Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to Revolve's Third 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] At this time, I would like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve.

Good afternoon, everyone, and thanks for joining us to discuss Revolve’s third quarter 2022 results. Before we begin, I would like to mention that we have posted a presentation containing Q3 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 economic conditions and their impact on consumer demand and our business, operating results and financial condition; our cost and inventory management; our growth, including growth in active customers, and market opportunities and related macroeconomic and industry trends; our partnership with Muus Collective; our plans to expand FWRD Renew and introduce the FWRD Brand Ambassador program; our future events; 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.

Thanks, Erik. Hello everyone. We delivered another quarter of profitable, double-digit growth in the third quarter of 2022 that further distinguishes Revolve in the fashion e-commerce landscape, despite the increasingly challenged macro environment. Before I get into the details of the third quarter, I want to provide a higher-level view of how Michael and I think about our strategy, as both operators and long-term owners of the business. We have a founder led, investor first mindset that permeates throughout the organization. With this perspective, we are able to confidently make disciplined investments that we believe position us for continued success over the long-term, even during periods of macro challenges. The recent time period is no exception where we continue to make key marketing investments and launch exciting new initiatives that further elevate our brand and build on the long-term opportunity to capture market share. We have a history of this while delivering growth, profitability, positive cash flow and a healthy increase in our active customer base. This mindset and focus on investing in the long-term opportunity, even through turbulent times, has been a key contributor to our track record of growth and profitability over the last two decades and we believe it will continue to drive our performance well into the future. Now, getting into the third quarter results. In the face of many challenges, we grew our topline double digits and delivered meaningful profitability and cash flow. Our net sales increased 10% in the third quarter compared to the prior year period, on top of 62% growth in Q3 2021 compared to Q3 2020. We delivered net income of $12 million and adjusted EBITDA of $18 million in the third quarter. As expected, profitability was lower year-over-year due to reduced gross margins, higher return rates and other cost pressures…

Thanks, Mike. I am very pleased with our ability to deliver double-digit, profitable growth this quarter and I am very excited about the continued momentum of our brands, the strong relationship with our network of partners and customers, and the incredible performance by our team. We were very active in the third quarter as we continue to invest in our future growth opportunities, including key brand building events that generate returns over extended periods of time. We are very pleased with the early results of our activations and brand launches and, importantly, the positive feedback from our customers. In September, we returned to New York during Fashion Week to host an impactful weeklong activation, further elevating our brands with engaging experiences intended to delight and excite our community of influencers, customers and partners. The flagship event was our experiential, interactive and visually stunning REVOLVE Gallery that completely reimagines the traditional fashion week experience in a signature REVOLVE way and uniquely features a real-time shopping component. Back for a second year and bigger than ever, REVOLVE Gallery is an immersive, multi-brand installation featuring a curated assortment of emerging fashion designers, exclusive styles, and premier partners showcasing their brands in dedicated spaces. We hosted 9,000 attendees at REVOLVE Gallery over four days, an increase of about 50% from our inaugural event in 2021. In addition, we hosted a much larger group of high value customers at our REVOLVE Gallery and other fashion week events, and more than 50% of these high value customers traveled from out of state to be a part of our ‘money-can’t buy’ experience. It was incredible to interact with our customers, experience their loyalty to the brand and hear their glowing feedback on our level of service and their overall shopping experience. We also attracted participation from hundreds…

