'Sept Idea Comp' $RVLV Revolve
Revolve Group ($RVLV) presents itself as the next gen fashion retailer for GenZs and Millennials. It also presents itself as a data/customer first company. In 2021 65% of sales were made by phones, with more than 70k products on store and a thousand brands, between owned and new the company has two marketplaces: Revolve ( www.revolve.com ) and Foward ( www.fwrd.com ), with the first one having an average product price of 250$ and the later of 700$.

The 20 year old company uses technology in every aspect it can, being data and costumer centric and with that, states many of its advantages. Presenting a better inventory placement and supply chain to fit demand, a quick inventory swap to help keep product list fresh and new (1.3 k new styles every week) as opposed to more generic marketing from other companies, and a good proxy for new trends on the market, while some companies will take time do adapt to new trends, RVLV keeps products fresh and desirable. The compay also manages to sell 87-95% of their products at full price.
All these factors help the company keep the gross margin of 55.9% in Q2F22, amidst all the trouble we've seen in other companies.

Beyond those marketplace capabilities, the company also has close to 30 owned brands also selling in the market, right now 5 of them are in the top 10 best-sellers, being close to 20% of revenue. Another factor of growth for the company, and any company that presents itself as brand-drive, is marketing. Right now the company has focused on influencers and relaunched its REVOLVE Festival (which didnt do so well for some, but thats just a bump in the road). It also has its new loyalty programs that help keep the customer coming back.
Numbers below taken from Q2F22:

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The avenues of growth for the company are to:
  • Keep expanding sales in the US and internationally, right now US is 83% of sales with a 30% YoY growth and international represents 13% of sales with a 14% YoY growth;
  • Push sales of FWRD with cross-selling and cross-marketing with REVOLVE. RVLV grew 30% YoY and FWRD grew "only" 14% on top of a 151% base, with a CAGR of 36%;
  • Expand customer base, with a 39% growth of active customers in Q2F22.

Although the gross margin is high, the company has showned a loss at Operating Margin (6.6% vs 14.4%). That all happened due to costs at:
  • Selling and Distribution, with higher return rates and increased fuel surchargers;
  • Marketing, with the coming back of the Revolve Festival;
  • General and Administrative, driven by an non routine pending legal matter.

In terms of cashflow, the company had been able to keep a positive FCF, and still has it comparing the last six months, but the increasing operating costs did drive cashflow to be negative this quarter.

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Now the company has suffered at the hands of the market, with a +70% drop from the 88$ price to close to 25$ at time of posting. Meanwhile results have only grew when you take a look at revenue, as for the operational costs, those have a very high chance to be either be temporary or help push up sales even more.

Right now the company is valued at around 1.81B, with zero debt, presenting an ajusted EBITDA of 114$, which puts it close to 16x EV/EBITDA. Which would be high, if the company wasnt presenting a predicted 25% CAGR, expanding its gross margin and considering the operating costs to be diluted in the future, its clear the risks of the company to fail are far and away offseted by the risks of it succeeding.

Of course only time will tell what will happen, but if the past is of any indication the future is looking bright for $RVLV
Joey Hirendernath's avatar
This is a really insighful post thank you for sharing. I was aware of $RVLV because of my experience as a consumer and @stockmarketnerd posts here on Commonstock.

I've had $RVLV on my watchlist for quite some time. Wouldn't you say that most large E-commerce retail companies like ASOS, Zara, Farfetch, Myteresa and Net A Porter use consumer data the same way to forecast trends and manage inventory? What about $RVLV technology makes it unique?
@joeyhirendernath now thats a good question that I dont have the capacity to answer truthfully due to the fact that RVLV doesnt really talk about more stuff on their presentations.. So we are kind of at the mercy of what I was able to gather on the 10Ks... I would imagine the most important thing is the high swap of the products and being able to react more quickly to new trends. but I would have to see each of those companies and compare their business model to Revolve to have a better grip at what Im talking about.
Arthur Svidzinski's avatar
Brett Schafer's avatar
Great pick! I think $RVLV is really interesting at these prices
Conor Mac's avatar
Great pitch, and what a great way to introduce yourself to the Commonstock community!
Didnt even realize it was my first post. Thanks, took a bit of work and Im still a
youngster in this field, but everyday getting better.
Gustavo Manfredi's avatar
Great! I'll look into this stock, wasn't aware of it. It is a different niche compared to fast-fashion models like Shein, right?