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Social Outings Spur Spring Rally for Revolve

While first-quarter net sales at Revolve increased 22.5 percent to $178.9 million on net income of $22.3 million—both records—the best news for the online fashion retailer has come from what happened after.

In April, the millennial and Gen Z-focused retailer saw sales growth of over 100 percent year over year, and outperformed pre-Covid, April 2019 sales by 30 percent, thanks in part to a resurgence in social events.

In a Nutshell: Although Revolve saw low single-digit sales growth in January and February, March sales numbers turned the tide completely amid vaccination rollouts, easing restrictions and stimulus payments.

The return to growth in styles associated with social outings, such as dresses, also powered strength in March and April. What’s more, continued growth in home-related product categories, including beauty, intimates and activewear, helped bolsters.

“These results support our view that we can return to strong growth in our core offerings of occasionwear while continuing to drive growth in newer categories to pursue a deeper share of wallet,” co-founder and co-CEO Mike Karanikolas said in an earnings call.

March was the second-highest month in Revolve’s history for attracting new customers and delivered the highest year-over-year growth in traffic in more than a year, according to Karanikolas.

Revolve’s other co-founder and co-CEO, Michael Mente, credited the company’s data-driven merchandising approach for enabling the retailer to capitalize on the reopening, assort into emerging trends, expand its style count and double down on successful styles.

“This successful inventory ramp and shift in assortment is particularly impressive when considering that just a year ago, our merchandise focus shifted away from products associated with social outings and travel, such as dresses,” said Mente in the earnings call. “And now, we are again reassorting back into those historically strong product categories while still driving rapid growth in our newer ‘at home’ categories like beauty, which more than doubled in the first quarter. We have succeeded in providing her with the right product at the right time.”

As part of Revolve’s reinvestment in owned brands, the company is aiming to capitalize on consumer interest for sustainable fashion with the recent introduction of Tularosa Green. Styles in this collection are made with all natural and chemical-free dyes, with 100 percent organic cotton. The production uses technology that draws 40 percent less water and reuses the water to reduce its impact on the environment.

Mente said “this is just the beginning to a more sustainable production process” Revolve is pursuing within its owned brands.

The company also recently added new denim from the Grlfrnd brand, which aligns with the current fashion trend towards a more comfortable and looser-fitting denim silhouette.

Inventory at the end of the quarter was $100.5 million, down $900,000 year over year, or 1 percent, from the inventory balance of $101.4 million as of March 31, 2020. In the quarter, the company saw inventory turns increase more than 20 percent in the Revolve segment.

In line with the efficient inventory turn, gross margin at Revolve was 54 percent, a year-over-year increase of approximately 540 basis points (5.4 percentage points) and the highest-ever gross margin reported for a first quarter at the company.

The metric benefited from a year-over-year increase in the percentage of full-price net sales and a year-over-year decrease in the depth of markdowns, partially offset by a lower contribution from owned brands. For three quarters in a row, Revolve has generated full-price sales on more than 80 percent of products.

Active customers for the past year dipped 3 percent to 1.48 million, from 1.53 million the year before, and average order values dropped 1 percent from $259 a shopper to $256.

But these numbers were balanced out by the 1.28 million total orders placed in the quarter, 9 percent higher than the 1.17 million placed in the year-ago period.

Cash and cash equivalents as of March 31, 2021 totaled $182.9 million, an increase of $109.3 million, while free cash flow was $32 million. Revolve has no debt.

Revolve did not share guidance for the second quarter or the full-year 2021, but chief financial officer Jeff Timmermans said in the call that the company is “confident that we can continue to deliver net sales growth in excess of our long-term growth target of 20 percent.”

Despite the recent concerns about historic highs in freight rates and the congestions at various major global ports, Revolve did not comment on the impact the supply chain bottlenecks have had on delivery, or its ability to procure inventory.

Net Sales: Total net sales were a record $178.9 million, a year-over-year increase of 22.5 percent from the $146.1 million in the year-ago first quarter.

In the quarter, the company’s Revolve segment net sales were $152.2 million, a year-over-year increase of 22.2 percent from $124.5 million, while the luxury Forward segment saw sales grow 23.8 percent to $26.7 million, a year-over-year increase of 23.8 percent from $21.6 million.

International net sales increased 38 percent year over year, outperforming the domestic net sales increase of 19 percent year over year. The international strength was broad based with Australia, Canada, Greater China and the Middle East each delivering strong double-digit growth in net sales. Overall, international sales now comprise 20 percent of total sales at Revolve, up from 18 percent last year.

Net Earnings: First-quarter net income was a record $22.3 million, a year-over-year increase of 435 percent, and more than four times greater than the company’s first-quarter net income in 2019.

Adjusted EBITDA was $23.3 million, a year-over-year increase of 316 percent, while diluted earnings per share (EPS) was 30 cents, well ahead of the 6 cents reported in the first quarter of 2020.

CEO’s Take: Mente still sees growth opportunities to expand the Forward luxury segment via Revolve’s current customer base. The company launched its Forward loyalty program earlier in May.

“Even though the Revolve and Forward merchandise is complementary, with Forward over indexing in handbags and shoes, only a low single-digit percentage of Revolve customers are also Forward customers,” Mente said.

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