Revolve (NYSE:RVLV) Reports Strong Q1 But Stock Drops

Radek Strnad /
2022/05/03 4:48 pm EDT

Online fashion retailer Revolve Group (NASDAQ: RVLV) reported results ahead of analyst expectations in the Q1 FY2022 quarter, with revenue up 58.4% year on year to $283.4 million. Revolve made a GAAP profit of $22.5 million, improving on its profit of $22.2 million, in the same quarter last year.

Is now the time to buy Revolve? Access our full analysis of the earnings results here, it's free.

Revolve (RVLV) Q1 FY2022 Highlights:

  • Revenue: $283.4 million vs analyst estimates of $256.7 million (10.4% beat)
  • EPS (GAAP): $0.30 (miss)
  • Free cash flow of $52.7 million, up from negative free cash flow of $6.52 million in previous quarter
  • Gross Margin (GAAP): 54.4%, in line with same quarter last year
  • Trailing 12 months Active Customers : 2.04 million, up 564 thousand year on year

“We’ve had an exceptional start to the year, highlighted by 58% net sales growth year-over-year in the first quarter, record quarterly growth in active customers, and record levels of net income and operating cash flow for any first quarter,” said co-founder and co-CEO Mike Karanikolas.

Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve Group (NASDAQ: RVLV) is a next generation fashion retailer that leverages social media and a community of fashion influencers to drive its merchandising strategy.

Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.

Sales Growth

Revolve's revenue growth over the last three years has been strong, averaging 26.8% annually. Revolve's revenue took a hit when the pandemic first hit, but it has since rebounded strongly, as you can see below.

Revolve Total Revenue

This quarter, Revolve beat analyst estimates and reported a very impressive 58.4% year on year revenue growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 19.7% over the next twelve months.

There are others doing even better than Revolve. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Usage Growth

As an online retailer, Revolve generates revenue growth by growing both the number of buyers, and the average order size.

Over the last two years the number of Revolve's active buyers, a key usage metric for the company, grew 11.1% annually to 2.04 million users. This is decent growth for a consumer internet company.

Revolve Trailing 12 months Active Customers

In Q1 the company added 564 thousand active buyers, translating to a 38.1% growth year on year.

Key Takeaways from Revolve's Q1 Results

With a market capitalization of $3.23 billion Revolve is among smaller companies, but its more than $270.6 million in cash and positive free cash flow over the last twelve months give us confidence that Revolve has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly Revolve outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong customer growth. Zooming out, we think this was a good quarter, but the market was likely expecting more and the company is down 7.13% on the results and currently trades at $40.45 per share.

Revolve may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.