Good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to REVOLVE's First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And at this time, I'd like to turn the conference over to Erik Randerson, Vice President of Investor Relations at REVOLVE. Thank you and you may begin.

Good afternoon, everyone and thanks for joining us to discuss REVOLVE's first quarter 2022 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, including statements related to our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations and financial results, including near-term sales in Greater China, our growth and market opportunities and related macro and industry trends, our plans to broaden our offerings, our plans to expand our operations footprint and the expected impact on delivery times, our marketing investments and invest on seasonality pattern, our freight costs, the convergence of year-over-year growth rates at active customers and net sales and our outlook for net sales, gross margin, operating expenses and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks 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, 2021 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 and free cash flow. We use non-GAAP measures in 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 it over to Mike.

Hello, everyone. We started the year out strong with another incredible quarter, highlighted by continued momentum across both segments. In the first quarter of 2022, our net sales were $283 million, a 58% increase year-over-year. The very strong results further accelerated our multiyear growth rate versus pre-pandemic periods and underscore our team's ability to navigate through what continues to be a very challenging macro environment. As founders, we've been focused on profitable growth from day one and this quarter was no exception, continuing our long track record of delivering a unique combination of growth and profitability. Net income was $23 million or $0.30 per share in the first quarter and adjusted EBITDA was $32 million, an increase of 35% year-over-year. Cash flow generation in the first quarter was nothing short of incredible. We generated a record $54 million in operating cash flow and $53 million in free cash flow, an exceptional increase of 62% year-over-year for both measures, further bolstering an already strong balance sheet. Looking at net sales performance by geography, the U.S. was incredibly strong, increasing 66% year-over-year, outpacing 28% growth in the international markets that faced a much more difficult comparison. All international regions increased year-over-year, highlighted by outstanding growth in Canada and the U.K., where we've made excellent progress with our localization initiatives. Late in the first quarter, we began to experience weaker trends in Greater China after COVID-19 restrictions negatively impacted consumer demand and logistics. With the current state of affairs, in the near term, we expect continued softness in Greater China which generated a low single-digit percentage of our total net sales in the first quarter. Now circling back to our consolidated results. Our results on a multiyear basis demonstrate just how much our business has strengthened during the past few years. Consider that…

Thanks, Mike. I'm super excited about the momentum in the business. With our strong operations and service levels of foundation, we kicked off the year with the marketing book that is back to full strength and driving incredible momentum in the business. I'm so proud of the team's execution that delivered outstanding results in the first quarter. Net sales growth in the REVOLVE's segment increased 56% year-over-year, the segment's highest first quarter growth in at least eight years and FORWARD delivered a stronger 71% growth in net sales year-over-year in the first quarter. To deliver nearly 50% top line growth in an environment with inflation pressures, supply chain headwinds, China lockdown and the war in Ukraine is truly remarkable. While the macro environment is challenged, we see strong demand from a resilient consumer but after more than two years is finally able to live her life to the fullest again. After being on the silent for two years, the content accessible season has come back strong, user travel has significantly accelerated in the recent months and 2022 is expected to be the busiest wedding season in nearly four years. In all of these cases, our customer wants to look and feel her best. As the go-to fashion destination for millennial and Gen-Z consumers are [indiscernible] and aspirational life elements provide the inspiration she used to before. We believe we are entering an exciting new phase of growth and consumer engagement and we are investing in this opportunity to engage in this far community and build on the strong momentum of our events. After patiently waiting for most of the past two years, our impressing marketing events are tuning back in better than ever. Starting in February with our exclusive homecoming event held in Los Angeles during Super Bowl weekend, that…