Thanks, Michael, and hello everyone. We are pleased with our accomplishments in the third quarter, as well as our exciting progress building on our long-term growth initiatives, all delivered by the team within an extremely difficult economic climate. I’ll start by recapping the third quarter results, highlighted by double-digit topline growth, continued profitability and healthy free cash flow generation that further strengthened our balance sheet. Net sales were $269 million, a year-over-year increase of 10%, and an increase of 20% on a three-year CAGR basis. As a reminder, our net sales in the third quarter of 2021 had increased 62% compared to the third quarter of 2020, and had even grown sequentially from net sales in the second quarter of 2021, which is not our typical seasonality creating a very difficult year-over-year comparison. REVOLVE segment net sales increased 9% and FWRD net sales grew 17% year- over-year. By territory, domestic net sales increased 10% year-over-year and international net sales increased 12%, despite the currency headwinds that became progressively more challenging throughout the third quarter. Active customers increased by a healthy 84,000 compared to the second quarter of 2022. This growth expanded our active customer count to 2.2 million, an increase of 34% year-over-year. Through the first three quarters of the year, we have already added more active customers in 2022 than in any prior full-year in our history. Looking forward, we continue to expect moderation in the quarterly growth of active customers in the fourth quarter of 2022 and especially in the first quarter of 2023 for this trailing 12-month metric. The reason the first quarter of 2023 will be a particularly challenging comparison is that we achieved exceptionally strong record growth in new customers in the first quarter of 2022. Our customers placed 2 million orders in the third…

Thank you. [Operator Instructions] We'll take our first question from Randy Konik at Jefferies.

Yes. Thanks a lot guys. Thanks for taking. Jesse, I want to first go to you and ask about gross margin guidance. So you made some good progress on the inventory growth relative to sales growth in the third quarter relative to the second quarter. It sounds like you're continuing to make that progress. When could you expect the inventory growth to come in line with sales growth? Would it be by the end of the second quarter of next year such that the markdown pressure should abate in the back half? Just want to get some perspective on how you're thinking about the cadence of growth relative to sales growth, first? Thanks.

Yes, sure. Thanks, Randy. I think you're in line there. As Mike said, we made great progress. We're on plan in terms of rebalancing that inventory and bringing it closer in line with the sales growth. But it does take some time, especially on the forward side. So we'd expect the bulk of the positive impact there and bringing that closer in line in 1H 2023, especially by the time we hit the end of the second quarter of 2023.

Got it. And just a follow-up there, you feel like you'd be more comfortable with those gross margins being able to improve in that back half as they go up better comparison – your comparison to the inventory growth being matched up? And then I guess last…

Yes. Into the first half of 2023 before it eases up and we start to see some gains in the back half of the year.

Got it. Okay. And then just last question, more for Mike and Michael. Just kind of perspective, if you could, on just how the consumer – your consumers maybe changing the notable changes that you're seeing in that consumer across the two different businesses? She becoming more price sensitive or not? Is there a frequency changing at all? Any kind of more either quantitative or qualitative aspects of how she's changing would be super helpful to the audience. Thanks guys.

Yes. The one thing that we're really noticing we've got our core customer, premium customer is still strong. We've seen AOV rise over this quarter. But we have seen that kind of the lower-priced customers a little bit softer there. So I think we're seeing like mixed tale of two worlds, which we'll see in the sweet economy is not surprising at all. I think as the economy gets better, I think we'll see increases across the board. So I think that's probably the one notable simple thing that we're seeing at the moment.

Got it. Thanks guys. Super helpful.

We'll move next to Oliver Chen at Cowen.

Hi. Thank you. Regarding the comments, very helpful, the comparisons do get tougher. How would you generally think about normalization towards your longer-term growth algorithms and how that may manifest as you attractively picked up a lot of new customers. And then second question on Web3. Some of the themes of Web3 include decentralization and the evolution of different kinds of platforms as well as crypto. Just what should we understand that customer maybe different from your existing customers, it’s a younger customer, but the video games are so significant? We just love the vision and the implications for financial modeling, if you have any. And last question on promos. It sounds like you're working through inventory to the way in which you're happy about, but would love your diagnosis of the promotional environment and how you're competing and what you're prepared for? Thank you.

