Revolve remains in high-growth mode to start 2022, with total net sales soaring 58 percent to a quarterly record $283.5 million on net income of $22.6 million.
Despite beating consensus analyst projections for both sales and earnings, Wall Street was not as impressed with the number. The stock plummeted more than 23 percent in trading on Wednesday amid further indication that the quarter will represent the peak of total sales growth in 2022.
In a Nutshell: Revolve gave a preview of its second-quarter results, revealing that net sales in April have grown more than 30 percent year-over-year against a more elevated prior-year comparison than faced in last year’s period. For the full second quarter, year-over-year growth is expected to surpass 20 percent, chief financial officer Jesse Timmermans said in Revolve’s earnings call.
The retailer reiterated its expectations for the second quarter to be generate its highest sales total as core customers gear up for a busy travel and event calendar in the summer.
For the full year, Revolve still expects year-over-year growth to be highest in the first quarter and lowest in the fourth.
Although the influencer-favored retailer’s first festival in three years generated the wrong kind of buzz, Revolve’s opening quarter continued the strong holiday momentum.
Revolve touted record quarterly growth of 201,000 active customers during the first quarter of 2022 on a sequential basis. Total active customers grew to 2.04 million, an increase of 38 percent year-over-year.
Total orders placed soared 68 percent to 2.16 million from the prior-year quarter’s 1.28 million orders. Average order value (AOV) jumped 13 percent to $288 per purchase, up from last year’s $256 average.
Both the average number of orders placed per active customer and the net sales per active customer have reached records in the quarter, at 3.68 orders placed per quarter and $488 per spender in net sales.
Timmermans highlighted the success of the dresses category, indicating that it further accelerated to nearly 150 percent growth year-over-year. Owned brands as a percentage of Revolve segment net sales also increased year-over-year for the second consecutive quarter. The company expects the owned brands mix of Revolve segment sales to trend higher in 2022, increasing from 20 percent in 2021.
The CFO also noted that Revolve is passing higher prices along to customers in the wake of rising labor costs, but has been able to absorb some added expenses due to the healthier AOV.
For third-party brands, “we are seeing, call it, mid-single-digit price increases there,” Timmermans said. “And then on the owned brand side, we go style by style to adjust and make sure it’s comparable to that third party and we’re balancing, again, on a style-by-style basis. Call it mid-to-high single digits.”
Inventory as of March 31, 2022 was $179.2 million, a 78 percent increase from the prior year’s $100.5 million. On a quarterly basis, inventory is up 5 percent from the 2021 fourth quarter’s $170.4 million in total.
This marks the fourth straight quarter that Revolve has seen more than 75 percent year-over-year growth in inventory levels, but Timmermans expects a slowdown aligning with the projected sales deceleration.
“We’ll definitely see the year-over-year inventory growth start to moderate,” Timmermans said. “It already has started to moderate on an intra-quarter basis, but especially as we get into the second half. That was anticipated [for] getting ahead of the demand, and then also getting back to a more pre-Covid historically normal seasonality, where the inventory comes in ahead of that peak spring/summer demand that we see right around this time. I definitely expect that inventory growth to balance, especially in the back half of the year.”
Gross margin was 54.5 percent, an increase of 44 basis points (0.44 percentage points) year-over-year from last second quarter’s 54 percent for the company’s highest-ever Q1 gross margin. The Revolve segment generated a 56 percent gross margin, while the luxury FWRD segment tallied a 45.3 percent gross margin.
The millennial and Gen Z-focused brand attributed the gross margin improvement to strong full-price selling and an increased mix of owned brands year-over-year, partially offset by slightly deeper markdowns, among other factors.
Cash and cash equivalents as of March 31, 2022 were $270.6 million, increasing $87.7 million from last year’s $182.9 million. Revolve’s balance sheet remains debt free.
Revolve said it generated record net cash provided by operating activities and free cash flow for a first quarter of $53.8 million and $52.7 million, respectively, amounting to a 62 percent year-over-year for each measure. Free cash flow increased by nearly 400 percent in the past three years compared to the first quarter of 2019, the company said.
Net sales: Total net sales were a record $283.5 million, an increase of 58 percent year-over-year from the 2021 first quarter’s $178.9 million in sales.
The Revolve segment saw net sales of $237.7 million, a 56 percent increase over last year’s $152.2 million.
FWRD, Revolve’s luxury fashion segment, saw net sales of $45.8 million, an increase of 71 percent year-over-year from $26.7 million. FWRD net sales have more than tripled in the past three years compared to the first quarter of 2019, delivering a compound annual growth rate during this three-year period of 46 percent.
Domestic net sales increased 66 percent year-over-year and international net sales increased 28 percent year-over-year. The international expansion was broad-based with all of Revolve’s major regions contributing to net sales growth during the quarter. Currently, U.S. sales represent 84 percent of Revolve’s total business, while international sales comprise 16 percent.
Co-CEO Mike Karanikolas noted in the call that Canada saw triple-digit growth in the quarter, and highlighted growth in the U.K. being “extremely strong.”
Net earnings: Net income was $22.6 million, a 1 percent uptick from the 2021 quarter’s $22.3 million, a comparison that was impacted by the “meaningful” differences in the company’s effective tax rate. This tax rate was 28 points higher in the first quarter of 2022 than in the prior-year comparable period.
Diluted earnings per share (EPS) were $0.30, which remained flat compared to the prior-year comparable period when accounting for the higher tax rate. Had the tax rate been the same, EPS would have increased 37 percent year-over-year.
Adjusted EBITDA was $31.5 million, an increase of 35 percent from the prior year second quarter’s $23.3 million adjusted EBITDA.
CEO’s Take: “Late in the first quarter we began to experience weaker trends in Greater China after Covid-19 restrictions negatively impacted consumer demand and logistics,” co-CEO Karanikolas said. “With the current state of affairs, in the near term we expect continued softness in Greater China, which generated a low single-digit percentage of our total net sales in the first quarter.”