Please ensure Javascript is enabled for purposes of website accessibility

Revolve Group Inc (RVLV) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribing - May 14, 2020 at 5:31AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

RVLV earnings call for the period ending March 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Revolve Group Inc (RVLV -2.53%)
Q1 2020 Earnings Call
May 13, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the 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.

Erik Randerson -- Vice President of Investor Relations

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 posted a presentation containing Q1 2020 financial highlights to our investor relations website located at I would also like to remind you that this conference call will include forward-looking statements. These statements include our expectations regarding risks related to the continued impact of the COVID-19 pandemic on 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 attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders, financial results and our guidance, market opportunities, our owned brand mix, our inventory position, our diluted 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 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 more accurately represent the true operational performance and 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 these measures can be found in this afternoon's press release and our SEC filings.

Joining me on the call today are co-founders and co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Mike.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Thanks Erik. Good afternoon everyone. Thanks for joining us today. We hope each of you and your families are safe and healthy.

Today, we are 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 have 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 onetime 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 that our brand messaging and assortment was resonating well with our customer. Taking a deeper look at the top-line results for January and February.

Year-over-year growth in both the Revolve and forward segments had accelerated through the first two months of Q1 2020, with particular strength in our forward business in 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 improve inventory turns. These positive trends remained through the first week of March before COVID-19 became widespread in the U.S. and the related stay-at-home mandates changed the trajectory for us and many other discretionary consumer product companies.

We have been known for our premium product and our exciting and aspirational social media marketing focused on an experiential lifestyle. Overnight, the special social occasions that often serve as a catalyst for customers to buy from Revolve, particularly in the spring season, had been put on hold. Music festivals, travel, parties, weddings and dining out, among countless other events, had all been canceled or postponed. Our largest and most impactful brand marketing event of the year, #RevolveFestival, was also canceled.

This change in consumer behavior, combined with the broad-based reduction in consumer confidence and demand resulted in our net sales decline by almost 50% year over year in the final weeks of March. We view the current impact on our business as temporary and a function of the unprecedented environment. As we continue to engage with our customers through real-time adjustments to our merchandise offering and marketing message, we are confident she'll remain loyal to the Revolve brand she trusts for fashion and inspiration. Now shifting to the more recent trends in the second quarter to date.

Net sales in April declined approximately 40% year over year, improving from a nearly 50% year-over-year decline in net sales in the latter part of March. Most importantly, the magnitude of our net sales declines has been reduced every week for the past four weeks. Through the first 10 days of May, our year-over-year decline in net sales further improved to roughly 25% year-over-year decline. Traffic to our sites has improved meaningfully in the recent weeks, turning positive year-over-year after declining year-over-year beginning in mid-March.

I'll caveat these improving numbers by saying, these are highly uncertain times. So while we are encouraged by the improving trend, it's entirely possible that things could get worse again in the coming days, weeks or months. We believe the improved sales trend reflects broader trends in consumer behavior over the time period as well as the great efforts by our marketing and merchandise teams to adeptly shift our messaging and product to align with the changing consumer interest in the current environment. For example, if you've looked at our website lately, you'll see that we are increasingly highlighting categories for the work-at-home and play-at-home lifestyle, like loungewear, intimates and beauty including featured shops for work-from-home chic and date night in.

This merchandising shift aligns with our customers' recent shopping behavior consistent with the realities of sheltering in place. As you might imagine, categories like beauty and loungewear are performing very well right now, whereas more formal pieces like dresses are not resonating in the current environment. On one hand, it is a near-term headwind since dresses have historically been, by far, our top-selling category and carry our highest gross margins. On the other hand, I'm excited about the growth in beauty as it gives us the opportunity to deepen our relationship with customers in a product category that tends to be a frequent purchase.

Sales in the beauty category increased 122% year-over-year in April and became our fourth largest category by sales volume. And in general, we saw encouraging trends in other merchandise segments that our customers had historically less associated with Revolve. While the overall business trends remain extremely challenging, our hope is that we can exit this period with an expanded relationship with our customer due to the outstanding work of our marketing and merchandising teams. Now, I'll shift to a discussion of how we have responded to the crisis.

First and foremost, our No. 1 priority is the health and safety of our employees and customers. Beginning in mid-March, we transitioned all of our teams whose role do not require them to physically be in the office to work from home. For those remaining in the workplace, we've completely revamped our operating procedures to implement rigorous health and safety guidelines.

These safeguards include administering daily temperature checks, establishing social distancing requirements, providing personal protective equipment such as mask and gloves, creating staggered shifts in the distribution center and frequent deep cleaning and sanitization. We've always been known for our exceptional service levels. And during this time period, our e-commerce operations haven't skipped a beat. Our customer satisfaction metrics were at record levels in March and April.

We are particularly proud of this performance given numerous reports of significant fulfillment delays among other e-commerce apparel companies. As a way to even better serve our customers and establish even deeper relationships with them, in March, we launched our Revolve loyalty program that we mentioned on the call last quarter. The loyalty program has been very well received in the early going. I am proud of our team for how well everyone at Revolve has managed through these challenging times while keeping laser-focused on delivering outstanding service to our customers.