Hey, definitely. Hi, Oliver, Mike here. So I'll take the first part as far as how we think about the growth rate in normalizing and kind of how it converts to that long-term trend. So on a three-year basis, we're essentially in line with our long-term targets. And obviously, there's a lot of noise in between with COVID lows and then a huge rebound last year, potentially overshooting a bit towards online and kind of aspirational items. And so we're a bit short of that long-term target. In the current period that will likely continue for a few quarters, while the current macro weakness and comps work themselves out. But feel great about the momentum of the business and continuing to achieve that long-term growth target of 20% plus. On the Web3 stuff, Michael, you want to talk about that more.

Yes, 1000%. I think at this point of the game, it's going to be far too early to model the financial indications over the long-term, but I think it's very important for us to really stay innovative and stay at the forefront of what's going on to me, it's very similar to when Mike and I were starting the company 20-plus years ago. There was a lot of doubts about the future of e-commerce. There's a lot of doom and gloom, and I think that was where we saw the opportunity, and I think it's important that we're continuing to invest and keep an eye out for the next 10, 20 years. With regards to decentralization, I'd love to have a longer conversation with you offline. I don't want to tip off too many competitors about what we have in the road map there. But I think there's some exciting kind of opportunities here that the new platform provides with us – to provide a broader platform for decentralized kind of product development. I think it's super excited about what we're doing here.

Yes. And then the last part of the question kind of on the promotional environment. We've certainly seen the promotional environment get more intense as the year has progressed, and we expect Q4 this year to be pretty heavy promotional wise. With Revolve, our approach to similar to how it's always been where we feel like Revolve is not as influenced by what others are doing, although we're certainly influenced by kind of more broader macros than [indiscernible] or kind of broader sales trends. And I think you saw that in the third quarter where the Revolve. Gross margin held up pretty well and FWRD, we took a bigger hit on the gross margin side. We're definitely expecting an intense promotional period in the fourth quarter. And we look to get ahead of that a little bit with some increased markdowns in the third quarter, but there'll definitely be some pressure there on the promotional side for FWRD in the fourth quarter.

We'll take our next question from Mark Altschwager at Baird.

Great. Thanks for taking my question. With respect to the guidance, it does seem like you have a bit more confidence in your ability to manage the costs versus what the macro demand backdrop might look like, appears evident in the cost discipline in Q3 as well as the guidance for Q4. So I'm wondering if you could just share any high-level thoughts on how investors should be thinking about the range of margin outcomes for 2023 as you navigate this more uncertain macro. I think the guide implies roughly an 8% EBITDA margin this year, but you also pointed to some ongoing headwinds in the first quarter. So I know you probably don't want to get too specific, but just any high-level thoughts or the framework would be helpful. Thank you.

Yes, sure. This is Jesse. I think it probably works best without getting too specific to just kind of work through the line items and give some color there. So on Randy's question, we talked a little bit about the gross margin pressure continuing through the first half of the year and next year and then easing up and getting some gains in the back half of 2023. Owned brands has increased moderately from that 20% that we exited or had in 2021. So that a continued build there will provide some benefit, especially as we progress through 2023. If we look at fulfillment, we are pressured at the moment with higher return rates. We did move into new facilities. So there's some short-term cost pressures there. We would expect to get some moderate level of efficiencies as we grow into our space and maximize that with scale. And that will also benefit to some extent on the selling and distribution line item as well. So if we segue into selling and distribution, again, a lot of cost pressures there from the return rate to fuel surcharges and just macro dynamics. Again, that's a very variable line item. But we do expect to get some efficiency there over time. Hopefully, fuel is shorter term in nature. Marketing continue to keep the pedal down investment in marketing, similar to what we've done in the last couple of quarters. And then finally, G&A. I think we mentioned in the prepared remarks that, that rate of growth will moderate in 2023. We made some pretty meaningful investments this year coming out of COVID, but that will moderate and come back in line. So we should get leverage similar to what we've seen in the last couple of years with that two full points since 2019. So hopefully, that helps give some color into 2023 to the extent we can. And then to your point, the macro topline is very uncertain.

Thank you.

