated that you’re expecting gross margin this year to be below the 48.6% level which obviously suggest some more severe pressure throughout the year even then you experienced I think in Q1. And I’m wondering if you saying that or you expect the greatest pressure in the second quarter or do you think more likely to see sort of similar rates of pressure in the second quarter through the fourth quarter?

It’s a really tough one. And because it is so uncertain it’s hard to say, really what back half of the year is going to do. We have more visibility into the recent periods. We’ve locked in April in the first couple of weeks of May here. So that’s the known and what we’ve seen is greater compression on that margin. And also, Q2 has historically been our highest margin period of the year. So, I think we’ll definitely see more pressure and that’s the guidance that we’ve given the rest of the year will be below 48.6% that we saw on Q1. So, the target is how it’s going to play out quarter-to-quarter.

Okay, thank you so much and hope everyone stays safe.

Thanks you too.

Your next question comes from Edward Yruma from KeyBanc Capital Markets.

I guess first I’m not sure this is noble or discernible. But any sense as to how much of a lift you may have gotten from stimulus. Do you see an outsize bump that week or the week then it started to hit? And any sense kind of how consumer behavior trending post that? And then as a follow-up I know you guys are very carefully managing receipts. How successful have you been able in particularly kind of fall, winter, seasons from a curbing the states perspective? Thank you.

So, with regard - of the stimulus. We did see a sizable bump the week the stimulus hit but what’s really encouraging is that in general the progressive week since then have continued on an upward trend. So, for that reason we think the stimulus did have a big impact. It’s not the major driver improving trend that we’re seeing here. So, I think the other thing also that we’ve seen a similar improving trend in international markets. We’re actually on the international side of the past four weeks have all been positive in terms of revenue year-over-year. So, we think it didn’t have any impact, but we don’t think it’s the dominant factor in play. And then with regards to the inventory receipts for the fall. We’ve been very successful in making adjustments there. Our partner has been very gracious and working with us side-by-side to get the right levels of inventory bringing in those seasons. I think the only thing I’d caution is that it is a very highly uncertain environment and we’ve seen an improving trend here. But we’re also preparing for the possibility that the trend could shift in the other direction because it’s a very fluid situation.

Thank you.

Your next question comes from Justin Post from Bank of America.

Maybe two questions and one follow-up. first on FORWARD the fee acceleration you saw in the first two months, was that addition a lot of new customers or were you seeing orders per customer go up, just kind of wondering what was working and how the inventory was resonating better? And then secondly, back to the REVOLVE Fest question. I know that hurt in April that comp, do you think not having REVOLVE Fest also was a headwind in the first 10 days of May and then I have one follow-up. Thanks.

So, with regards to FORWARD, we did see a first volume increase in new customers as well. So, it was a terrific first two months to the year. I’ve cautioned with FORWARD though that, there are some unique aspects to the first two months that I think resulted in particularly outsized growth. We’re still very happy with the trends that FORWARD has shown progressively quarter-to-quarter. But I think that 47% number and even higher number we saw on the first two months was a bit of an outlier driven in part by some really strong international marketing activity, within our international team that I think it was a bit one-time in nature. And then I’m sorry, what - the second half of your question?

Sure yes. You mentioned REVOLVE Fest was a headwind in April which we would expect. I was wondering if you thought the REVOLVE Fest not having that also was an impact on the first 10 days of May so that actually depressed the May number a little bit. And then my second question was on the return reserve, it was down quite a bit year-over-year. Is that all mix or was there other things going on with the return reserve? Thank you.

Sure. But with regards to REVOLVE Festival and the impact on May. We do think there’s an additional impact in May as well. But it’s much less than the impact we’ve seen in April. I wouldn’t read too much into layering additional headwinds on top of the trends that we’re seeing. Again, because I think the macro environment has been so uncertain. I think for the May numbers REVOLVE Fest will be impacted more in differently in those numbers. And then with regards to return reserve, I’ll let Jesse handle that one.