Thanks to all of our team members for your hard work and sacrifice, for staying nimble and for your dedication during this challenging time. In addition to protecting our employees, we knew we also had to protect our balance sheet and liquidity. By the end of Q1, it was clear we had to move quickly and decisively to reduce our cost structure given the depth of the reduction to demand and the uncertainty over how long the current period might last. In early April, we reduced costs across the board starting at the top.

The first cut we made was Michael and I reducing our annual salary to $1. We have also reduced just about every nonessential expense imaginable as well as canceling or deferring all nonessential capital expenditures. The most difficult decisions were those involving our valued team members. The outcomes ultimately included salary, wage and hour reductions, furloughs, and to a much lesser extent, layoffs.

These were tough decisions, and we continue to support our furloughed employees by providing health benefits and educating them on all aspects of the CARES Act. We are also actively managing inventory receipts to preserve our cash and minimize inventory risk in this time where the level of future demand is uncertain. Similar to the sales trends, we started off the year great in terms of managing our inventory balances and improving our inventory turns. At the end of February, our inventory had decreased year-over-year compared to the net sales increase of over 20% year-over-year and a corresponding increase in our inventory turns.

Upon the shelter-in-place mandates in mid-March, we began to immediately reduce our future inventory commitments to better align with the reduced consumer demand. Managing inventory in this environment with rapidly changing demand expectations and shifting customer preferences is a tough task, but we have a great line and planning team who have been with us for many years and have been able to react quickly. Now, I'll pass it to Michael.

Michael Mente -- Co-Founder and Co-Chief Executive Officer

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 in such a dynamic environment. I will continue with the discussion of navigating through the COVID-19 challenges and will focus my remarks on three core areas: first, our brand marketing initiatives; second, owned brands; and third, why I'm confident Revolve is well positioned to navigate through the current challenges and emerge even stronger.

First, our brand marketing initiatives. As I'm sure everyone knows, Revolve is widely recognized for our impactful and aspirational brand marketing events 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 #RevolveFestival and would be extremely busy planning and executing a series of events during our peak spring and summer seasons. But 2020 is anything but a normal year.

To adjust, we quickly mobilized the team around the new opportunity of engaging with our customers during the 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 were confident we could adapt well. In mid-March, we launched our #Revolvearoundthehouse, creating a tremendous amount of engaging and inspirational live content shows produced daily on Instagram Live that feature influencers, designers and celebrities. #Revolvearoundthehouse includes personal daily workouts, expert beauty tips, cooking classes and my favorite, the Revolve shopping network.

Response has been exciting. For example, a recent episode featured Aimee Song, a global lifestyle influencer who's also a fashion designer collaborating with Revolve for the Song of Style owned brand collection. Last week, Aimee hosted a live event from her house to launch a new line of shoes as an expansion of our Song of Style collaboration. More than 100,000 people tuned in and sales of the collection have been strong, validating the power of our live content and the strength of our collaboration with Aimee as well.

In just over five weeks, we have produced over 50 Instagram Live segments that have been viewed close to 5 million times on Instagram Live or IGTV. One of the most exciting things for me is that despite having significantly reduced our marketing spend, we have actually increased engagement with our core customer through the pandemic. There's more content being created, more comments, more likes and more shares. And even though we are not able to host in-person events like #RevolveFestival, our Instagram reach on our Revolve handle has increased more than 30% year-over-year through the first nine days of May.

We have adjusted our strategy and continue to drive awareness and engagement, powering the improved traffic growth to our websites that Mike mentioned. Now, let's shift to a discussion of owned brands. Owned brands are core to our long-term strategy and a key part of our value proposition. However, with the onset of COVID-19 creating a great deal of uncertainty around demand for the upcoming quarters, we have significantly reduced planned inventory receipts overall and even more aggressively with owned brands.

In such an uncertain environment in the near term, we believe we can more effectively manage our overall inventory levels by shifting more of our purchase to third-party inventory where we can make shallower initial inventory buys across a broader range of styles. To be clear, this does not suggest in any way that our long-term strategy here has changed. In fact, the planned investments in owned brands discussed on last quarter's conference call which are focused on broadening our range of capabilities and diversifying our supply chain, have become even more relevant with the recent COVID-19-induced change to consumer preferences. Sheltering in place has resulted in significant demand growth in such categories as denim, loungewear and athleisure.

We are moving quickly to reflect these changes in our merchandise assortment across both owned brand and third-party brands. We are developing owned brand capabilities in these underpenetrated categories. Before I turn it over to Jesse, I want to express my confidence why I believe Revolve is well positioned to navigate through the challenges of COVID-19 and emerge even stronger. First, our experience and ownership stake.

We founded Revolve with the vision to own it forever, and the decisions we make are viewed through this long-term lens. While COVID-19 is truly unprecedented, Mike and I have deep experience navigating and thriving through challenging market cycles. Mike and I launched Revolve in 2003 in the aftermath of a recession that took place after the dot-com crash. And later, we successfully navigated through the great financial crisis at a time where we still hadn't taken outside capital.

Through this all, we remain the two largest shareholders even after going public. In fact, we increased our ownership stake in recent months. Next, our business model. We are very fortunate to have a business model that is incredibly capitally efficient and inherently resilient.