We'll go next to Michael Binetti at Credit Suisse.

Hey guys. Thanks for all the details. Jesse, can you unpack the 3% in October, please, a little bit of a deceleration in the multiyear rate. Just what's going on in the ground that you're seeing that you want to isolate for us here to help us think about the trends in the quarter? And then on – I'm just trying to think about customer growth versus order growth a little bit. I know customer is a trailing 12 number, but 34% growth, we can make some inferences there in the quarter. Can you help us understand that growth rate versus orders up 7% in the quarter? And I'm wondering if you're seeing a new customer that you think is going to require some higher level of discounting going forward or anything like that? Just given that I didn't expect the customer growth rate to be as strong given some of the dynamics last quarter?

Yes. A few things there. I guess maybe starting from the back and working in reverse. So that active customer again being a trailing 12-month number. We are picking up the benefit of a couple of really strong quarters, especially Q1 of 2022. So we do expect that rate of growth to moderate into Q4 and then especially into Q1. So that 34% will come down. And again, these things will start to converge as things normalize, hopefully, you get to some kind normal here soon and get out of these crazy comps. And then on the order side, the order versus dollar is an active customer, we are seeing that increase in AOV and that's a combination of inflation price increases in that kind of mid to high single-digit range, but also her shifting to higher price point products. And then also like Michael mentioned, those higher price point products will get better than the lower price point. And you can see that in the forward results. And then also within Revolve, you can also see dresses checking really well, and then within some of the other categories, handbags and shoes doing really well. And within the fashion apparel category, some of those higher price points doing better relative to the lower price point category. So a lot of dynamics at play on that front. And then the trends in Q3 and as we entered Q4. So as we mentioned, July was plus 10, the comps got harder. We closed the quarter at plus 10. So it was pretty linear through the quarter despite some more tough comps in August and September, and also international getting progressively more challenging with the currency movements within the quarter. And that led into Q4, and we continue to see the currency and international pressure there. So domestic outperforming international in the fourth quarter. But October was softer than what we experienced in Q3 when you look at one-year and multiyear comparatives.

Thanks a lot, Jesse.

We'll take our next question from Anna Andreeva at Needham & Company.

Great. Thanks so much. Good afternoon. Thanks for taking our questions. A follow-up on the previous point. So on October being a little bit softer, Jesse, maybe talk about what you're seeing by brand. Is that more traffic or conversion? Just any surprises from October? And then secondly, on inventory, great to see progress being made there. Can you maybe talk about your comfort with the carryover levels by brand? It sounds like FWRD maybe is a little bit heavier than Revolve right now? And how do you guys think about inventory buys for 2023? Thanks so much.

Yes. On the October traffic conversion trends, nothing significantly different than what we experienced in Q4. There's always week-to-week, month-to-month dynamics there, but nothing that I'd call out that is significant outside of that continued pressure on the international front. On the inventory side, Mike commented, I think we both commented. We feel good about the progress we've made thus far. It's only been a few months into the cycle of rebalancing. The one to call out there is for it, it just takes longer on forward given the buying cycle there. So we have less ability in the short-term to impact things on that side. So that's FWRD is heavier relative to Revolve as we get into Q4, but that should start to rebalance in the first half of 2023.

We'll take our next question from Lorraine Hutchinson of Bank of America.

Thanks. Good afternoon. You got some nice leverage from reduced brand marketing. Can you talk about the decision to reduce this brand marketing and what this means for events on a go-forward basis?

Yes, we feel super, super proud of the work that we've done. We reduced brand marketing not because it was a financial decision, but we realized it's running our second annual Revolve gallery. We were able to accomplish even more with less. The first time we do something, of course, a lot of experimentation operation. So the second time around, we really understood what works best. We understood where to trim, we understood where it doubled down. And ultimately, we were able to achieve better results on a decreased spend. So very proud of the team. This was not a – let's share financially, it was – let's do our best. Let's make sure we do what's important and may continue to invest, but of course, be disciplined and get better. And I think that's what exactly what happened this quarter.