Thanks, Michael and hello, everyone. We believe our first quarter results demonstrate the incredible momentum of our brands, our competitive differentiation and our focus on operational excellence. I'll start by recapping the first quarter results, highlighted by exceptional top line growth and record growth in active customers for the third consecutive quarter. Net sales were $283 million, a year-over-year increase of 58% and an increase of 18% on a sequential basis from the fourth quarter. Both segments contributed to our exceptional growth. REVOLVE segment net sales increased 56% and FORWARD segment net sales increased 71% year-over-year in the first quarter. From a merchandise standpoint, the dresses category further accelerated to nearly 150% growth year-over-year, demonstrating that our customer is out again, living a very active social lifestyle. Own brands as a percentage of REVOLVE segment net sales also increased year-over-year for the second consecutive quarter. By territory, both domestic and international markets contributed to the strong top line results. Active customers increased by an exceptional $201,000 compared to the fourth quarter of 2021, exceeding our prior record performance announced just last quarter. This growth expanded our active customer count to two million, an increase of 38% year-over-year. Looking forward, since active customers is a trailing 12-month measure, the comparisons become more difficult as our new customer growth began to accelerate in the second quarter of 2021. We continue to expect year-over-year growth rates of active customers and net sales to converge in the coming quarters as we cycle out of the COVID period that negatively impacted the trailing 12-month measure for active customers. And our customer is very active, placing a record 2.2 million orders in the quarter, an increase of 68% year-over-year. Average order value or AOV, was $288, an increase of 13% year-over-year that benefited from the strong…

[Operator Instructions] And your first question comes from the line of Lorraine Hutchinson with Bank of America.

I just wanted to follow up on your comments around inventory. It looks like you're in good shape for 2Q but have you had any struggle getting the inventory you need? Are you seeing any logistical challenges with the more recent COVID outbreak in China? And what's your outlook for the inventory availability and levels going into the back half?

Definitely. Mike Karanikolas here. We feel really good about our inventory position at the moment. We feel like we're well supplied. Certainly, there's been challenges and we expect there to continue to be challenges for the back half of the year. At the same time, this is really consistent with the environment we've been dealing with the past two years and we feel confident in our ability to execute and deliver results regardless.

Your next question comes from the line of Anna Andreeva with Needham.

We -- just wanted to follow up on the quarter-to-date trend. You said sales up in the 30s. Should we think it's a similar dynamic like the last couple of quarters that FORWARD is outpacing the growth of REVOLVE segment. What are you guys seeing with international business quarter-to-date, just given the macro? And curious if you could talk about how you feel about the pipeline of in-person event ahead for 2Q?

Yes. So with regards to REVOLVE and FORWARD, we feel really good about the trends in both businesses and they continue to perform strongly. And then -- sorry, what was the second part of the question?

International quarter-to-date?

All right. International quarter-to-date. Yes. So on a one year basis, the international is not quite as strong as domestic. On a multiyear basis, we feel really good about the international and continues to perform well.

With regard to pipeline of events, we're feeling great that the world is open. So we're back to full strength of our full range of capabilities and a full calendar. REVOLVE festival is a large investment to begin the warm weather season and there will be other interesting events in Q2. And then H2, we'll have similar scale events as REVOLVE festival as we pursue the cold weather season. So -- but you'll see a lot more of us. Our customers will see a lot more of us in the rest of the year.

We will take our next question from the line of Mark Altschwager with Baird.

The active customer productivity metrics have been pretty impressive. I think $488 net sales per active customer on a trailing 12-month basis. Is it your expectation that these higher levels of productivity are sustainable? I guess the key drivers that you've outlined, I think you have them on Page 6 of the slide deck. I mean they all sound pretty structural but I'm curious if there's a view that some pent-up demand, does that play here as well?

Yes. Mark, this is Jesse. Yes, we're really pleased with the active customer growth this quarter again after several quarters of really robust growth. That said, we have commented in the past that, that active customer growth number will start to come down as we kind of cycle out of those COVID periods of past and active customer growth will converge closer to net sales growth. But to your point, structurally, we anticipate and expect continued productivity from those customers. I think one important driver there is that overlap between the REVOLVE and FORWARD customer and that FORWARD customer AOV being much higher than the REVOLVE customer AOV. So we see a lot of opportunity there and structurally just really good momentum in terms of customer productivity, retention across the board.

And your next question comes from the line of Seth Sigman with Guggenheim.