Over the past four years, capital expenditures have averaged just 1% of net sales. Equally important, for the majority of our cost structure, we can pull levers very quickly to adjust to changing macroeconomic environment. For example, our largest operating expense is marketing which is highly discretionary. The significant majority of our marketing spend in 2020 continues to be digital ad spend that we can adjust in real-time since we have no long-term commitments.

We also have a strong financial position with more than $100 million in cash at the end of Q1. We have a strong and established track record for generating cash flow. In 2019, we generated $46 million in cash flow from operations, nearly 8% of net sales for the year. Finally, we are well positioned for accelerated consumer spending online.

There's no question that the COVID-19 pandemic could bring long-lasting changes to consumer behavior. One change is the increased importance of e-commerce and the increased challenges of physical retail. The concept of online shopping has never been more relevant than it is today. Much of the competition is burdened with high fixed cost and inventory buying requirements that make it harder for them to navigate the current challenges and adapt to consumer demand.

As a result, we believe there's going to be an acceleration to the shift of consumer spending online, benefiting capital-efficient companies like Revolve that are well positioned to navigate through these tough economic times. I'll close with something I'm super proud of. We are in a position that allows us to leverage our supply chain expertise, our influencer network and our brand partners to give back to the community in support of our front line workers. We have pledged to donate more than 200,000 medical-grade masks to healthcare workers to help these heroes in their time of need.

To date, we have distributed more than 90,000 masks to hospitals and clinics across the country with an additional 140,000 in transit to donate to over 74 hospitals. Now, I'll turn it over to Jesse for more detail on the financial results and trends.

Jesse Timmermans -- Chief Financial Officer

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 are not representative of our current business trends. As a result and in the spirit of transparency, I will 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 will 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. And 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 in 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, coincident with the escalation of the COVID-19 pandemic in the U.S. As a result, by the time we exited the first quarter, weekly net sales were nearly 50% less than 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. Drilling into the top line. Revolve segment net sales in Q1 increased 1% year-over-year for the full quarter. But again, it's important to look beyond the headline numbers.

Before the negative impacts in March, Revolve segment net sales increased 17% year-over-year in January and February combined, an improvement from the 13% year-over-year growth in Q4 2019. Meanwhile, the forward segment performance was exceptional in the first quarter. forward net sales increased 47% year on year, its highest growth rate in several quarters despite the COVID-19 headwind late in the quarter. Active customers continue to increase, surpassing the 1.5 million mark for the first time.

Orders placed increased 3% year-over-year despite the negative impact in March. Average order value was flat year-over-year at $259 despite headwinds in late March resulting from a material shift in net sales mix to at-home product categories such as beauty and loungewear with lower average price points. International was a bright spot for the quarter, with international net sales increasing 17% year-over-year despite being impacted in March. Looking at the months of January and February on a combined basis, international net sales were higher by more than 30% year-over-year.

Just like in the U.S., the international net sales trajectory changed materially and became negative in late March due to COVID-19 impact. With that being said, similar to the last few quarters and the first six weeks of this quarter, the international business has continued to perform better than the U.S. business, in part because the international business is diversified across many different regions and also because of the outsized impact of COVID-19 on the U.S. consumer.

Moving to gross profit. Consolidated gross margin was 48.6% for the first quarter, a decrease of 290 basis points over the prior year. As indicated last quarter, we had expected a lower consolidated gross margin due to a higher mix of net sales from the forward segment which carries a lower gross margin as well as the Revolve segment gross margin being lower year-over-year. Within the Revolve segment, we delivered gross margin of 50.1% in Q1, down 310 basis points year-over-year.

As we discussed in the prior quarters, the Revolve segment margin was negatively impacted by a lower percentage of Revolve segment net sales at full price, deeper markdowns within the markdown product and a lower mix of owned brands. The COVID-19 pandemic brought additional gross margin headwinds as a result of the decreased demand as well as a more promotional external environment, in addition to a shift in net sales mix to product categories that carry lower gross margins. Within the forward segment, not only did we deliver an acceleration of top-line growth, we also delivered strong gross margin. forward segment gross margin was 39.7%, an increase of 230 basis points over the prior year as a result of the merchandising and marketing initiatives that we put in place after repositioning this business.

Fulfillment which reflects the cost incurred to staff and operate our distribution center, totaled $4.5 million or 3.1% of net sales as compared to 3.3% in the first quarter of 2019. As a reminder, fulfillment is primarily comprised of variable cost that we can efficiently flex up and down with demand. We are very pleased with our ability to deliver continued year-over-year efficiencies in fulfillment as a percentage of net sales for the second consecutive quarter. In the normal course of business, we would expect further efficiency gains as we had previously communicated.

However, going forward, during this period of reduced demand, we now expect fulfillment cost as a percentage of net sales to be less efficient year-over-year for three reasons. First, there is a decrease in efficiency as a result of the important process changes we have implemented in our warehouse to ensure worker safety including social distancing and providing personal protective equipment. Second, the shift in product categories we discussed will result in a decrease in average order value which is a headwind to fulfillment efficiency measured as a percentage of net sales. And third, the lower volume in the current environment means there is less efficient utilization of our expanded warehouse capacity.

