Online fashion retailer Revolve Group (NASDAQ: RVLV) missed analyst expectations in Q1 FY2023 quarter, with revenue down 1.37% year on year to $279.6 million. Revolve made a GAAP profit of $14.2 million, down on its profit of $22.6 million, in the same quarter last year.
Revolve (RVLV) Q1 FY2023 Highlights:
- Revenue: $279.6 million vs analyst estimates of $290.1 million (3.63% miss)
- EPS: $0.19 vs analyst estimates of $0.14 (31.9% beat)
- Free cash flow of $47.7 million, up from negative free cash flow of $12.3 million in previous quarter
- Gross Margin (GAAP): 49.8%, down from 54.5% same quarter last year
- Trailing 12 months Active Customers : 2.42 million, up 383 thousand year on year
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.
Revolve Group is focused on Millennials and Generation Z customers, who spend significant amounts of time on social media, and often look to social media and digital content from influencers as their source of inspiration and discovery and to inform their purchasing decisions. Revolve has taken a data-driven buying and merchandising model, which monitors and also spends its marketing dollars on a network of over 3,500 social media influencers’ fashion choices on TikTok, Instagram, and YouTube. The company’s ‘read and react’ merchandising approach identifies and invests behind new trends in small initial order quantities. The company employs a “test and reorder” model, which like brick and mortar fast fashion peers creates scarcity, while also minimizing fashion risk.
The company has two main brands. Revolve which focuses on constant newness and a broad yet curated assortment of premium apparel and footwear, accessories and beauty products. Its Forward brand is meant to offer an emerging luxury brand feel.
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.
Revolve Group (NYSE: RVLV) competes with Stitchfix (NASDAQ: SFIX), The RealReal (NASDAQ:REAL), Poshmark (NASDAQ: POSH), Asos (AIM:ASC), and boohoo group (AIM:BOO).
Sales Growth
Revolve's revenue growth over the last three years has been strong, averaging 24.9% annually. This quarter, Revolve reported a rather lacklustre 1.37% year on year revenue decline, missing analyst expectations.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 10.6% over the next twelve months.
Usage Growth
As an online retailer, Revolve generates revenue growth by growing both the number of buyers, and the average order size in dollars.
Over the last two years the number of Revolve's active buyers, a key usage metric for the company, grew 24.4% annually to 2.42 million. This is a fast growth for a consumer internet company.

In Q1 the company added 383 thousand active buyers, translating to a 18.8% growth year on year.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track for every consumer internet product and for Revolve it measures how much customers spend per order.
Revolve’s ARPB growth has been strong over the last two years, averaging 11.9%. The ability to increase price while still growing its active buyers reflects the strength of Revolve’s platform, as its buyers continue to spend more than last year. This quarter, ARPB shrank 17% year on year, settling in at $115.35 for each of the active buyers.
User Acquisition Efficiency
Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Revolve grow by a combination of product virality, paid advertisement or incentives.
It is expensive for Revolve to acquire new users, with the company spending 54.9% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency indicates Revolve is not highly differentiated and points to Revolve likely having to continue to invest to maintain growth.
Earnings & Free Cash Flow
Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.
Revolve's EBITDA came in at $15 million this quarter, which translated to a 5.37% margin. Over the last twelve months Revolve has shown a solid, above-average profitability for a consumer internet business with average EBITDA margins of 6.67%.

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Revolve's free cash flow came in at $47.7 million in Q1, down 9.57% year on year.

Revolve has generated $13.2 million in free cash flow over the last twelve months, a 1.2% of revenues. This FCF margin is a result of Revolve efficient business model, and provides it with the optionality to further invest in the business.
Key Takeaways from Revolve's Q1 Results
With a market capitalization of $1.47 billion Revolve is among smaller companies, but its more than $283.3 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.
It was comforting to see that Revolve’s user base is growing. On the other hand, it was worrisome to see that the revenue growth was quite weak and missed analysts' revenue expectations. Operating income also missed expectations. Overall, this quarter's results were not the best we've seen from Revolve. The company is down 8.35% on the results and currently trades at $18.33 per share.
Is Now The Time?
Revolve may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Revolve is a solid business. Its revenue growth has been good, and analysts believe that sort of growth is sustainable for now. And while its sales and marketing efficiency is sub-average, the good news is its user growth has been strong, and its ARPU is growing.
At the moment Revolve trades at next twelve months EV/EBITDA 15.6x. There are definitely things to like about Revolve and looking at the consumer internet landscape right now, it seems that the company trades at a pretty interesting price point.
The Wall St analysts covering the company had a one year price target of $28.1 per share right before these results, implying that they saw upside in buying Revolve even in the short term.
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