Thanks Mike. And just to clarify on the return reserve and make sure we’re talking the same terminology here. I think bifurcating that between rate and return reserve. So, the return rate has decreased and that’s largely due to the mix of sales both in terms of shift towards the lower price point, lower churn rate categories like beauty. Also, the incremental mark downs which a large portion of our final sales so there’s no return rates on that product. But then I think the return reserve is also an important thing to call out because as this folds into liquidity. When you’re drawing at a constant rate, whatever that is 5%, 10%, 20%. You’re selling that much products and approximately 50% is coming in, when you have such an abrupt shift like COVID-19 where you go from positive growth to negative growth you essentially have a cash call on those returns that were sold at the higher rates and you’re not selling at as higher of rate going forward. So essentially that 50% return on the higher volume is offsetting the sales that are going out on the lower volume. We’re seeing on the cash flow statement and that return reserve is really that cash call on returns coming in. So, from a liquidity standpoint that had a large impact especially in the back half of March. So, given our cash balance holding we feel good especially good about how that’s played out.

Operator, next question please.

Your next question comes from the line of Aaron Kessler from Raymond James.

First maybe talk about categories where you’ve had to invest more as a result of kind of the stay in place, many thoughts into kind of some the beauty investments. I mean how does this change your thinking longer term into some of these other categories? And then just also just to recovery that you referenced in May, was this kind of across all categories or is it still mostly in the more stay at home categories including the ones you noted on the call? Thank you.

The team has done an incredible job on the beauty side. We’ve had an incredible selection across all the sub-categories that across beauty. So, when she was looking for a range of products, we had them there for her. And the great thing is that, a lot of beauty business is really driven by reorders so we’ve been able to offer a whole range of skincare, hair care, self-care, tanning, across the board and we’ve been able to replenish and chase into that business. So that beauty is very, very favorable for us in terms of lack of mark downs and also very, very low return rates. So, I think this has been an awesome opportunity where we really introduced our customer to another aspect of our business. I think - a new age next generation department store is familiar with us for ready to wear floor and such shoe, remember the first floor [indiscernible] beauty counters are so we think - also been able to expand our marketing messaging engaging beauty. We expect and anticipate - very, very long-term. I think we’ve seen great success and great retention with our beauty business as nation once earlier so we’re very, very encouraged. With regard to the other categories again very - a little bit similar story. The loungewear, an aspect of the business is something we’ve had to chase into aggressively and we’ve done that both for the third-party and our owned brand. So, there’s going to be much larger presence there over the long-term. And ultimately, this [indiscernible] not so much of a swing but more of a balance I would say, whereas category mixes from the loungewear category to the extreme end of very fancy dresses and event wear gowns. We don’t see it as of course know shift has been dramatic in terms of percentage change. But if you look at the type of categories itself has been a lot more balanced and we are very, very excited about being able to communicate and connect with our consumer across all of our needs.

Got it. Great and just the recovery in May was that kind of across all categories or still mainly in kind of denim leisure, athleisure type of categories?

Yes, so that recovery was across all categories, we saw broad based improvement.

Great, thank you.

Your next question comes from Michael Binetti from Credit Suisse.

Thanks for taking a shot at the guidance here and helping us understand how you’re thinking about the business during a very tough period. Obviously the speak about go forward at all. I want to ask about the gross margins a little bit. Jesse, I think the guide post you gave of lower than first quarter for the year puts us down more than 500 for the year or maybe more than 550 for the year. Is there any - I agree your comment that the visibility is really low particularly in the second half. I’m assuming I mean 2Q is down a lot for you to take us that low for the year. is there any kind of guide post you can give us on how to think about the magnitude in 2Q just to help us with the model a little bit? And then any thought you could give on maybe some any kind of basis point guidance on how much of that is going come from mix of owned brand versus compressing margins in the different businesses first party, third-party versus the category shift you spoke to?

