Revolve Group Announces First Quarter 2023 Financial Results

Rhea-AI Summary

Revolve Group, Inc. announces financial results for Q1 2023, with a decrease in net sales and gross profit compared to the previous year. The company experienced a challenging macroeconomic environment but achieved progress in rebalancing inventory and generating cash flow. Active customers increased by 19% year-over-year. The company remains debt-free with strong cash flow and a balance sheet increase.

Positive

• Active customers increased by 19% year-over-year
• Cash and cash equivalents increased by 21% to $283.3 million
• Inventory decreased by 12% to $190.2 million
• Net cash provided by operating activities was $48.8 million and free cash flow was $47.7 million

Negative

• Net sales decreased by 1% year-over-year
• Gross profit decreased by 10% year-over-year
• Net income decreased by 37% year-over-year
• Adjusted EBITDA decreased by 52% year-over-year

LOS ANGELES, May 3, 2023 /PRNewswire/ -- Revolve Group, Inc. (NYSE: RVLV), the next-generation fashion retailer for Millennial and Generation Z consumers, today announced financial results for the first quarter ended March 31, 2023.

"We achieved excellent progress on rebalancing our inventory position and generated exceptional cash flow in the first quarter, despite a macroeconomic environment that became increasingly challenging as the quarter progressed, leading to deceleration in our net sales momentum," said co-founder and co-CEO Mike Karanikolas.

"Supported by our strong profitability and cash flow that truly stand out within the fashion e-commerce sector, we are continuing to innovate and leverage new technologies while executing on several important growth, brand-building and efficiency initiatives that we believe will further strengthen our foundation for profitable growth over the long term," said co-founder and co-CEO Michael Mente. 

First Quarter 2023 Financial Summary
		Three Months Ended March 31,
		2023				2022				YoY Change
		(in thousands, except percentages)
Net sales		$	279,609			$	283,498			(1 %)
Gross profit		$	139,220			$	154,411			(10 %)
Gross margin			49.8	%			54.5	%
Net income		$	14,172			$	22,568			(37 %)
Adjusted EBITDA (non-GAAP financial measure)		$	15,010			$	31,543			(52 %)
Net cash provided by operating activities		$	48,829			$	53,797			(9 %)
Free cash flow (non-GAAP financial measure)		$	47,681			$	52,727			(10 %)

 

Operational Metrics
		Three Months Ended March 31,
		2023				2022				YoY Change
		(in thousands, except average order value and percentages)
Active customers (trailing 12 months)			2,424				2,041			19 %
Total orders placed			2,278				2,156			6 %
Average order value		$	288			$	288				—

Additional First Quarter 2023 Metrics and Results Commentary

• Active customers increased by 84,000 during the first quarter of 2023, growing to 2,424,000 as of March 31, 2023, an increase of 19% year-over-year.
• Net sales were $279.6 million, a year-over-year decrease of 1% against a very difficult prior-year comparison yet representing a four-year compound annual growth rate of 19% since the first quarter of 2019.
• Gross profit was $139.2 million, a year-over-year decrease of 10%.
• Gross margin was 49.8%, a year-over-year decrease of 468 basis points, primarily reflecting a lower mix of net sales at full price in the first quarter of 2023 as compared to the first quarter of 2022.
• Net income was $14.2 million, a year-over-year decrease of 37%, a comparison that was impacted by the lower gross margin and an increase in operating expenses year-over-year, partially offset by an increase in other income due primarily to an insurance reimbursement.
• Adjusted EBITDA was $15.0 million, a year-over-year decrease of 52%.
• Diluted earnings per share (EPS) was $0.19, a year-over-year decrease of 37%.

Additional Net Sales Commentary

• REVOLVE segment net sales were $231.7 million, a year-over-year decrease of 3%.
• FWRD segment net sales were $48.0 million, a year-over-year increase of 5%.
• Domestic net sales decreased 5% year-over-year and international net sales increased 16% year-over-year.

Cash Flow and Balance Sheet

• Net cash provided by operating activities was $48.8 million and free cash flow was $47.7 million. Our strong cash flow generation benefitted from favorable working capital movements, including a meaningful decrease in inventory during the first quarter. The cash flow metrics were our second highest for any first quarter, yet trailed the record first quarter cash flow from the prior-year period primarily due to lower net income year-over-year.
• Cash and cash equivalents: The strong cash flow generation has further strengthened our balance sheet and liquidity. Cash and cash equivalents as of March 31, 2023 were $283.3 million, an increase of $48.6 million, or 21%, from December 31, 2022 and an increase of $12.7 million, or 5%, from $270.6 million as of March 31, 2022. Our balance sheet as of March 31, 2023 remains debt free.
• Inventory as of March 31, 2023 was $190.2 million, a decrease of $25.1 million, or 12%, from December 31, 2022, and an increase of $10.9 million year-over-year, or 6%, from the inventory balance of $179.2 million as of March 31, 2022. We believe we are making continued progress in our efforts to balance our inventory, highlighted by a meaningful reduction in the spread between our inventory growth rate year-over-year and our net sales decline year-over-year in the first quarter of 2023 on a sequential quarter basis when compared to the fourth quarter of 2022.