I wanted to follow up on the seasonality of the business. I think you did say you expected higher revenue in Q2 than Q1 but not the same seasonal increase that you would typically see, I guess, when you go back to 2019 or other years, is there a reason why we wouldn't see a similar 18% type of quarter-to-quarter growth rate? Was there a pull forward or anything else that we should be thinking about here?

Yes. No, great question. And we definitely wanted to call that. I think the main point here is that we just had an exceptional Q1 and that sequential growth coming out of Q4 of '21 into Q1 of '22 is phenomenal at that 18%. You didn't see that back in 2019. So kind of balancing between the Q4 to Q1 and then Q1 to Q2 and then just factoring in all the uncertainty out there, we just wanted to provide some caution on that sequential growth but still expect Q2 to be the seasonal high for the year and then with that 30% growth in April. So Q2 to date performing well.

And your next question comes from the line of Michael Binetti with Credit Suisse.

I had one similar to Seth. I guess if we look on a three year basis to the pre-pandemic period that Mike spoke to, I guess, the 30% that you're pointing to in April is maybe a 15-point slowdown versus 1Q. I don't know why it would slow. It seems like demand is very strong in the quarter. And then to set question and maybe it does seem like recent data points are a little more indicative of the demand environment than going back all the way to think about what the world was pre-COVID. I guess it seems to me the categories you want to work are working. The festival seemed like it went fairly well. I'm just wondering if you think we should think about seasonality difference beyond 2Q? Or if there's any kind of -- anything specific you can point to in 1Q that might have funded some pent-up demand that you think slows or anything like that?

Yes, yes. I think the three year is the most appropriate way to look at it. Going back to 2019 which is the most recent kind of "normal period" that we had and more similar to 2021 with festivals in both years -- or sorry, 2022 of both similar festivals in both years. I think difference being, we had a lot of activity early on in the current year, starting with the Super Bowl and then heading into Social club which then led into a festival. We're a little bit lighter in 2019 in that Q1 period. So there is some seasonal shifts within the quarter and into April. But again, it's really tough to call on kind of what's going to happen out there. So we're cautious but is still really excited with the performance thus far.

And Jessie, can I follow up with -- I'd be curious, you -- you came in revenues about 30% -- or sorry, $30 million above where consensus was in the first quarter, EBITDA about $3 million above. Should we think about incremental margins as we go through the year, if we do track above the revenue -- the revenue trends in consensus model. So how should we think about flow through? Is it similar to what we saw in the first quarter? Would you say you pulled forward some marketing or anything like that to go big on the first REVOLVE fest in a few years? Any help there would be helpful.

Yes. I wouldn't factor in too much incremental flow-through looking ahead. I think, in Q1, we didn't feel the full pressure from inflation, fuel start charges, costs, et cetera. Return rate was also just sequentially increasing as people started to get back out, started buying dresses again. So I think we'll see some of those pressures continue and it's still uncertain out there and what freight charges, fuel surcharges due for the balance of the year, inflation and everything else that's in the headlines. So again, phenomenal quarter. We continue to invest in the marketing and then continue to pace those cost pressures. So I wouldn't factor too much incremental flow-through as you look in the back half of the year. And in G&A, we mentioned being at the higher end of that range for the full year.

Your next question comes from the line of Lauren Schenk with Morgan Stanley.

Similar question as some of the others but on the gross margin line. Obviously, the first quarter gross margin is better than expected. Wondering why perhaps we shouldn't assume that, that flows through to the full year relative to your comments that you're still expecting flat to down slightly for the full year. And then as a part of that, how are you thinking about promotional environment for the industry more broadly through the course of the year.

Yes. Yes. Gross margin performed really well again this quarter and really driven by continued full price strength, again, really strong this quarter as we've seen in the last several quarters and that held through Q1. We did see slightly higher markdowns within that markdown mix, a smaller portion, of course but we did see some offset there. And then back to the plus side, our own brand mix did increase and those products performed really well in Q1. So recall that we're in at a 20% mix in 2021, so that increased slightly, an increase from the exit rate that we had in 2021 as well. So I think great margin performance, we're holding the full year outlook there as we do anticipate just natural inventory flow through that, that full price markdown or full price mix will come down, that markdown margin will come down as well, just naturally; but great performance in Q1 thus far. And in the promotional environment, we're not seeing anything too dramatic out there. I think there's maybe brand by brand, some incremental promotion. We're not really focused on trying to compete there. We just maintain our cadence and watch the inventory flow through and velocity.