Thank you.

We'll go next to Rick Patel at Raymond James.

Thank you. Good afternoon, everyone. Can you talk about the outlook for AOV going forward? Just curious what the right way to think about the mix impact to Revolve versus FWRD and the work that you need to do on managing inventories? And then secondly, I was hoping to ask a follow-up question on margins. So any additional context you can give on the margin pressure in 3Q and the fourth quarter guide related to higher supply chain costs and the fuel surcharges would be helpful. I think you mentioned that gross margin will be under pressure in the first half. Curious if that means that easing supply chain pressure will be more of a back half 2023 tailwind?

Yes. On the first one and sorry, and I just lost the first one. Margins, sorry, can you repeat the first part again? I had my answer and it slipped…

AOV outlook?

No, my bad. On AOV, really good gains there the last several quarters and that's the combination of FWRD performing really well, higher price points performing really well. And in the full price mix, we've been operating at really record levels of full price for the last several quarters. It came down this quarter, of course, but still operating at higher levels than the pre-COVID era. So on that front, we expect the higher price points to continue to perform well addresses great for us. As we into the Q2 kind of peak, what is typical peak season, we generally see AOVs increase. But we will see some moderation there, so I don't think we'll see the expansion that we've seen in the last couple of quarters, given that shift from the record full price in the markdowns, especially as we enter this quarter and into the first half of 2023. And then the kind of in bound freight costs and how that's impacting margins, we are seeing some softening on that front sequentially from the second quarter, still running Q3, depending on which period you pick higher than the prior year period in pre-COVID levels. So it's coming down, how fast it comes down, we're not sure yet. So it probably wouldn't factor too much into that until in that mid-2023 time zone. And also important to also check that against the AOV. We do run at premium ASP and AOV level. So the freight is a challenge on the inbound side as well, but not to the extent it is on the lower price point players out there. So it's a smaller percentage of the cost of goods sold.

We'll go next to Jim Duffy at Stifel.

Thank you. Good afternoon. Two lines of questioning for me guys. First, a question on the pressure that you're seeing on orders for active customer. Jesse, you touched on this some earlier, but I'm curious if you could isolate the falloff in orders per active customer to a particular cohort or type of customer? Or if there's any analysis that sheds light on that?

Yes, nothing really to call out there. We did see a small decline sequentially on that orders per active customer, still running higher than we're experiencing, pre-COVID. So still a really healthy number, but we did see a decline there. And again, there's a little bit of picking up these active customers from that record Q1 time frame. But nothing to call out on the cohorts. They continue to perform really consistent over time. You did see the COVID pressure in all cohorts getting compressed, and you saw the 2021 rebound in all cohorts expanding. You see that in the retention numbers. But nothing to call out on a specific cohort. I'm really optimistic with the customers that we've acquired over the last couple of years and retention rates holding at where they've been historically. And again, we have call it, 19 years of cohort data. So a really good data set to read.

Okay. Thank you for that. I also want to ask about performance marketing effectiveness. Can you speak about how consumer shift to video is influencing marketing yield and therefore, allocation of your performance marketing spend?

Yes. So the consumer urge shift to video has definitely been a factor and that's an area that we've been ramping up investment. It's still from a pure performance marketing standpoint, a fairly small portion of what we do. I think where it's made a much bigger impact is on the brand marketing side, where we've seen huge growth in video oriented platforms like TikTok, where I believe our views were up 10x compared to the prior period year-over-year. And then even on Instagram itself, right, with the shift to real. So really big shift on the brand marketing side and then starting to see some shift on video, but still more focused on kind of how the static ads.

We'll go next to Matt Koranda at ROTH Capital.

Hey guys, Thanks. How would you characterize the sort of the number and depth of promotions on both sites relative to pre-pandemic levels? And then I have a follow-up.