Additional trend information regarding Revolve Group's first quarter of 2023 financial results and operating metrics is available in the Q1 2023 Financial Highlights presentation available on our investor relations website:  https://investors.revolve.com/events-and-presentations/default.aspx 

Results Since the End of the First Quarter of 2023

Net sales in April 2023 decreased approximately 7% year-over-year against a difficult prior-year comparison and amidst an increasingly uncertain macroeconomic environment highlighted by consumer inflationary pressures, U.S. Department of Commerce reports of decelerating consumer spending on apparel in recent months and continued foreign exchange headwinds year-over-year. 

Conference Call Information

Revolve Group management will host a call today at 4:30 pm ET / 1:30 pm PT to discuss today's results in more detail.  To participate, please dial (888) 330-2454 within the United States or (240) 789-2714 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 3102771. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the Revolve Group website at investors.revolve.com. A replay of the conference call will be available online at investors.revolve.com. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (800) 770-2030 within the United States or (647) 362-9199 outside the United States. The replay conference ID is 3102771.

Forward-Looking Statements

This press release contains ''forward-looking statements'' within the meaning of the safe harbor provisions of the U.S.  Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this press release are forward-looking statements, including but not limited to statements regarding our inventory balance and macroeconomic uncertainties, and our future growth and profitability. Forward-looking statements include statements containing words such as "expect," "anticipate," "believe," "project," "will" and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to changing economic conditions and their impact on consumer demand and our business, operating results and financial condition; the impact of the COVID-19 pandemic and other health crises on our business, operations and financial results; demand for our products; supply chain challenges; inflation; Russia's war against Ukraine; our fluctuating operating results; seasonality in our business; our ability to acquire products on reasonable terms; our e-commerce business model; our ability to attract customers in a cost effective manner; the strength of our brand; competition; fraud; system interruptions; our ability to fulfill orders; and other risks and uncertainties included under the caption "Risk Factors" and elsewhere in our filings with the Securities and Exchange Commission, or SEC, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2022 and our subsequent Quarterly Reports on Form 10-Q, including for the quarter ended March 31, 2023, which we expect to file with the SEC on May 3, 2023. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Use of Non-GAAP Financial Measures and Other Operating Metrics

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), we reference in this press release and the accompanying tables the following non-GAAP financial measures: Adjusted EBITDA and free cash flow.    

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

We use these non-GAAP financial measures to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and when planning, forecasting, and analyzing future periods.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Reconciliation of Non-GAAP Financial Measures" included at the end of this release.

Definitions of our non-GAAP financial measures and other operating metrics are presented below. 

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income before other (income) expense, net; taxes; and depreciation and amortization; adjusted to exclude the effects of equity-based compensation expense and certain non-routine items. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used in purchases of property and equipment. We view free cash flow as an important indicator of our liquidity because it measures the amount of cash we generate. Free cash flow also reflects changes in working capital.

Active Customers

We define an active customer as a unique customer account from which a purchase was made across our platform at least once in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. We view the number of active customers as a key indicator of our growth, the reach of our sites, the value proposition and consumer awareness of our brand, the continued use of our sites by our customers and their desire to purchase our products.

Total Orders Placed

We define total orders placed as the total number of orders placed by our customers, prior to product returns, across our platform in any given period.  We view total orders placed as a key indicator of the velocity of our business and an indication of the desirability of our products and sites to our customers. Total orders placed, together with average order value, is an indicator of the net sales we expect to recognize in a given period.

Average Order Value

We define average order value as the sum of the total gross sales from our sites in a given period, prior to product returns, divided by the total orders placed in that period. We believe our high average order value demonstrates the premium nature of our product assortment. Average order value varies depending on the site through which we sell merchandise, the mix of product categories sold, the number of units in each order, the percentage of sales at full price, and for sales at less than full price, the level of markdowns.

About Revolve Group, Inc.

Revolve Group, Inc. (NYSE: RVLV) is the next-generation fashion retailer for Millennial and Generation Z consumers. As a trusted premium lifestyle brand and a go-to online source for discovery and inspiration, we deliver an engaging customer experience from a vast yet curated offering of apparel, footwear, accessories, beauty and home products. Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers and more than 1,000 emerging, established and owned brands.

We were founded in 2003 by our co-CEOs, Michael Mente and Mike Karanikolas. We sell merchandise through two complementary segments, REVOLVE and FWRD, that leverage one platform. Through REVOLVE, we offer an assortment of premium apparel, footwear, accessories and beauty products from emerging, established and owned brands. Through FWRD, we offer an assortment of curated and elevated iconic and emerging luxury brands.  For more information, visit www.revolve.com.