Your next question comes from the line of Camilo Lyon with BTIG.

On the return rates, it looks like you got back to that 2019 level in that 54% range. But then in '19, it really does start to kind of decelerate going into the back half of the year. Is that the right way to think about how the return rate should unfold for the balance of the year?

Yes. Generally, that's -- historically, that's what we've seen. You see the full price mix and kind of dress mix hitting a peak in Q2 with dresses having a higher return rate, full price, having a higher return rate. That's where you see the peak in return rates and then it starts to come down for the balance of the year in the past. I think we should -- assuming a consistent mix and consistent seasonality, we should see something similar. Different, though, is over the last three years, we've layered on almost 10 countries, maybe more with the all-inclusive pricing, free shipping, free returns internationally; so we saw a meaningful increase in the return rate internationally. That is having an impact this year that wasn't there back in 2019. So that if you look at the return rate comparison this year versus 2019 and that incremental, call it, point -- maybe a little bit north of one point. That's largely due to international and those customer service initiatives that we've been layering in. And then also the other component there is full price. If you look at just domestic and normalized for that full price mix, we actually saw return rates tick down just very slightly. But back to your main question, I think it depends on the mix, both in terms of full price and the dress mix and what that does to return for the balance of the year.

Very helpful. And then just one final question. On your -- if we kind of unpack the metrics underneath what you've provided today and think about the -- your consumers' purchasing behavior. Are you seeing any signs of a pullback on spend, whether it's basket size or a trade down in price of goods as you normally would have thought, anything to signal that there is inflationary pressure that's impacting your purchase behavior.

Just speaking through Q1 kind of results to date, we're not. You can see it AOV at $288. I think it's a Q1 high record. We're seeing the orders per customer checking really well. So just kind of across the board, purchase frequency, the types of products, dresses coming back in a really big way. And then even within dresses, the special occasion kind of going out type dresses. So not really seeing it. We see that continued overlap between the REVOLVE and FORWARD customer, continue to increase. So kind of her even moving up the chain a little bit in terms of AOV and purchasing. So not yet, not to say that won't change but so far so good.

And your next question comes from the line of Oliver Chen with Cowen.

The average order values were impressive. Going forward, what are your thoughts on that dynamic as it applies to dresses and/or the mix? And second, as we think about new customers, what are your thoughts on retention and the retention strategies? I also noticed that you increased performance marketing with IDFA and new customers. Just would love some color on why and why that made sense. And finally, on the more markdown, are there implications for how you're planning inventory given that you have slightly deeper markdowns, I know you're up against a lot of very full price selling.

Yes. Maybe I'll take that first and last one on the AOV and then the inventory, in particular, Mike, for the IDFA performance, marketing [indiscernible]. So AOV, largely dependent on what mix does in terms of dresses in full price. Again, full price continues to check. We do expect that just mix to balance out over the course of the year -- especially in the back half of the year, just typical seasonality. But we expect continued strength on that AOV. Again, really strong full price and then calling out that FORWARD REVOLVE customer overlap again with FORWARD having a 2-plus x AOV than REVOLVE. And on the inventory, we're constantly balancing inventory. And when I say the markdowns were slightly deeper on that markdown, it was slightly and it was natural and expected. So I don't think that has changed anything in terms of how we're planning inventory for the balance of the year. We did stock up ahead of the increased demand and felt really good coming out of last year and into this quarter. And able to support that robust demand we saw in Q1.

Yes. And -- sorry about that. Yes. And with regards to IDFA, I mean, assuming been an industry headwinds. We've generally been impacted it by less than others due to our very diversified marketing mix. Brand marketing obviously has been very strong for us. Word of mouth being a huge source of customer acquisition. But it's only something that what has an impact. And from quarter-to-quarter, we're going to see some volatility between the various channels that we market in.