Selling and distribution costs which consists primarily of shipping, merchant processing fees and customer service, were $21.8 million or 14.9% of net sales, a slight decrease from 15% of net sales in the first quarter of 2019. As a reminder, selling and distribution costs are almost entirely variable primarily tied to the number of orders processed. During Q1, we were able to offset general price increases with greater efficiencies to maintain the overall level of selling and distribution costs as a percentage of net sales. Looking forward, during this period of reduced demand and similar to fulfillment costs, we expect the lower average order values resulting from the category mix shift and markdowns will put pressure on this line item when expressed as a percentage of net sales.

Marketing costs were $22 million or 15% of net sales as compared to 14.2% in the first quarter of 2019. As a reminder, historically, about 75% of our annual marketing expense relates to performance marketing on digital channels. Within this performance marketing component, we have the ability to flex our investments up and down in almost real-time, making this area highly variable with sales. Shifting to brand marketing, with the current social distancing guidelines, we have canceled or postponed many of our brand marketing events that had been planned for 2020 including the #RevolveFestival initially scheduled for April.

As a result, we now expect our investment in performance marketing to represent a larger share of the overall marketing spend in 2020 than the 75% in recent years. We are targeting a reduction in total marketing spend as a percentage of net sales as a result of the reduced brand marketing investments and the continued balancing of performance marketing spend. General and administrative costs which primarily consist of salaries and wages, were $18.9 million or 12.9% of net sales in the first quarter as compared to 14% of net sales in the first quarter of 2019. The year-over-year reduction in G&A was mainly due to nonroutine costs incurred in the first quarter of 2019 as well as efficiencies gained with scale as this line item is largely fixed.

After we recognized the pandemic's significant impact on consumer demand, we moved quickly to reduce G&A costs. As Mike mentioned, in early April, we announced the outcome of very difficult decisions to temporarily reduce personnel-related costs. To give you some context, we expect these actions will temporarily reduce our cash G&A cost by about 40% from the prior run rate. We will see the full impact of these actions beginning in May.

For the first quarter of 2020, net income was $4.2 million or $0.06 per diluted share. Adjusted EBITDA was $5.6 million for a margin of 3.8%. Moving to the cash flow statement. We operate a highly capital-efficient business as demonstrated by our capital expenditures of just over $500,000 in the first quarter, less than one-half of 1% of net sales.

We generated $8.1 million in cash flow from operations and $7.5 million in free cash flow for the first quarter of 2020. This cash flow generation further strengthened our balance sheet. As of March 31, 2020, we had net cash of $73.6 million. Since liquidity is especially important in these uncertain times, late in Q1, we grew down $30 million from our existing line of credit, our first draw on the line in over two years.

With this, we ended the first quarter with total cash and cash equivalents of $103.6 million. We ended the quarter with $101 million in inventory, an increase of 4% year-over-year, slightly lower than our 6% increase in net sales year-over-year. As Mike mentioned, inventory turns improved through the first two months of the quarter before decreasing in March when we felt the impact of COVID-19. To preserve our cash and liquidity going forward, we have been very focused on managing inventory receipts for the balance of the year.

We have reduced our intake of inventory for both third-party brands and owned brands, with a greater proportion of the reduction coming from owned brands. Looking ahead, we have modeled several different scenarios to gauge the potential impact of COVID-19 on our business and balance sheet. It is important to note that while we are certainly hoping for a scenario where consumer demand recovers, we are managing our cost structure under the assumption that business conditions remain very challenging for the rest of the year. Most important, we believe we have the flexibility built into our cost structure, the financial levers and adequate liquidity to manage through the downturn and be in a position of strength when the economy recovers.

Now let me talk about business trends since the first quarter ended, starting with the balance sheet. The combination of our capital-efficient model, our active management of working capital and the cost reduction measures we implemented enabled us to maintain our cash balance through the end of April and into the first 10 days of May. Moving to the income statement. As Mike mentioned, net sales in April declined approximately 40% year-over-year, improving from the nearly 50% year-over-year decline in net sales in the final weeks of March.

Most important, the magnitude of our net sales decline has been reduced every week for the past four weeks. And through the first 10 days of May, our year-over-year decline in net sales further improved to a roughly 25% decline year-over-year. This improvement came despite a very tough comp as our #RevolveFestival event usually held in April was postponed, along with countless travel plans, social gatherings and many other events that serve as a catalyst for our customers to buy from Revolve. Average order value in April was $204, a decrease of more than 20% from the AOV reported in the first quarter of 2020 primarily due to the COVID-19-induced mix shift I mentioned previously having an impact on the full month of April.

With that, I'll turn to our full-year 2020 assumptions. Without a doubt, the pandemic has created significant headwinds for our business. The duration and extent of the pandemic is highly uncertain and the economic impact could last much longer. So while it wouldn't be appropriate to give traditional guidance in such a fluid environment, I will offer some insights.

Seasonality. Although our business is not overly seasonal like traditional retailers with sales concentrated around the gift-giving holiday season, it's worth noting that the timing of the COVID outbreak coincided with the start of what is typically our highest selling period of the year, leading into the summer and festival season. As a result, for modeling purposes related to the current quarter ending on June 30, we expect the COVID-19 restrictions to negate the historical pattern of the second quarter typically being our peak period for net sales and gross margin. Average order value.

