Revolve's (NYSE:RVLV) Q3 Sales Top Estimates But Stock Drops

Anthony Lee /
2023/11/01 4:18 pm EDT

Online fashion retailer Revolve Group (NASDAQ: RVLV) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue down 4.13% year on year to $257.6 million. Turning to EPS, Revolve made a GAAP profit of $0.04 per share, down from its profit of $0.16 per share in the same quarter last year.

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Revolve (RVLV) Q3 FY2023 Highlights:

  • Revenue: $257.6 million vs analyst estimates of $253.7 million (1.52% beat)
  • EPS: $0.04 vs analyst estimates of $0.10 (-$0.06 miss)
  • Free Cash Flow of $11.5 million is up from -$15.1 million in the previous quarter
  • Gross Margin (GAAP): 51.7%, down from 53% in the same quarter last year
  • Trailing 12 months Active Customers : 2.51 million, up 261 thousand year on year

"We achieved a key 2023 objective of rebalancing our inventory as the spread between our year-over-year inventory and sales trends was favorable in the third quarter for the first time in more than two years," 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.

Online Retail

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 25.2% annually. This quarter, Revolve beat analysts' estimates but reported a year on year revenue decline of 4.13%.

Revolve Total Revenue

Ahead of the earnings results, analysts covering the company were projecting sales to grow 2.66% over the next 12 months.

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Usage Growth

As an online retailer, Revolve generates revenue growth by expanding its number of buyers and the average order size in dollars.

Over the last two years, Revolve's active buyers, a key performance metric for the company, grew 26% annually to 2.51 million. This is fast growth for a consumer internet company.

Revolve Trailing 12 months Active Customers

In Q3, Revolve added 261 thousand active buyers, translating into 11.6% year-on-year growth.

Key Takeaways from Revolve's Q3 Results

With a market capitalization of $1.01 billion, Revolve is among smaller companies, but its $266.9 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

It was good to see Revolve narrowly outperform Wall Street's estimates this quarter, driven by better-than-expected user growth. On the other hand, its adjusted EBITDA, EPS, and free cash flow all missed analysts' expectations. This dichotomy shows that its revenue growth was unprofitable, something investors are sure to punish the company for in this economy. Overall, the results could have been better. The company is down 8.89% on the results and currently trades at $12.3 per share.

So should you invest in Revolve right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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