Okay. Lastly, it looks like private label, has had -- seems really good momentum. How do you feel about the capabilities you have there and what we should know relative to the past? And I was also curious about Super down and/or lower average unit retail strategies. FORWARD is really doing excellently. But as you think about broadening to lower price points, is that in your radar as well?

A - Michael Mente here. The capabilities over the past two years, obviously pulling back and accelerating and having an incredible quarter, moving forward, there's going to be a big diversity of capabilities in own brands across price points, across fabrications, across end uses. As we saw this last quarter, launch of Active which is going extremely well. And you'll see a lot of more things in that nature, diversified offering. We've been already classically great that something is going out category like dresses and such. And we've really seen that the consumer, not just our own brand but across the board wants to shop a broader selection for us, not just going out and the festivals and travel due to the pandemic at home, active beauty and just to range across the board. So diversely across the board was there which we think ultimately going back to an earlier question, long term wise, we're really optimistic that really increase productivity per consumer as we have the broader offering, of course, to integration with FORWARD handbags, shoes and accessories and all that. When it comes down to low price, the capabilities are strong there but we think that a greater opportunity over the long term is in our core as well as continue to upmarket. I think there's an appropriate balance of low-price product that we have. And I think we've calibrated quite well. But I think it's important for us being premium brands, the real white space is in our core price point and we think that there's a lot of opportunity to continue to migrate at core price point up over time. So don't anticipate seeing any more higher portions or ratios of low-priced products in the future.

And your next question comes from the line of Matt Koranda with ROTH Capital Partners.

A lot have been asked and answered. But just wanted to cover the loyalty program. And just whether you could comment on the cross-pollination between FORWARD and REVOLVE this latest quarter, just -- I think in the past, you guys have quantified active customers that buy from both FORWARD and REVOLVE. So I wondered if you guys could update on that front. And then just any benefits that you see coming from all the events that you're able to hold in 2Q and the rest of this year from that loyalty program?

Yes, it continues to be a huge success for us and it's really more of the same of what we've been seeing, where we're continuing with each passing month to increase the percentage of active customer overlap between the REVOLVE and FORWARD. I think we last disclosed, it's less than 5% of the business. It's still less than 5% but it's starting to get a lot closer to that number. And we think long term, the opportunity is huge. We think the vast majority of REVOLVE customers shop products that FORWARD carries. And so we're just excited to keep driving that number month after month, quarter after quarter. And the loyalty program is a big driver of that.

And your next question comes from the line of Tom Nikic with Wedbush Securities.

I want to follow up on the gross margins. I'm sorry if this was mentioned already earlier but there was a disparity between the year-over-year changes in gross margin between REVOLVE and FORWARD. I think REVOLVE was up about 100 basis points and FORWARD was down about over 100 basis points. Can you help us understand why there was the disparity between the two segments?

Yes. Tom, this is Jesse. It's really about inventory timing and FORWARD accelerating faster than REVOLVE last year. If you recall, last Q2, we had a phenomenal quarter for FORWARD. So kind of heading into that, you had at higher full price and then it's kind of -- it's transitioning faster on the FORWARD segment than it is the REVOLVE segment but still really strong on both fronts.

Got it. And if I could ask one more. You mentioned the pop-up store that you did, the REVOLVE Social Club. Obviously, you're doing great online but I wonder if -- is this kind of like a sign that you think that maybe having more of a physical presence would be beneficial and maybe we'll see more of these pop-up store events?

Yes. The pop-up store events are kind of great. They really give us an opportunity to get in front of a consumer. They give us great opportunity to engage and influence our community. I think it gives us a great opportunity to experiment with retail concepts and such. So we learned a lot with REVOLVE Social Club and I think that will be further iterations in the future. I think that pop-ups can easily be incorporated into a number of our future events. For example, at REVOLVE, actually, there's no pop-up store. I think that [indiscernible] the right way, it could be a very incremental additive component and with future events as well. So -- and we've done things in times past and we continue to learn and we'll definitely see experimentation and continued evolution of what we're currently doing.

Your next question comes from the line of Jim Duffy with Stifel.

