Revolve reported strong growth during the 2021 holiday, with sales soaring 70 percent to reach $239.8 million on net income of $29.4 million.
However, the net sales mix of dresses remains well below pre-Covid levels, illustrating Revolve’s success in driving rapid growth across a wide range of categories, chief financial officer Jesse Timmermans said in an earnings call.
Showcasing its merchandising diversity, owned brands as a percentage of Revolve segment net sales increased year-over-year for the first time in two years. The company expects the owned brands mix of Revolve segment sales to trend higher in 2022, increasing from 20 percent in 2021.
Co-CEO and co-founder Michael Karanikolas told Wall Street analysts that Revolve would expand its assortment into adjacent product categories, noting that the company’s beauty sales nearly tripled in the past two years. He also alluded to more international expansion in 2022 and highlighted efforts for Revolve to further enhance its technology stack to better personalize its website.
The company plans to break ground later this year on a U.S. East Coast warehouse to complement its existing Cerritos, Calif. facility that will be about one-third the size of the West Coast operation.
“It opens up an opportunity to get even better at service levels,” Karanikolas said. “We’re already two-days shipping everywhere within the U.S., and one-day to some locations. Opening up that East Coast fulfillment center is going to allow us to start getting more and more customers to next-day shipping.”
The millennial-focused fashion company saw record quarterly growth of 162,000 active customers during the fourth quarter. Total active customers grew to 1.84 million, an increase of 25 percent year-over-year from 1.47 million to close out 2020. Customers placed 1.75 million orders in the quarter, a 72 percent annual increase over 1.02 million in the 2020 period.
Average order value (AOV) reached $292 in the quarter, an increase of 14 percent year-over-year and an increase of 6 percent sequentially from the third quarter. A key driver of the growth in AOV year-over-year, and sequentially, was a further shift in mix back to higher-price-point merchandise such as dresses, handbags and shoes, as well as the continued strength coming from Revolve’s luxury segment, FWRD.
Inventory as of Dec. 31, 2021 was $171.3 million, 80 percent more than the $95.3 million in inventory to close out 2020. This increase should position Revolve’s assortment to support strong consumer demand and to ensure adequate available inventory, Timmermans said.
Gross margin was 54.8 percent, declining 116 basis points from the 56 percent of sales in the fourth quarter of 2020. Gross margin increased 189 basis points on a two-year basis, at 52.9 percent in the fourth quarter of 2019.
Michael Mente, Revolve‘s other co-founder and co-CEO, said 87 percent of the fashion company’s total net sales in 2021 were at full price. That is 10 percentage points higher than in 2020, and represents the first time the full-price mix of net sales exceeded 80 percent for a full year.
Cash and cash equivalents as of Dec. 31, 2021 were $218.5 million, an increase of $72.4 million, or 50 percent, from $146 million as of Dec. 31, 2020. Revolve’s balance sheet remains debt free.
During the approximately seven weeks starting 2022, from Jan. 1 to Feb. 20, net sales increased year-over-year at a growth rate in the same zone as its 70 percent year-over-year net sales growth during the fourth quarter of 2021.
Looking at the potential trajectory for net sales growth over the full year 2022, Timmerman said Revolve is confident in its ability to meet or exceed its long-term target growth rate of 20 percent in 2022.
“From a linearity standpoint, considering that our growth rate meaningfully accelerated throughout 2021, we expect our growth rate in 2022 to be highest in the first quarter of 2022 and lowest in the fourth quarter of 2022,” Timmerman said in the call. “On an absolute basis and barring any macro shifts, we expect our quarterly seasonality to revert closer to historical patterns with a peak in the second quarter as we head into festival season and the warm summer months.”
Revolve expects gross margin in the first quarter of 2022 to be between 53.5 percent and 54 percent, which would represent the lowest sequential quarter decrease compared to the preceding fourth quarter gross margin in seven years.
For the full year 2022, the company expects gross margin to be flat to slightly down versus the company’s record gross margin of 55 percent achieved in 2021.
Net Sales: Total net sales were $239.8 million, a 70 percent year-over-year increase from the $140.8 million generated in the 2020 fourth quarter. Sales totals reflect two-year growth of 63 percent compared to $147.8 million in the fourth quarter of 2019, the most recent period before the onset of the Covid-19 pandemic.
This two-year growth rate is an improvement relative to the 58 percent two-year growth rate reported for the third quarter of 2021 and a further improvement from the two-year growth rates reported for that year’s first and second quarters.
The Revolve segment drove net sales of $200 million in the fourth quarter, a year-over-year increase of 68 percent from $118.9 million, and a 60 percent bump from $22.3 million two years ago.
FWRD segment net sales were $39.8 million, jumping 83 percent from the 2020 holiday’s $21.8 million in sales. On a two-year basis, FWRD sales increased 78 percent from the $22.3 million generated during the fourth quarter of 2019.
Fourth quarter domestic net sales increased 80 percent year-over-year and international net sales increased 34 percent year-over-year, with two-year growth rates coming in at 62 percent and 67 percent compared to domestic and international net sales in the fourth quarter of 2019, respectively.
For the full year, total net sales at Revolve were $891.4 million, a year-over-year increase of 54 percent from 2020’s $580.6 million.
Net Earnings: Net income was $29.4 million on diluted earnings per share (EPS) of 39 cents, up 55 percent from the 2020 fourth quarter’s $19 million income on diluted EPS of 26 cents. The numbers reflect two-year growth of 250 percent compared to net income of $8.4 million in the fourth quarter of 2019.
Adjusted EBITDA was $34.2 million in the quarter, up 82 percent year over year from $18.7 million in 2020. Revolve generated adjusted EBITDA of $13.6 million in the fourth quarter of 2019.
Full-year net income came in at $99.8 million on diluted EPS of $1.34, a year-over-year increase of 76 percent from 2020’s $56.8 million on diluted EPS of 79 cents per share.
CEO’s Take: Mente highlighted Revolve’s strength in operational efficiency and fulfillment-related spending despite the ongoing supply chain disruptions.
“During 2021, our average cost to fulfill an order decreased by 12 percent year-over-year, despite rising inflation pressures and the headwind of an increasing return rate year-over-year,” Mente said.