Yes, sure. And like you said it’s really difficult time to try to provide any guidance. We’re trying to do our best to put those guide post out there and help out. One the cadence throughout the year. I think it’s fair that 2Q is going to have a more meaningful year-over-year decline in Q1 just based on the comps again. 2Q historically is our highest margin quarter of the year and that’s laid out last year as well. We did over 400 basis points better in Q2 last year than we did in Q1, so it’s Q2 this year coming in lower than the Q1 we did. There’s an expansion of the year-over-year decrease in 2Q. Some of these events - maybe to try to help a little bit for the rest of the year. And it’s important to break it out between the COVID period and non-COVID period. During this COVID period one impact that accelerated or is having a more meaningful impact, is that shift from owned brand to third-party with lower minimums on third-party. Where in the near term we can manage both the inventory and reaction better by doing by making that shift. Over the long-term and hopefully it’s shorter than longer, we can go back to that pre-COVID cadence and target that we can maybe hit it on last quarter’s call. I think from a magnitude perspective. I think you can think about the combination of full price mark down mix and a lower mark down margin having the largest impact followed by this third-party owned brand mix with more of a shift towards the third-party than anticipated on the previous quarter’s calls. And then also which I think we mentioned but just to call out as well. As we have the shift from REVOLVE to FORWARD that lower margin segment FORWARD. Offset partially and very partially by improved margins on the FORWARD side.

Okay, thanks for that. And then I guess as a follow-up, how do you look ahead guys as you think rebuilding the business post-COVID here? How much of a gross margin change we see now this year do you think remains structurally versus how much you think you can recapture? If you think about the fact that you guys had very, very high levels of full price selling relative to the retail peer group. I don’t know you said longer term you can try to return to the mix of first-party, third-party brands. But maybe FORWARD keeps growing faster, maybe some of these lower gross margin categories are bigger opportunity and that’s structural and maybe just the levels of full price selling come down. How should we think about when you think as we look at 2021 and whenever is recapturable [ph]?

So, we don’t view this as any kind of long-term shift. Now there maybe some longer-term shifts at the margins like say on some of the category mix shift. But I think the right way to view this as an opportunity and hopefully not playing that much into the overall margin. With regards to the two major components, the mark downs, the third-party versus owned brand mix. Both of those are temporary. Certainly, it’s in more promotional environment right now and everyone has a lot more inventory than usually planned pre-pandemic and so that’s going to reflect accordingly in the numbers. And then with regards to owned brand, third-party. This is a temporary shifting strategy because the economics are better for us in this pandemic situation that is highly uncertain in terms of outlook. And also, where the economics are different in terms of kind of production minimums and investments and [indiscernible] style and cost of that nature. So, the major shift we’re receiving this year is just a function of us maximizing economics of the current period. We’re going to be prepared as soon as the pandemic is over to immediately bounce things back to a level more comparable to what we talked about previously which were still dialed back a little bit right and kind of closer between 2018 and 2019 mix and then from there continue to grow that business.

Your next question comes from Bob Drbul from Guggenheim.

Couple questions from me. I think on the first part, on the move the shift to 3P, is lot of that existing brands that you sold before, are you getting new brands in terms of that piece of the business? And I guess in a situation like this with the balance sheet that you have, are you seeing any opportunities from like an emerging brand perspective where designer or someone might have some liquidity issues and that will be something consider adding to your own portfolio?

Yes, the majority of shift to 3P has been with existing brands and vendors, brands that we’ve haven’t lost any relationships. But on the fringes, there’s also been the addition of some new vendors in categories that are becoming more important things like loungewear on the smaller end, we work with 500 plus, third-party brand. But there have been some very recent additions to the market place. Long-term wise in terms of partners or brands. I think you know of course serving our customers is number one and great product is essential. So, if there are brands that are need the support and help and there’s an opportunity for partnership that’s something we definitely known allowed to explore. I think you know as of right now it’s quite early in this crisis. But in the future those opportunities present themselves will be very open.

