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Revolve ‘By No Means Immune’ to Tariffs but Confident Customers Aren’t Cost-Conscious

The first quarterly earnings report from online fashion retail platform Revolve Group since completing its initial public offering in June, surprised investors with a loss, and they indicated their displeasure by sending shares tumbling on Friday.

But on an adjusted basis, Revolve did see profits for the quarter, and the company’s chief financial officer said it has ways to mitigate the tariffs on incoming goods from China.

In a Nutshell: Revolve posted its second-quarter results Thursday after the equity markets closed, and the surprise loss sent shares falling in after-market trading. On Friday, Revolve shares tumbled again–closing down 15.6 percent to $26.12 in Big Board trading–even after investors had digested news that the e-tailer is still growing and saw the loss due to the repurchase of certain shares after it went public. Investors may be concerned about the upcoming tariffs scheduled to start on Sept. 1.

Jesse Timmermans, chief financial officer, said on the conference call that the company is “by no means immune” to the tariffs, even if 10 percent is better than a 25 percent increase.

“We do have ways to manage through the tariff impact as we look ahead,” he said. “First is we have great relationships with our vendors in China, so we expect to gain some leverage there. Second, we have been working on diversification really over the last 12 to 18 months and continue to make progress there.”

Timmermans told analysts the company is unique because of low overlap with other retailers. “The combination of emerging and owned brands is over 70 percent of the product mix, so these are brands and styles that you really can’t find anywhere else unless you are really looking,” he explained. And because customers “come to us not to price compare, but to look for what is new and exciting,” the company believes, according to Timmermans, that it has the “option to pass some of that impact on to the consumer without, we believe, a significant impact to demand.”

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Cowen & Co.’s Oliver Chen said even though the company beat Wall Street’s consensus expectations on revenue, the “weak stock reaction” was probably due to the firm’s fiscal year guidance. Guidance was slightly weaker than expected, given the second-quarter beat. Over the short-term, tariff concerns could keep Revolve “shares range-bound,” the analyst said.

Net Sales: For the three months ended June 30, net sales rose 22.8 percent to $161.9 million from $131.8 million.

The fashion e-tailer, which targets millennial and Gen Z consumers, said its gross profit for the quarter was $90.4 million, or 23.3 percent gain year-over-year, while gross margin was 55.8 percent, representing a year-over-year increased of 21 basis points.

Other data metrics shared by the company included a 36.2 percent increase in active customers to nearly 1.4 million from a year ago, and a 30.8 percent gain to nearly 1.3 million orders placed versus last year. It did note that the average order value slipped to $275 from $281 in the year-ago quarter.

Earnings: The company posted a loss of $28.1 million, or 57 cents a share, against net income of $10.5 million, or 15 cents, a year ago. Excluding a one-time loss for the repurchase of Class B common stock connected to its IPO, the e-commerce platform posted a 21.7 percent increase in net income to $12.7 million.

The company said for the full year ending Dec. 21, 2019, it expects net sales between $598 million to $608 million, up 20 to 22 percent from 2018.

CEO’s Take: Co-founder and co-CEO Michael Mente said, “Through our unique events and curated premium product offering, we continue to build our customer base and deepen the relationship with our already very loyal customer.”