We see average order value drifting meaningfully lower with continued markdown pressure and a continued mix shift toward lower price point categories, as demonstrated by the April average order value decreasing more than 20% from the first-quarter AOV, as I just mentioned. Gross margin. On last quarter's conference call, we talked about our expectation for gross margin pressure in 2020, particularly in the first half of the year. The pandemic brings additional gross margin pressures.

So we now expect our gross margin for the rest of the year to come in lower than our previous projections and lower than the 48.6% in the first quarter of 2020. We expect this margin pressure to continue during this time of uncertainty for three main reasons. First, our decision to shift more of our inventory buys into third-party styles with lower unit minimums in the near term while focusing owned brands on a more limited range of styles. Second, the shift in net sales mix away from our highest margin category, dresses, to comparatively lower-margin product categories, such as beauty.

And third, the sharply lower consumer demand and a correspondingly increased promotional environment has put additional pressure on markdowns. And finally, capital expenditures. We now expect total capital expenditures of approximately $2 million, a decrease of 60% from our prior guidance. The situation remains very fluid and uncertain.

We will continue to monitor trends. We will remain focused and disciplined, and we will take the actions that we believe are necessary to manage our financial position through this very challenging time. Now, I'll turn it back over to Mike to close out our prepared remarks.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Thanks, Jesse. We would 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 are 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.

Questions & Answers:


[Operator instructions] Your first question comes from the line of Oliver Chen from Cowen. Your line is open.

Oliver Chen -- Cowen and Company -- Analyst

Hi. Thank you. It's encouraging that the trends have been less bad and also the traffic momentum. What are your thoughts 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 markdowns and markdown management and how to do that in a brand-appropriate way so that the customer loves you for the long term.

Thank you.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

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 the past four to six weeks with traffic continuing to increase each week and positive year-on-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 the positive trends are being driven by organic traffic in our marketing. And our marketing teams have really done a great job connecting with the consumer so we would expect those trends to continue. I'd say with regards to the rest of the year, it's a highly uncertain environment. So with regards to dresses, for example, we're seeing a definite recovery there.

But at the same time, the next nine 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 that's the very reason that we're shifting our inventory buys a little bit toward products that have shallower minimums so we can take on reduced risk there.

Oliver Chen -- Cowen and Company -- Analyst

Thanks Mike. And on markdowns, what is the best way to manage it in this dynamic environment? And the gross margin guidance is very helpful. What are your expectations for how the marketplace may look as a lot of competitors are likely over-inventoried.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Yeah definitely. So we have seen it being a very promotional environment out there. And it's dynamic. And so we're reacting on a weekly basis to what we see out there.

I think in the current environment, consumers are expecting more promotions and markdowns and they're gravitating toward promotions and markdowns. So we're kind of trying to straddle a fine line where we make sure we do give consumers what they want. And right now, that is more markdown products, but also be careful about protecting our brand and being very targeted with the markdowns and promotions and trying to make them interesting versus kind of more kind of mass-type promotions where anything can happen.

Oliver Chen -- Cowen and Company -- Analyst

OK. And our last question is just 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 learnings have you had from the crisis? Thank you.

Michael Mente -- Co-Founder and Co-Chief Executive Officer

Hey, Oliver. Michael Mente here. Hey, everyone, hope you guys are all safe and healthy. When it comes to engagement with the consumer, we really just have to kind of dance with and be her best friend.

So when times were a different day, she was willing to travel, wanted to go to 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 be unpredictable and it's going to really be a reflection of how the world evolves. But we feel really good about these new methods that we're connecting with, Instagram Live and IGTV which were areas that we were investing before are things that we will continue to nurture over time. I 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 merchandising categories. We're able to really deepen that relationship by providing her other categories that we weren't particularly known for and really had that emotional connection for us.

So ultimately, this is a blessing in disguise and we'll look back, despite all of the pain that of course we're experiencing in the short term of really having a deeper, broader relationship than just the Revolve that you knew of times past.

Oliver Chen -- Cowen and Company -- Analyst

Thanks. [Inaudible] Best regards.

Michael Mente -- Co-Founder and Co-Chief Executive Officer

Thank you.


Your next question comes from Mark Altschwager from Baird.

Mark Altschwager -- Baird -- Analyst

Good afternoon 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 could comment on just digital marketing and whether the decline in cost in some channels is something you may be able to lean into in the months ahead.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Hey. Definitely. Mike Karanikolas here. So there hasn't been I would say a high level change to our strategy, but there's always been a lot of tactical changes as we've reacted quickly to the situation.

So we have seen the cost of traffic go down substantially since this pandemic started. At the same time, we've also seen that consumers have been converting less. Consumers still have time to shop and look at things, but they're a little bit more hesitant to pull the trigger, particularly for a brand like ours where a lot of the merchandise historically and even currently is geared toward merchandise you wear when you're going out and going to an event, trying to look your best, and consumers just aren't there yet. So on the positive side, I'd say we've seen marketing costs stabilize.

Marketing costs were up a little bit year over year on the digital side as the crisis first hit. And then actually in recent weeks, we've seen some efficiencies there. So it's something we're going to think about 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.


Your next question comes from Ross Sandler from Barclays.