Yes. So I think it depends kind of what period you're looking at. But to Jesse's earlier point, full price sales mix is still – is all very healthy and higher than pre-pandemic levels. Revolve, as we talked about, we think we have a better ability to manage through that inventory without taking significant levels of markdowns and then FWRD is a little bit more subject to competitive pressures and whatnot. So certainly, our markdowns are elevated, I think versus what we would consider a kind of normal economic environment on a go-forward basis. Our markdowns are elevated versus where we'd like to be. But we think that will take a couple of quarters to work through, and then we expect to see that the margins bounce back to close to where they were in kind of the pandemic high periods, but certainly not quite there because that was a unique period.

Okay. Thanks for that. And then just on return rates. Curious how you guys would characterize those and how they trended into October? It seems like potentially, we're seeing a downtick just a touch in the third quarter relative to the second. But just I was wondering if you can kind of characterize the latest in terms of returns and expectations for return rates on a go-forward basis?

Yes. I think we'd characterize it as expect them to remain elevated, at least in the near-term. There are couple of things at play there. Just as a reminder is that if you compare to pre-COVID levels, we're running a couple of points higher. That's number one due to the international localization and higher return rates international, which we think is a great thing, and has really expanded markets like Canada that was growing triple digits after we launched the localization there. Full price is another factor smaller than the international factor, but the full price sales do carry higher return rates. So maybe in the near-term, there's some release given the shift to markdown, but not banking on too much there. And then we are, for the last couple of quarters, it started really in June, I think we commented last quarter, where you did see just kind of macro kind of return pressure outside of just shifts in mix in international. So we're factoring that in, at least for the short-term. And then over the long-term, we'll continue to look for ways to reduce that in the benefit of both Revolve and the customer importantly.

We'll go next to Trevor Young at Barclays.

Great. Thanks. Mike, you mentioned the deterioration in international throughout the quarter in part because of USD pricing. It seems like FX volatility is going to be here for a while or certainly something you're going to have to continue to contend with. Are you making any changes in how you think about pricing for international to maybe alleviate some of that volatility? Or is that just premature given the size of the business?

Yes. We are – maybe it’s too stronger statement to say we are making changes, but we are currently analyzing, making changes. I mean we make some changes there. So we're doing some analysis on the benefits and costs of subsiding the currency pressure a little bit. Also, considering maybe hedging a little bit more in the future. But at the end of the day, currencies could go up that they could go down and we're prepared for either scenario. In the short-term, and we've seen this historically internationally when the currencies are working against us that applies that short-term pressure. But the long-term trajectory is very healthy. I think as soon as consumers adjust to the new reality of the exchange rates will be in a very good place.

Great. Thank you.

And we'll move next to Edward Yruma at Piper Sandler.

Hey guys. Thanks for picking me in here. A couple of quick ones for me. I guess, first, can you give us a quick update on where you are in just penetration relative to historic norms. I know that that's obviously been headwind for returns to kind of link it back to that. And as a follow-up to your last question on return rates specifically, I know you called it this macro-related return pressure. Obviously, second quarter saw a lot of inflationary pressures. Have you seen any reduction in the consumer that's just returning the entire order or that you view as more macro related? Thank you.

Yes. On the first one, [indiscernible] is up to 31%. So it tick higher than a couple of points higher than last year, plus or minus in line with pre-COVID level, there is some seasonality there as well. You typically see the higher address mix in Q2. I'd say, in line to back where we were. And then the returns, nothing really to call out there and a significant change of kind of full order or partial order. We are seeing units per order increased slightly. So that's a benefit on some of the other costs that can be impacting return rate as well.

Thank you.

Next, we'll move to Tom Nikic at Wedbush Securities.

