The resurgence of social events in the U.S. is continuing to be a big boon for Revolve, which saw second-quarter net sales grow 60 percent to $228.6 million on a record $31.5 million profit. The net sales growth also outpaced 2019 totals by 41 percent, and surpassed Refinitiv analysts’ estimates of $199.7 million.
Shoppers are clearly willing to pay at higher price points, with Revolve’s luxury brand, Forward, seeing sales skyrocket 151 percent to $39.8 million.
In a Nutshell: Revolve also gave a preview into what it calls a strong third quarter, with net sales in July increasing more than 40 percent on both a year-over-year basis and on a two-year growth basis versus July 2019.
Although active customers—consumers who have purchased from the trendy millennial and Gen Z favorite in the past 12 months—only rose 1 percent to 1.55 million, they are buying in droves. Customers placed 1.8 million orders in the quarter, an increase of 52 percent year-over-year, marking the retailer’s highest growth rate in more than five years, chief financial officer Jesse Timmermans said in an earnings call.
Average order value (AOV) grew 25 percent, up to $255 per order. Key drivers of the AOV growth include a higher mix of net sales at full-price and shallower markdowns, as well as a shift in mix back to higher-price-point merchandise such as dresses; and a higher mix of sales from Forward.
In the call, co-founder and co-CEO Mike Karanikolas said the fashion retailer is seeing more delays than it has seen historically in the supply chain.
“Unfortunately, those delays have continued to increase over time as the second quarter progressed and as the third quarter progresses,” he said.
Inventory as of June 30, 2021 was $118.8 million, an increase of 84 percent, from last year’s inventory balance of $64.5 million. Revolve’s average inventory balance—calculated as the sum of beginning inventory and ending inventory for the second quarter, divided by two—increased 32 percent year over year, well below the 60 percent year-over-year increase in net sales, indicating that the retailer is increasing inventory efficiency.
“There was likely some levels of untapped demand due to our inventory position, we feel like we’ve positioned ourselves really well compared to the broader set, investing heavily in going-out categories and returning to the pre-Covid lifestyle,” Karanikolas said in the call. “But even then, we struggled to keep up with the demand so we’re continuing to make improvements there. Again, we feel better than ever about our position as enter Q3 here, and we think there’s more to build upon there.”
Gross margin was 55.6 percent, a year-over-year increase of 517 basis points (5.17 percentage points), benefitting from healthy inventory and consumer demand dynamics during the quarter. The benefits contributed to a record high percentage of net sales at full-price and a year-over-year decrease in the depth of markdowns, partially offset by a lower contribution from the retailer’s owned brands.
Cash and cash equivalents, net of borrowings, was $219.6 million, an increase of $92.8 million, or 73 percent, from $126.8 million at the end of the second quarter of 2020. Revolve’s balance sheet remains debt free as of June 30, 2021.
Net Sales: Total net sales were $228.6 million, a year-over-year increase of 60 percent from $142.8 million, and reflecting two-year growth of 41 percent compared to the second quarter of 2019. This two-year growth rate is an improvement relative to the 30 percent two-year growth rate reported for the first quarter of 2021 compared to net sales in the first quarter of 2019.
Revolve segment net sales were $188.8 million, a year-over-year increase of 49 percent from $126.9 million, and reflect two-year growth of 31 percent.
Forward segment net sales were $39.8 million, soaring 151 percent over the 2020 second quarter’s $15.9 million, and representing two-year growth of 122 percent.
Domestic net sales increased 59 percent over the year prior, with international net sales rising 63 percent.
Net Earnings: Net income at Revolve was a record $31.5 million, a 122 percent improvement over the $14.2 million in the 2020 second quarter. Over the two-year stretch, net income grew 148 percent.
Adjusted EBITDA was $35.4 million, up 70 percent from the $20.9 million taken in last year and increasing 87 percent from the second quarter of 2019.
Diluted earnings per share (EPS) was 42 cents, compared to the 20 cents reported for the second quarter of 2020.
CEO’s Take: Karanikolas noted that the cross-exposure efforts of the Revolve and Forward brands are “still in the early innings” with less than 5 percent overlap in customers.
Mike Mente, Revolve’s other co-founder and co-CEO, said that after launching the Forward loyalty program in the first quarter, the fashion retailer saw a “significant” increase in the percentage of Revolve loyalty shoppers who cross-shopped Forward.
“Encouragingly, this rate of overlap continued to increase throughout the entire second quarter,” Mente said. “We estimate that the increase versus baseline levels alone generated more than 10 percent of Forward net sales in the U.S. in the second quarter, and contributed more than 30 percentage points to our year-over-year growth for the segment’s U.S. results.”