Ross Sandler -- Barclays -- Analyst

Hey guys. A couple of questions. So if you had to segment your revenue between the stuff that's working right now kind of 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? And 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 #RevolveFest which was I think in late April last year and we try to compare kind of an underlying growth rate excluding big events, that down 25% for 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 the right way to think about it? Could you see potentially like a flat-type growth rate as we get into 3Q? Any color there just on the impact from #RevolveFest on that down 25% in May. Thank you.

Jesse Timmermans -- Chief Financial Officer

Yeah. Sure. Thanks, Ross. So starting with the first one and that category mix and maybe focusing it on the Revolve segment since that is the biggest.

And we're big 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 brands. So that gives you some context 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 periods 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, benefits in terms of return rate where dresses is the highest return rate category, offset then with the benefit of beauty which is the lowest return rate category. You also have the negative impact of AOVs and ASP shifting from what has historically been a 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 of #RevolveFestival, there definitely is some impact there. Historically, April and May have been two of our strongest months of the year. And without those big events like the #RevolveFestival, you're losing out on a lot of female likes, a lot of impressions and a lot of just exposure.

So if you take what we've been growing at in the recent period and especially around April and compare that to a non-April month of last year, that could give you 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.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

I can go on and touch a little bit, I think there was a middle question there in terms of supply chain. And I think that we felt quite excited and quite proud of 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 merchandising mix in relation to this new period that we all are experiencing together. Just as this crisis has accelerated things such as e-commerce and a lot of the way our lives are adjusting, we've accelerated some of our internal initiatives as well.

So 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 have coming as well as the way the team has responded. So going into the back half of the year and next quarter, 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.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great. Thank you so much. And thanks for all of the great detail and transparency you've provided on the call. It's been extremely helpful.

I wanted to start just with the forward segment, if I could. Looking back to the first quarter, you had 47% growth at forward. And you gave some of the January and 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-to-date 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 another?

Jesse Timmermans -- Chief Financial Officer

Yeah. Yeah. Thanks, Kimberly. It was a pretty extreme impact there starting in the second part of March.

So there definitely is an impact on both 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 markdown side. So on the week-to-week, there is a little bit of noise on forward where you see some pluses and minuses.

And that comes through, especially on international, where we saw international perform better relative to the domestic business. So again, on forward, probably a little bit better than the Revolve segment just based on those dynamics, plus the comps in the prior year.

Kimberly Greenberger -- Morgan Stanley -- Analyst

OK. 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 suggests more severe pressure throughout the year even than you experienced I think in Q1.

And I'm wondering if you think that or you expect the greatest pressure in the second quarter or do you think we're likely to see sort of a similar rate of pressure in the second quarter through the fourth quarter?

Jesse Timmermans -- Chief Financial Officer

Yeah. Yeah. It's a really tough one. And because it is so uncertain, it's hard to say really what the back half of the year is going to do.

We have more visibility into the recent periods. We've locked in April and 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 that the rest of the year will be below that 48.6% that we saw in Q1. But it's hard to say how that's going to play out quarter to quarter.

Kimberly Greenberger -- Morgan Stanley -- Analyst

OK. Thank you so much and hope everyone stay safe.

Jesse Timmermans -- Chief Financial Officer

Thanks. You too.


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

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hey. Good everning guys. Thanks for taking my question. I guess, first, I'm not sure if this is knowable or discernable, but any sense as to how much of a lift you may have gotten from stimulus? Did you see an outsized bump that week or the weeks that it started to hit? And any sense kind of on how consumer behavior is 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 particular kind of the fall and winter seasons from a curbing receipts perspective? Thank you.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Definitely. So with regard to the impact of the stimulus, we did see a sizable bump the week the stimulus hit. But what's really encouraging is that in general of the last couple of weeks since then, we have continued on an upward trend. So for that reason, we think the stimulus did have a big impact, but it's not the major driver of the improving trend that we're seeing here.

And I think the other thing also is that we've seen a similar improving trend in international markets. We're actually on the international side, the past four weeks have all been positive in terms of revenue year over year. So we think it had an 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. And our partners have been very gracious in working with us side-by-side to get the right levels of inventory and 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.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Thank you.


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

Justin Post -- Bank of America Merrill Lynch -- Analyst

Great. Maybe two questions and one follow-up. First on forward. With the acceleration you saw in the first two months, was that addition of 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 #RevolveFest question, I know that hurt in April that comp. Do you think not having #RevolveFest also was a headwind in the first 10 days of May? And then I have one follow-up.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Definitely. So with regards to forward, we did see a corresponding increase in new customers as well. So it was a terrific first two months to the year. I'll caution 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 the even higher number you saw in the first two months was a bit of an outlier driven in part by some really strong international marketing activity that we've done on our international team that I think is a bit onetime in nature. And then I'm sorry, the second half of your question?

Justin Post -- Bank of America Merrill Lynch -- Analyst

Sure. Yeah. You mentioned #RevolveFest was a headwind in April which we would expect. I was wondering if you thought the #RevolveFest, not having that also was an impact on May, 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's down quite a bit year over year. Is that all mix or was there other things going on with the return reserve? Thank you.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Sure. With regards to #RevolveFest and the impact on May, we do think there's an initial impact in May as well, but it's much less than the impact we would have seen in April. I wouldn't read too much into layering additional headwinds on top of the trends that we're seeing. Again, particularly because I think the macro environment is still uncertain.