Hey guys. It's Tom Nikic with Wedbush. So Jesse, I believe before when you were talking about some of the puts and takes for 2023 margins, I think you said something along the lines of keeping the pedal down on marketing. Does that suggest maybe another year of deleverage on marketing? And just at a high level, how should we kind of think about the point there that line item inflect comes sort of tailwind to EBITDA margins rather than…

Yes. I think yes, that kind of gets what we're expecting on the topline for 2023, which is kind of, well, very uncertain. So at what point we start to get leverage is unknown at this point. I think the theme is that performance marketing is variable. We'll continue to balance that on a day-to-day, week-to-week basis. The brand marketing is more structured, more fixed and also part of that is opportunistic. So we'll continue to make those investments. And that's where you will get some volatility quarter-to-quarter and the point at which we start to get leverage on that line item is we will, at some point, but can't comment much beyond that on timing.

We'll go next to Simeon Siegel at BMO Capital Markets.

Thanks. Good afternoon, guys. Sorry if I missed this. I think you gave general color on moving pieces for Q4 topline. Any just more granularity you're willing to dig into for what you expect for 4Q and 1Q revenues and the implied active customer growth embedded within that?

Yes. So we did say that October grew at 3% on slightly more difficult comps than Q3. The comps get even harder into Q4, if you call back to Q3 of last year's call where we said October grew at roughly the same rate as Q3, which was 62% and then we closed 4Q at 70%. So we're going to get to a tougher comp dynamic in November and December. So that's on Q4. And then Q1 again and just going back to highlighting that this is a – this will be a very challenging one-year comp quarter, so expecting ongoing challenges there on a one-year basis. And then on active customers, a similar dynamic at play with the added complication of that trailing 12-month number as we start to drop, especially as we get into Q1 of 2023 and we dropped that Q1 of 2022 quarter. That will be very challenging. So if you work from the plus 34 that we're at for Q3, that will go down in Q4, that will continue to go down in Q1 and probably into Q2 before we start to normalize.

Okay. And then how much – what was ending inventory growth in units rather than dollars?

Say that again?

Do you know off hand what your ending inventory growth was in units rather than dollars?

Yes. We're not disclosing the specific number, but it was much lower than the dollar growth and also the kind of sales growth to inventory growth differential on a unit basis is tighter than the dollar basis.

Okay. Great. All right. Thanks a lot guys. Best of luck for the rest of the year.

Thank you.

And we have time for one more question, and we'll take that question from Janet Kloppenburg at JJK Research Associates.

Thank you so much for taking my question and sneaking me in here. I wondered about your inventory levels if we should expect another significant tick down at the end of the year. And I also wondered if at that point, you felt that there would be aligned and at appropriate levels. And just lastly, if you could comment on your newness levels year-over-year. You have a very fashion-forward customer. And I'm wondering if perhaps lower levels of new products led to some of the deceleration in sales in fourth quarter to date? Thank you.

Sure. So on the inventory balance, our view as far as the end of the fourth quarter is a lower inventory balance year-over-year, certainly within the range of outcomes, but it depends on some of the demand dynamics in Q4 and other factors. And so we'll have to see how it shakes out. But we're pleased with the trajectory and the progress we're making. And again, we're going to balance managing that – the inventory levels with maximizing long-term margin potential. And then with regards to kind of the newness and freshness, right, that's one of those key things, right, that we balance in terms of customer experience and making sure we have enough new fresh inventory. So we feel good about the new inventory that we're bringing in and the reorders of the great products that we're bringing in. And we've been very careful not to kind of shortchange that area of the business just to moderate inventory positions. So there's certainly been some movement at the margins, particularly given that we're seeing overall lower demand levels in general. But I wouldn't say that's a significant factor in the demand levels.

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

Hi guys. Michael here. Definitely a challenging macroeconomic environment, but we're really excited about the challenges and opportunities ahead. I think this is the type of environment where we started the business, the type of environment that set us up for an incredible run post 2008, 2009, and we're seeing a lot of opportunity in this current day. So excited for all the challenges and opportunities to come.

And this concludes today's conference call. You may now disconnect.