Reformation Inc. 2026 Q2 Earnings Call

Please go ahead. Good afternoon, everyone.

Thank you for joining us today to discuss Reformation's second quarter 2026 results. Joining me on the call today are Hali Borenstein, Chief Executive Officer, and Joshua Moore, Chief Financial Officer. Before we begin, I'd like to remind you that this conference call will include forward-looking statements, including statements regarding our future financial and operating performance, including our outlook and guidance for the full year 2026. 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 and our SEC filings, all of which can be found on our website at investors.thereformation.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'll also reference certain non-GAAP financial information, including adjusted EBITDA and adjusted EBITDA margin. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information presented and prepared in accordance with GAAP. Reconciliations of non-GAAP measures to the most directly comparable 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 our SEC filings. With that, I'll turn the call over to Hali.

Thank you for joining our first earnings call as a public company. Today, we will discuss our second quarter results and our outlook for 2026. Our IPO was a significant milestone and the result of years of work building a truly special once-in-a-generation brand.

I want to thank our amazing team for everything they've done to get us here, as well as our customers, partners, and shareholders for their support. We're incredibly excited to begin this next chapter together. Our mission is to bring sustainable fashion to everyone. From the beginning, we set out to build a modern retail brand that delivers on that mission while driving durable, predictable growth and strong profitability. With 24% year-over-year net revenue growth in the second quarter, we have now delivered 21 consecutive quarters of double-digit revenue growth. Our strong financial profile is underpinned by consistently high full price selling, averaging approximately 80% over the last several years, and disciplined execution, which drives our healthy gross margins and double-digit EBITDA margins. We are proud of what we've accomplished, and we're just getting started.

Reformation's success is driven by three core competitive advantages: our powerful brand, our agile merchandising model, and our tech-forward DTC selling strategy. First, our engaging and distinctive brand. Our brand identity cuts through and retains relevance over time. We are smart, fun, confident, and a little bit irreverent. Our approach to brand building leverages both data and a highly creative team to ensure we consistently deliver compelling content across channels. The majority of our customer base is aged 25 to 50. As we expand, so does our customer group. in 2025, 20% of our new customers were under the age of 25, and 20% were over the age of 50. Mom and daughter both shop at Ref, and in fact, three-fourths of our customers who come to Ref to shop for their daughters end up shopping for themselves as well.

Ref is a multigenerational brand that appeals to an attitude and mindset rather than a specific demographic. We have a wide geographic reach with 70% of active customers located outside of New York and Southern California, and about 20% coming from international markets. The strength of our brand shows up in our economics, enabling us to acquire customers efficiently, maintain marketing spend at approximately 9% of revenue, and remain profitable on the average first order. Once we acquire customers, they stay with us. 70% of our revenue in 2025 came from repeat customers, creating a durable foundation for growth. Nearly 20% of customers acquired in 2015 still shop with us three times a year today, one of the clearest examples of Reformation's ability to transcend age and life stage. Second, we have a proprietary merchandising model. Ref product has always been at the core of what we do.

Reformation first became famous for beautiful dresses and has since evolved into a multi-category womenswear destination. Last year, about three-quarters of DTC net revenue came from customers who purchased more than one category. We have a thoughtful approach to fit that inspires confidence and loyalty. 84% of customers say that wearing Reformation makes them feel confident. This is one of the metrics I am most proud of as CEO because it really underscores the positive impact our product has on our customers. Our agile merchandising engine is a key differentiator. We combine real-time customer data with a fast, flexible supply chain that allows us to test, learn, and quickly scale winning products. Rather than making large inventory bets up to 12 months in advance, like many brands, we respond to what customers actually tell us they want.

Our supply chain is built for speed, sustainability, and quality. We produce more than 50% of our products in 60 days or less, and approximately 90% of DTC revenue comes from styles with proven performance behind it. That means that we have data that gives us confidence in what products we make. This model reduces fashion risk and inventory risk while enabling us to deliver more of what customers want, resulting in approximately 80% full price selling and supporting strong gross margins and cash generation. Third, our DTC-first selling experience. As a digitally native brand, we combine best-in-class third-party platforms with proprietary technology to create seamless customer experiences that are designed to drive customer engagement and value. Our stores and e-commerce business operate as one integrated ecosystem. Both channels have compelling standalone economics, but they are meaningfully more productive together. Markets with stores grow significantly faster than those without.

Omni-channel customers, who represent 34% of revenues, spend 3.1 times more than single channel customers. Retail X, our proprietary retail technology, connects the sales floor and fitting room in-store, allowing customers to request new styles and sizes at the touch of a button and enabling our team to deliver more convenient and personalized experiences. The impact is meaningful. Retail X drives an average 270 basis point increase in conversion, while also generating valuable customer insights that inform merchandising, marketing, and inventory decisions. Our selective wholesale strategy complements this ecosystem by expanding brand awareness, introducing new customers to Reformation, and supporting international growth. Turning to our second quarter results. The strength of our model is further illustrated in our performance. Our second quarter results came in above the high end of the estimates we provided at the time of our IPO.

In Q2 2026, we generated net revenue growth of 24% to $155.2 million. Adjusted EBITDA of $25.4 million, which is a 16.4% margin and an increase of 54% to last year. We did this by servicing 1.2 million active customers on an LTM basis, an increase of 23% to last year. We are seeing strength across the business in both DTC and wholesale in our U.S. and international markets into cross-product categories. We launched a highly successful spring collaboration with tastemaker, Courtney Grow, generating nearly $1.5 million in demand on launch day. The collaboration built brand heat and drove engagement across new and existing audiences. We were really encouraged that two of our top five SKUs were accessories, further validating the strength of our product diversification strategy.

Our performance in Q2 is a good representation of our growth strategy in action, including continued diversification of our product offering, increasing distribution, and international expansion. Let me share some of the highlights of the quarter in each of these areas. First, product diversification. In Q2, we continued to see strong momentum across categories. Today, our assortment spans categories and occasions with significant white space in areas like tops, bottoms, including denim and shoes. We have added more than $200 million of annual non-dress net revenue since 2021. This expansion is driving growth by creating more ways for new customers to discover and enter Reformation, and by giving existing customers more reasons to shop with us. We see that reflected in our active customer base, which grew 23% year-over-year in Q2 on an LTM basis, ahead of our long-term algorithm.

We saw particularly strong new customer acquisition, many of whom came through our product focus areas. At the same time, existing customers are returning to Reformation at an increasing rate, shopping the assortment more broadly. The strength of our existing customer base can be observed across cohorts, including in our Friends With Benefits, our FWBs, our most engaged customers who spend more than $1,000 annually, which grew more than 20% year-over-year. Together, the strength we are seeing across both new and returning customers is an important indicator of overall brand health and reinforces our confidence in our ability to drive durable long-term growth. LTM DTC net revenue per customer was $417, down 1.4% year-over-year as a result of the significant growth in new customers, who naturally have lower initial spend than more tenured customers.