I think for the May numbers, #RevolveFest will impact us more at the fringes of those numbers. And then with regards to the return reserve, I'll let Jesse handle that one.

Jesse Timmermans -- Chief Financial Officer

Yeah. 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 return rate and return reserve. So the return rate has decreased, and that's largely due to the mix of sales, both in terms of a shift toward the lower price point, lower return rate categories like beauty.

Also the incremental markdowns which a large portion of our final sales, so there is no return rate on that product. But then I think the return reserve is also an important thing to call out because -- and this falls into liquidity. When you're growing at a constant rate, whatever it is, 5%, 10%, 20%, you're selling that much product 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 rate and you're not selling it as higher of a rate going forward.

So essentially, that 50% return on the higher volume is offsetting the sales that are going out on the lower volume. So what you're seeing on the cash flow statement in 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.

Erik Randerson -- Vice President of Investor Relations

Operator, next question please.


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

Aaron Kessler -- Raymond James -- Analyst

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

Michael Mente -- Co-Founder and Co-Chief Executive Officer

It's great. The team has done an incredible job on the beauty side. We've had an incredible selection across all the subcategories 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 the beauty business is really driven by reorders. So we've been able to offer a whole range of skin care, hair care, self-care tanning across the board, and we've been able to replenish and chase into that business. So that beauty business is very, very favorable for us in terms of lack of markdowns and also very, very low return rates. So I think this has been an awesome opportunity where we've really introduced our customer to another aspect of our business.

I think if we are a new age next-generation department store, she's familiar with us for our ready-to-wear floors and such, but remember that first floor where the beauty counters are. So we think this has been a -- are saying really also been able to expand our marketing messaging, engaging beauty. So we expect to anticipate this to be a very, very long term. I think we've seen great success and great retention with our beauty business as it was earlier.

So very, very encouraged. With regards to the other categories again it's a little bit similar story. The loungewear aspect of the business is something we've had to chase in too aggressively, and we've done that both with third-party and owned brand that there's going to be much larger presence there over the long term. And ultimately, this not so much a swing, but more of a balance I would say where the category mixes are in the loungewear category to the extreme end of very fancy dresses and event-driven gowns.

We don't see it as of course shift has been dramatic in terms of percentage change. But if you look at the type of category sales, it's been a lot more balanced. So we're very, very excited about being able to communicate and connect with our consumer across all of our needs.

Aaron Kessler -- Raymond James -- Analyst

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

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Yeah. So that recovery was across all categories. We saw broad-based improvement.

Aaron Kessler -- Raymond James -- Analyst

Great. Thank you.


Your next question comes from Michael Binetti from Credit Suisse.

Michael Binetti -- Credit Suisse -- Analyst

Hey guys. 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 speak about the go forward and all. I want to ask about the gross margins a little bit. Jesse, I think the guidepost you gave of lower than first quarter for the year puts us down more than 500 for the year, maybe more than 550 for the year.

I agree with your comment that the visibility is really low, particularly in the second half. I'm assuming that means 2Q is down a lot for you to take us that low for the year. Is there any kind of a guidepost 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 any kind of basis point guidance on how much of that is going to come from mix of owned brands versus compressing margins in the different businesses, first party, third-party versus the category shift you spoke to?

Jesse Timmermans -- Chief Financial Officer

Yeah. Yeah. Sure. Yes.

And like you said, it's a really difficult time to try to provide any guidance. We're trying to do our best to put those guideposts out there and help out. On the cadence throughout the year, I think it's fair that 2Q is going to have a more meaningful year-over-year decline than Q1 did just based on the comps. Again, 2Q historically is our highest margin quarter of the year, and that played out last year as well.

We did over 400 basis points better in Q2 last year than we did in Q1. So with Q2 this year coming in lower than the Q1 we did, there's an expansion of the year-over-year decrease in 2Q. I think maybe to try to help a little bit for the rest of the year again it's important to break it out between the COVID period and the non-COVID period. During this COVID period, one impact that accelerated or is having a more meaningful impact is that shift from owned brands to third party with the lower minimums on third party, where in the near term, we can manage both the inventory and reaction better 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 communicated on last quarter's call. But I think from a magnitude perspective, I think you can think about the combination of full price markdown mix and a lower markdown margin having the largest impact, followed by this third party, owned brand mix with more of a shift toward the third party than anticipated on the previous quarter's call. And then we also which I think we mentioned but just to call out as well is 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.

Michael Binetti -- Credit Suisse -- Analyst

OK. Thanks for that. And then I guess as a follow-up, how do you look ahead guys, as you think about rebuilding the business post-COVID here, how much of the 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 what you think as we look ahead to 2021 or whenever is recapturable?

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Yes. So we don't view this as any kind of long term shift. Now there may be some longer-term shifts in the margins, like say, on some of the category mix shift. But I think the right way to view those as opportunities and ultimately not playing that much into the overall margin.

With regards to the two major components, the markdowns and then the third party versus owned brands mix, we view both of those as temporary. Certainly, it's a more promotional environment right now and everyone has a lot more inventory than planned pre-pandemic. And so that's going to reflect accordingly in the numbers. And then with regards to owned brands, third party, this is a temporary shift in 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 a bit different in terms of kind of production minimums and investments in designing the style and cost of that nature.

