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Revolve Goes All in on Gaming

Revolve’s work with plus-size fashion influencer Remi Bader is going “exceptionally well” after the second drop of their exclusive size-inclusive collab at New York Fashion. The brand is also getting into gaming in a move aimed at attracting Gen Z.

In a Nutshell: Revolve’s second-quarter profit came in lower than it was a year ago.

Active customers rose 34 percent with an increase of 84,000 to just over 2.2 million. Gross margin at 53 percent fell 211 basis points year-over-year reflecting lower full-price sales.

“We delivered another profitable quarter with double-digit growth in net sales in the third quarter of 2022, despite the increasingly challenged macro environment,” co-founder and co-CEO Mike Karanikolas said. “Furthermore, we generated meaningful growth in cash flow year-over-year, further bolstering our already strong balance sheet.”

Karanikolas said Revolve is “very disciplined in our cost and inventory management to maintain profitability.”

“We took swift action to rebalance our inventory in a very strategic way to balance the moderation of our inventory levels” when customers abandoned casual comfort clothes for dressier styles, he said. While “there is still work to do,” Karanikolas said Revolve’s inventory position “grew only 2 percent” during the third quarter from Q2.

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“With our profitable business model and strong balance sheet, we are excited about our continued investments in our brand and technology that we believe will enable us to further capture market share in pursuit of our very large global market opportunity,” said co-founder and co-CEO Michael Mente.

During the call, Mente addressed Revolve’s return to New York Fashion Week (NYFW) where the Revolve Gallery hosted weeklong activations starring influencers and brand ambassadors. The event drew 9,000 attendees, 50 percent than the previous year. Revolve is particularly focused on TikTok influencers whose work drove a tenfold increase over last year’s third quarter.

Revolve’s brand with supermodel Elsa Hosk carries an average unit retail price of $250, illustrating the upside potential of these owned labels, Mente said. The company’s relationship with plus-size model Remi Bader birthed the first drop of exclusive size-inclusive fashion in August, and a second during NYFW, both of which were “exceptionally well” received, he said.

Revolve has a new gaming partnership with entertainment studio Muus Collective Inc. They will collaborate on a Web3-enabled mobile platform for a fashion-centered gaming and e-commerce experience where players become their own tastemakers and can connect with their favorite Revolve brands through a gamified shopping and styling experience.

“We are particularly excited about this opportunity to expand our reach and engagement, considering that mobile gaming is the fastest-growing form of media on the planet and that 49 percent of mobile gamers worldwide are women, according to Google Play research,” Mente said.

Net Sales: Net sales for the third quarter ended Sept. 30 rose 10 percent to $268.7 million from $244.1 million.

The company said Revolve net sales rose 9 percent to $222.1 million, while FWRD net sales grew 17 percent to $46.6 million.

Mente said the higher priced FWRD label’s move into buying back handbags in exchange for credit on its sites has “opened up a brand-new opportunity in resale.” This enables Revolve to attract and retain customers who want to buy pre-owned handbags via FWRD Renew. “I’m thrilled to share that customer interest in pre-owned handbags in the early going has exceeded our expectations,” Mente said, adding that the Revolve is now trying out resale with handbags sourced from third parties, including sourcing directly from global luxury brands.

In September, FWRD co-hosted an event with GQ global editorial director Will Welch in partnership with supermodel Kendall Jenner as FWRD’s creative director. In the coming weeks Revolve plans to introduce its FWRD Brand Ambassador program.

By geography, domestic net sales rose 10 percent year-over-year, while international net sales increased 12 percent over the same period.

For the nine months, net sales rose 30 percent to $842.3 million from $651.6 million.

Earnings: Net income fell 28 percent to $12 million, or 16 cents a diluted share, from net income of $16.7 million.

For the nine months, net income fell 28 percent to $50.8 million from $70.5 million.

CEO’s Take: “Our third quarter results demonstrate that we are capably navigating through these uncertain times from a position of strength while continuing to prudently invest in our long-term growth opportunity.,” Karanikolas said.

“There is no denying that we are operating in a challenging environment, yet we are very much up to the challenge and see a great opportunity to further separate from our competitors,” Mente said. “With our technology-driven DNA, operational excellence, strong brands and connection with the next-generation consumer, we believe we are well positioned to capture market share.”