Revolve Consumer Feeling Pinch of Economy

The consumer party at Revolve might have simmered down some as the economy weighed on shoppers — but founders Michael Mente and Mike Karanikolas said they are still going strong and plotting the e-commerce player’s next leg of growth.

That includes a new push to build men’s into a major category, leaning in more to beauty, plans for a Web3 mobile game with Muus Collective and more.

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Mente and Karanikolas, who are co-chief executive officers, founded Revolve in 2003 and in an interview with WWD clearly prided themselves on both their ability to invest in the business in good times and bad and their ability to do so prudently (the party-heavy image of the company notwithstanding).

Like nearly every brand outside of luxury, Revolve is grappling with a consumer who’s feeling the pinch of inflation and senses a looming recession.

“While we certainly have our portion of customers who are quite wealthy, the overall household income doesn’t index that much beyond the U.S. average,” Karanikolas said. “She’s definitely very sensitive to the U.S. economy. When consumer sentiment is down and people aren’t feeling as good about things, it definitely weighs on us.”

Revolve is known for its going-out looks and festival wear — and doesn’t seem likely to give that up anytime soon — but Mente said the company is expanding its range by laying the groundwork to grow in men’s, which is currently a small business, and beauty.

The company’s own lines are also growing, with Mente pointing to Remi Bader’s collection featuring an extended size range.

“We’re kind of expanding the core of where we are,” Mente said. “We’re really proud that we can continue to make these investments while the environment is challenging.”

The co-CEO also sees competitive advantage.

“I love it when I hear people are cutting back and slowing down,” Mente said. “We’re able to invest while still being disciplined while driving profits.”

Still, the company’s third-quarter net income fell 28 percent to $12 million from $16.7 million a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization slipped 18 percent to $17.7 million. Free cash flow, however, grew more than sixfold to $8.6 million, bolstering the company’s balance sheet.

Sales for the three months ended Sept. 30 rose 10 percent to $268.7 million from $244.1 million as the company’s active customer count rose by 34 percent, or 84,000, to 2.2 million. That counts as slow growth for a company targeting expansion of 20 percent.

Sales at the Revolve business rose 9 percent to $222.1 million while the more designer-oriented Fwrd business increased 17 percent to $46.6 million.

Inventories have leveled off compared with the summer — weighing in at $213.3 million at the end of the quarter, an increase of 2 percent from June and a 50 percent rise from a year ago.

The company has actively been working to get inventory in line with current consumer demand and the economy and Karanikolas said it would continue to right size and start to come down.

Investors seemed to be feeling better after seeing the results.

After slipping 6.6 percent in regular trading on Wednesday, shares of the company did a U-turn in aftermarket trading, rising 11 percent to $24.69.

And while Wall Street and the market make up their mind on exactly how they feel, Revolve is busy ramping up in the new digital world.

The company inked a strategic partnership with the Griffin Gaming Partners-backed entertainment studio, Muus Collective Inc.

The pair will create “a fashion-centered Web3 mobile gaming experience that aims to revolutionize how consumers engage with fashion.”

Launching next year, the game will feature “digital playable renderings of select fashion and beauty items from Revolve and Fwrd.”

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