So the major shift that you're seeing this year is just a function of us maximizing the 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've talked about previously which was still dialed back a little bit, right, kind of closer between 2018 and 2019 mix. And then from there, continuing to grow that business.


Your next question comes from Bob Drbul from Guggenheim.

Bob Drbul -- Guggenheim Securities -- Analyst

Hey guys. Good afternoon. A couple of questions for me. I think on the first part, on the move to shift to 3P, is that a 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 a designer or someone might have some liquidity issues, and that would be something you consider adding to your own portfolio?

Michael Mente -- Co-Founder and Co-Chief Executive Officer

Yes. The majority of the shift to 3P has been with existing brands and vendors, brands that we've had long-standing 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, but it's on the smaller end. We work with 500-plus third-party brands, but there have been some very recent additions to react to the marketplace.

Long-term wise, in terms of partners and brands, I think of course serving our customers is No. 1 and a great product is essential. So if there are brands that need support and help and there's an opportunity for partnership, that's something we would definitely love to explore. I think as of right now, it's quite early in this crisis.

But in the future, if those opportunities present themselves, we'll be very open.

Bob Drbul -- Guggenheim Securities -- Analyst

Got it. And just two more quick ones. I think the first one is on the international business, specifically April, May, can you talk about country by country what you're seeing or what you've seen in terms of the ramp back up? And then the last question is essentially, you talk a little bit about some of the stimulus check impact. Are you seeing more customers use the Afterpay financing vehicle at all? Just any changes from like Q1 into April, May? Thanks and that will be it for me.

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Hey definitely. 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 the past four weeks, I would say in general we saw in our international regions, they were hit less hard than the U.S. and they recovered more quickly.

And we've seen positive trends that are fairly broad-based internationally. Now international, that represents a lot of countries. So there's probably no point in time in our history where every single country is trending in the right direction. But in general, I can say it's very broad-based in terms of what we're seeing including heavily hit areas such as Western Europe, we're seeing some really positive sales trends.


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

Simeon Siegel -- BMO Capital Markets -- Analyst

Great. Thanks. Good afternoon guys. Hope you are all doing well.

Sorry if I missed it. Can you speak to your view on the go-forward direction of cost for influencer and performance marketing? And then can you guys just talk to how you're approaching -- you mentioned conversion. So looking at -- reflecting on the fact that March and April both saw single-digit increase in traffic with fairly different sales trends. Can you just talk to what you're seeing with conversion and your approach toward driving it?

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Yeah definitely. 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 and take advantage of opportunities when they're there and pull back when they're not there.

But I think as kind of an initial kind of flag post that's the way I would view it. And then in terms of conversion rate trends, we are seeing some recovery on conversion rate, but it has not been as strong as the recovery on the traffic side. And so that's something that we've yet to see in terms of the full recovery on conversion rate side.

Simeon Siegel -- BMO Capital Markets -- Analyst

Thanks a lot. Good 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.

Susan Anderson -- B. Riley FBR -- Analyst

Hi. Good afternoon. Thanks for fitting me in. Two questions on the cost saves.

I guess, 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 had 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 with the eyeballs on your website versus going out to the store?

Jesse Timmermans -- Chief Financial Officer

Yeah. Hey, this is Jesse. Thanks for the question. On the cost savings initiatives, those really started to take place in mid-April.

So April is kind of a half month impact there and the second quarter, we will see the full impact. We're going to monitor things on a week-to-week, month-to-month basis to determine if we have to go deeper or less deep on those cost reduction initiatives. We've attempted to variabilize the business as much as possible, so we can make those adjustments as much in real-time as possible. But we're planning for a much kind of a continued depressed environment in terms of 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.

Michael Mente -- Co-Founder and Co-Chief Executive Officer

With regards to when 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, but 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 really think will be more than compensated and boosted with a resemblance of more of the activities that have been withheld in this time period that we thrive in.

Susan Anderson -- B. Riley FBR -- Analyst

Great. Thanks so much.


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

Michael Mente -- Co-Founder and Co-Chief Executive Officer

It's been of course a crazy time period. But most importantly, we want to thank our team that's been extremely challenging across the board from some of just the fundamentals of 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 and look forward to the long-term future and continue to thrive together.


[Operator signoff]

Duration: 71 minutes

Call participants:

Erik Randerson -- Vice President of Investor Relations

Mike Karanikolas -- Co-Founder and Co-Chief Executive Officer

Michael Mente -- Co-Founder and Co-Chief Executive Officer

Jesse Timmermans -- Chief Financial Officer

Oliver Chen -- Cowen and Company -- Analyst

Mark Altschwager -- Baird -- Analyst

Ross Sandler -- Barclays -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Justin Post -- Bank of America Merrill Lynch -- Analyst

Aaron Kessler -- Raymond James -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Bob Drbul -- Guggenheim Securities -- Analyst

Simeon Siegel -- BMO Capital Markets -- Analyst

Susan Anderson -- B. Riley FBR -- Analyst

More RVLV analysis

All earnings call transcripts

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Revolve Group, Inc. Stock Quote
Revolve Group, Inc.
$28.09 (-2.53%) $0.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.