The traffic growth in the active customers, I recognize this a rolling 12-month metric but can you comment even directionally on the composition of customers, net new to the data file versus the reengagement of those who may have lapsed during the COVID influence period?

Yes. This quarter was really both. And I know it's very general to say that but it really was both new and repeat customers. I think we saw more kind of recovery from that relapse customer over the past couple of quarters before we got to Q1. So those customers had kind of already come back. But what you have seen is that -- and this is true historically as well that full price customer performs really well for us over their lifetime. And with the robust full price sales mix that we've had over the full -- over the last four-plus quarters, we're seeing really great retention coming out of that 120% retention that we saw in 2021. And I think -- sorry, this is -- go ahead. I was going to say one more on that. I think Mike or Michael mentioned the friend referrals. Friend referrals are a great source of traffic for us and that helps in the retention and new as well. So, it's great to see that coming back as she gets out and socialize more even beyond our specific events without on the weekends, talking to our friends.

And I wanted to ask how this relates to marketing investment. It seems you're pleased with the return on performance marketing event spend against prospecting for net new customers. You mentioned pedal down on marketing. As sales came through strong, did you reinvest in marketing? Was this prioritized towards prospecting? And will that be the continued strategy as the year unfolds if sales over deliver relative to the budget?

Yes. So Q1 was fantastic for us from a revenue standpoint from a customer acquisition standpoint. And we feel we're getting great returns on our marketing investments in the first quarter. And when we do that, we tend to spend against it. In our view, both are important. We don't view it as one or the other. We think it's important to market both new and repeat customers. But we feel like our results for the quarter were fantastic. And I think if you look at the active customers and the revenue and all that, it really supports that.

And your next question comes from the line of Dylan Carden with William Blair.

Since you're giving this metric about sort of every incremental percentage point overlap between the two brands, I'm just kind of curious how you're thinking about what that ultimate sort of crossover spend could be. And if the sort of the shopping behavior between the two brands is sort of as you expected, I think the idea here was that it would be sort of an accessories FORWARD customer that then rounds out the wardrobe on REVOLVE. Is that kind of spending pattern that you're actually seeing?

Yes. That's only the spending pattern that we're seeing. That said, we have a diverse set of customers, so there's plenty of REVOLVE customers who will spend on the dresses and apparel on FORWARD as well. But we think the biggest opportunity is in the handbag, shoes and accessories. We feel great about our success driving the incremental increases. And yes, every point has a huge contribution to the business. And what's really exciting to us is it's not even about the current size of the business, right, REVOLVE is growing at a tremendously fast rate. So the size of that opportunity is going to grow as REVOLVE continues to grow. So we really just think more big picture in terms of long-term big picture opportunity in the luxury space, where it's a multibillion dollar opportunity for us.

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

A couple of questions. Maybe just on international. I know you mentioned China, any other regions you would call out kind of positively or negatively? And then labor costs, obviously, have been coming up a lot for kind of e-commerce companies. Anything you would comment there as well.

Yes, definitely. So yes, China with the lockdown, certainly saw softness in China, particularly at the back half of Q1 and continuing into Q2. In terms of the rest of international, generally quite strong, particularly Canada, as we've mentioned on a number of calls, continues to perform phenomenally with triple-digit growth rates in the quarter. U.K. also is extremely strong. And in general, I think, really nice growth across most of our major regions. And then, I'm going maybe on the labor costs. And on the cost side, Jesse, you want to?

Yes, the second question is on the labor cost.

Yes, yes. I think we are seeing incremental pressure there more so than in past years but we're managing through it and with that higher AOV and able to absorb those costs more than some of the others in the space. So we continue to balance and make up for it where we can in efficiencies like the warehouse automation and other things.

Got it. And maybe just on the AOV quickly. How much are you increasing pricing as well on the kind of the same item basis?

Yes. On the third-party side, it's largely pass-through. We are seeing kind of, call it, mid-single-digit price increases there. And then on the owned brand side, we go style by style to adjust and make sure it's comparable to that third party and we're balancing, again, on a style-by-style basis. So call it in that mid- to high single digits.

Your next question comes from the line of Simeon Siegel with BMO Capital Markets.

