Revolve Is Latest Retailer Hit by Inflation, Despite Increased Sales
Revolve is feeling the sting of higher prices.
The Los Angeles-based fashion platform revealed quarterly earnings Wednesday after the market closed, improving on revenues, but falling short on bottom-line profits as the e-tailer continues to navigate macro headwinds, such as supply chain bottlenecks, rising operating costs and continued lockdowns in China. Shares of Revolve Group fell more than 14 percent in after-hours trading, as a result.
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But Revolve cofounder and co-chief executive officer Mike Karanikolas insisted the company had a strong quarter, “highlighted by record net sales that increased 27 percent year-over-year; gross margin expansion to record levels for a second quarter, and continued strong growth in active customers. We delivered these results despite macroeconomic conditions that became more challenging as the quarter progressed, creating cost pressures that impacted profitability and also contributed to a moderating year-over-year growth trend in net sales in June that has continued into the third quarter.”
Cofounder and co-CEO Michael Mente added: “Over our nearly 20 years of operating history, we believe we have demonstrated a unique track record for outperforming the competition in times of disruption and volatility and we have complete confidence in our team’s ability to continue to execute through even the most challenging circumstances. I’m excited about our future and believe that our strong team, data-centric culture, entrepreneurial spirit, operational excellence and strong connection with the next-generation consumer position us to gain further market share in the months and years ahead.”
Revenues for the three-month period ending June 30 grew 27 percent during the quarter to more than $290 million, up from nearly $229 million a year ago. By segment, Revolve net sales increased to roughly 30 percent to $245 million year-over-year, while revenues of Fwrd, the e-tailer’s luxury segment, rose 14 percent year-over-year to more than $45 million. Domestically, net sales were up 30 percent in the quarter, while international net sales grew 14 percent year-over-year.
Still, net income fell roughly 48 percent, from $31.5 million in 2021’s second quarter to $16.2 million in the most recent quarter.
Rising fuel prices — up four times, year-over-year — caused the largest dent in the firm’s balance sheet. In addition, last quarter’s added marketing spend for the return of Revolve Festival, as well as an increased-return rates (higher than pre-pandemic levels) thanks to the addition of the Revolve Canadian business, also cut into profits.
“Yet it’s a tradeoff we’ll make all day long,” Karanikolas told analysts on Wednesday afternoon’s conference call.
Revolve is now expecting the fourth quarter to be the most challenging with continued inflationary pressures and decreased consumer spending.
“The Revolve brand is about consumers living their best lives and certainly consumers aren’t feeling that way right now,” Karanikolas said. Although he added that the current “softness of the consumer doesn’t change our 2023 outlook.”
Mente pointed to an increase in active customers, the launch of Revolve’s resale program and going-out categories, such as dresses and other occasionwear, as growth drivers.
“She’s traveling, going to weddings and living her life again,” Mente said on the call.
Revolve was cofounded by Mente and Karanikolas in 2003 and later went public in June 2019. Today, the company sells more than 1,000 brands, including its own, on the platform. Fwrd, which launched in late 2019, named Kendall Jenner its creative director in 2021.
The company ended the quarter with nearly $238 million in cash and cash equivalents and no debt.
Shares of Revolve Group, which closed up 6.51 percent to $30.94 apiece, are down nearly 57 percent, year-over-year.
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