Got it and just two more quick ones. On the international business specifically April, May. Can you talk about country-by-country what you’re seeing or what you’re seeing in terms of the ramp back up? And then, the last question is essentially you talked a little bit about some of the stimulus check impact. Are you seeing more customers use the after-pay financing vehicle at all just any changes from the Q1 into April, May? Thanks. And that will be it from me.

So, with regards to the positive international trends. I can add some more color I think broadly internationally as well as some sort of regional color. So, in addition to international being positive for past four weeks. I would say in general we saw in our international regions they were hit less hard [technical difficulty] more quickly and we’ve seen positive trends that are fairly broad based internationally now. International that represents a lot of country, so there’s probably no point in timing our history for every single country is turning in the right direction. But in general, I can say is very broad based in terms of what we’re seeing including heavily hit area such as Western Europe we’re seeing some really positive sales trends.

Your next question comes from Simeon Siegel from BMO Capital Markets.

I hope you’re all doing well through this. Sorry if I missed it. Can you speak your view on the go forward direction of cost per influencer and performance marketing? And then can you guys just talk how you’re approaching, you mentioned conversion. So just looking at reflecting in the fact that margin April both in [indiscernible] recent traffic with buried in the sales trend. Can you just talk to the what you’re seeing with conversion in your approach to what’s driving that?

So, on a go forward basis. I would expect marketing expenses to be generally in line as a percent of sales year-over-year, so call it flat. Now that’s a broad general guidance. We’re going to be tactical in taking advantages of opportunities when they’re and go back when they’re not there. But I think is kind of an initial and kind of flag post, that’s the way I would view it. And then in terms of conversion rate trends, we’re seeing some recovery on conversion rate. But it has not been as strong as the recovery on the traffic side. Meaning so, that’s something that we have to see in terms of the full recovery on merchandize sale side.

Thanks a lot. Best of luck for the rest of the year.

We have time for one more question. Your last question comes from Susan Anderson from B. Riley FBR.

Thanks for fitting me in. two questions on the cost saves. Should we think of all of that being in second quarter is there anything also that we should think about for the back half of the year? And then also, when you think about the consumer. How are you thinking about them getting back to spending on fashion apparel again or at the levels that they have been spending? And then also, how are you thinking about competing I guess with the stores when they open up? Obviously, a lot of promotions will be going on, but just keeping that consumer the eyeballs on your website versus going out to the store?

This is Jesse. Thanks for the question. On the cost saving initiatives. Those really started to take place in mid-April. So, April is kind of half month impact there and the second quarter we won’t see equal impact. We’re going to monitor things on a week-to-week, month-to-month basis to determine how - if we have to go deeper or less deep on those cost reduction initiatives. We’ve attempted to variabalize [ph] the business as much as possible, so we can make those adjustments as much as in real-time as possible. We planning for a much kind of continued depressed environment in terms of the cost structure planning so that we can survive and come out stronger in the end of this and then maybe I’ll pass it on for the discussion on eyeballs.

With regards to you know stores open and such, I think when shelter-in place or stay at home guidelines are lifted. We think the consumer is really going to be excited not to go into physical stores to really spend time with their family, spend time with friends. Really do the joyous activities that were lacking in kind of this quarantine, lockdown type period and that’s exactly where we thrive so any offset in terms of access to physical stores. We think we’ll be more than compensated and boosted with. [Indiscernible] the activities that have been withheld in this time period, they’ll be thriving.

Great, thanks so much.

And I’ll now turn the call back over to management for final remarks.

Thank you, guys. It’s been of course a crazy time period but most importantly we’d want to thank our team. It’s been extremely challenging across the board from - some of the just fundamental as the way we do things from working from home and of course all the sacrifices that everyone is making across the board. So, we’re all doing our best and I think ultimately this will show up in the mid-to-long-term results. So, we’re very proud of everything that’s going on. We look forward to with the long-term future. We continue to thrive together.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.