Did you guys say how you're thinking about gross margin for REVOLVE and FORWARD over the year embedded within your gross margin guide? And then any way to tell us about inventory units versus the inventory dollars that you're seeing? And then just thoughts on maybe just updating us on your views on inventory turn over the next couple of years.

Yes. Let's see. So the first one, margin outlook for REVOLVE and FORWARD. Specifically, we're not providing that in our commentary for the outlook other than to say, we'll keep shooting for that, call it, 55% or slightly lower for the full year. And again, full price is strong, that dress coming back with higher margin, strong owned brands with a slightly higher mix. And then FORWARD has a slightly offsetting impact there with the lower comparative margin to that of REVOLVE. Inventory turns, maybe I'll hit that one next. With the inventory dynamic and stocking up ahead of the demand, we are seeing slightly lower turns than our target but that is somewhat seasonal and expect those to tick up over time. And I think we'd like to see them slightly higher but really comfortable with the inventory health and where we're sitting and being able to support the demand that we're seeing. And then, on a unit basis, it tracks largely to the dollars. That said, with the increase in FORWARD and FORWARD taking mix over the years and that higher comparative AOV, you do see units slightly lower on a growth basis than you do on the dollar basis.

Your next question comes from the line of Trevor Young with Barclays.

At the risk of belaboring the inventory point, obviously, growing north of 75% year-on-year for four straight quarter, outpacing revenue growth. I think you mentioned you feel pretty good about inventory levels now. Looking at the slower revenue growth going forward for the next couple of quarters, should we expect that inventory growth to slow a little bit? Or will there still be some build on the new distribution coming later in the year? And then a second one, you mentioned the diversity in marketing channels. Any update on early success or lack thereof using TikTok and how that's comping against Instagram this year?

Yes, I'll take the first one there on inventory. Yes, we'll definitely see the year-over-year inventory growth start to moderate. It already has started to moderate kind of on an intra-quarter basis but especially as we get into 2H. And that was anticipated getting ahead of the demand. And then also getting back to a more kind of pre-COVID historical normal seasonality, where the inventory comes in ahead of that peak spring/summer demand that we see right around this time. So I definitely expect that inventory growth to balance, especially in the back half of the year.

Yes. When it comes to TikTok, we really feel great about the progress that we've made on all festival, there was definitely -- this is a first REVOLVE festival where TikTok was relevant to the consumer. So the appropriate investments are made and we gained 25% new followers in a single month which was absolutely phenomenal. So I think there's strong momentum there. A lot of the highest-performing that we were driving cross channel was driven by TikTok in a more diversified way than we've ever done before. So really proud of the team and really happy with the progress and it will be important for us to stay focused and continue to sustain the momentum.

And we have time for one more question. Your final question will come from the line of Susan Anderson with B. Riley.

I was just curious maybe if you could talk a little bit about capital allocation with the cash on the balance sheet. I guess, would you ever start to think about returning into cash to shareholders? Or is there opportunity to make acquisitions? Or should we just think about continued investment in the business?

Yes. Thanks, Susan. Yes, we are constantly thinking about it. I think number one to call out which very capital efficient. It doesn't take a lot to run the business, not a lot of CapEx. Even as we think about this distribution centered in the back half of the year, that will be very minor investment in terms of capital. So that leaves us with the other alternatives. So next one up is opportunistic M&A. We continue to look at things, think about things. But again, we're very disciplined. When the time and price is right, we'll make a move there. And then we do think about longer term, other ways to return capital, such as buybacks and dividends but that's probably further down the road.

And that's all the time we have for questions today. I will turn the call back to management for closing remarks.

Well, thank you guys for joining us for a quarter. We're very, very proud of the results that was driven. It's been choppy two years but we're really at a point where everything within our control is going extremely well and a lot of opportunity ahead. We're ready for on a macro level, whatever comes, I think we'll continue to gain strength and gain momentum and quite confident in our competitive abilities in the competitive marketplace. So feeling great and excited for you guys to join in a few months.

And ladies and gentlemen, this concludes today's conference call. You may now disconnect.