Contacts:

Investors:

Erik Randerson, CFA
562.677.9513
IR@revolve.com

Media:

Jennifer Walker
revolve@walkerdrawas.com

 

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
		Three Months Ended March 31,
		2023				2022
Net sales		$	279,609			$	283,498
Cost of sales			140,389				129,087
Gross profit			139,220				154,411
Operating expenses:
Fulfillment			9,071				7,290
Selling and distribution			51,458				46,586
Marketing			38,343				45,250
General and administrative			28,092				26,835
Total operating expenses			126,964				125,961
Income from operations			12,256				28,450
Other income, net			(6,585)				(516)
Income before income taxes			18,841				28,966
Provision for income taxes			4,669				6,398
Net income		$	14,172			$	22,568
Earnings per share of Class A and Class B    common stock:
Basic		$	0.19			$	0.31
Diluted		$	0.19			$	0.30
Weighted average number of shares of Class A and    Class B common stock outstanding:
Basic			73,370				73,264
Diluted			74,379				74,803

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
		March 31,				December 31,
		2023				2022
Assets
Current assets:
Cash and cash equivalents		$	283,321			$	234,724
Accounts receivable, net			8,080				5,421
Inventory			190,152				215,224
Income taxes receivable			978				2,974
Prepaid expenses and other current assets			64,799				59,874
Total current assets			547,330				518,217
Property and equipment (net of accumulated depreciation of $14,260 and $13,081 as of    March 31, 2023 and December 31, 2022, respectively)			8,768				8,934
Right-of-use lease assets			41,559				22,964
Intangible assets, net			1,696				1,600
Goodwill			2,042				2,042
Other assets			1,249				807
Deferred income taxes			24,754				24,754
Total assets		$	627,398			$	579,318
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	49,099			$	50,789
Income taxes payable			2,597				229
Accrued expenses			35,519				38,266
Returns reserve			73,925				63,381
Current lease liabilities			4,434				5,844
Other current liabilities			26,687				22,577
Total current liabilities			192,261				181,086
Non-current lease liabilities			39,198				18,659
Total liabilities			231,459				199,745
Stockholders' equity:
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized as of    March 31, 2023 and December 31, 2022; 40,802,654 and 40,766,510 shares issued    and outstanding as of March 31, 2023 and December 31, 2022, respectively			41				41
Class B common stock, $0.001 par value; 125,000,000 shares authorized as of    March 31, 2023 and December 31, 2022; 32,597,119 and 32,597,119 shares issued    and outstanding as of March 31, 2023 and December 31, 2022, respectively			33				33
Additional paid-in capital			111,777				110,338
Retained earnings			284,088				269,161
Total stockholders' equity			395,939				379,573
Total liabilities and stockholders' equity		$	627,398			$	579,318

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
		Three Months Ended March 31,
		2023				2022
Operating activities:
Net income		$	14,172			$	22,568
Adjustments to reconcile net income to net cash provided by operating    activities:
Depreciation and amortization			1,218				1,102
Equity-based compensation			1,278				1,491
Changes in operating assets and liabilities:
Accounts receivable			(2,659)				(6,747)
Inventories			25,072				(7,986)
Income taxes receivable			1,996				2,909
Prepaid expenses and other current assets			(4,925)				(16,013)
Other assets			(442)				(361)
Accounts payable			(1,690)				20,781
Income taxes payable			2,368				2,761
Accrued expenses			(2,747)				6,723
Returns reserve			10,544				20,330
Right-of-use lease assets and current and non-current    lease liabilities			534				(52)
Other current liabilities			4,110				6,291
Net cash provided by operating activities			48,829				53,797
Investing activities:
Purchases of property and equipment			(1,148)				(1,070)
Net cash used in investing activities			(1,148)				(1,070)
Financing activities:
Proceeds from the exercise of stock options, net			161				126
Net cash provided by financing activities			161				126
Effect of exchange rate changes on cash and cash equivalents			755				(701)
Net increase in cash and cash equivalents			48,597				52,152
Cash and cash equivalents, beginning of period			234,724				218,455
Cash and cash equivalents, end of period		$	283,321			$	270,607
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refund		$	255			$	713
Operating leases		$	1,795			$	1,369
Supplemental disclosure of non-cash activities:
Lease assets obtained in exchange for new operating lease liabilities		$	21,814			$	11,105

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
The following table summarizes our net sales and gross profit for each of our reportable segments (in thousands):
		Three Months Ended March 31,
Net sales		2023				2022
REVOLVE		$	231,653			$	237,740
FWRD			47,956				45,758
Total		$	279,609			$	283,498
Gross profit
REVOLVE		$	120,236			$	133,693
FWRD			18,984				20,718
Total		$	139,220			$	154,411
The following table lists net sales by geographic area (in thousands):
		Three Months Ended March 31,
		2023				2022
United States		$	226,716			$	237,875
Rest of the world			52,893				45,623
Total		$	279,609			$	283,498

       

REVOLVE GROUP, INC. AND SUBSIDIARIES
KEY OPERATING AND FINANCIAL METRICS
(Unaudited)
		Three Months Ended March 31,
		2023				2022
		(in thousands, except average order value and percentages)
Gross margin			49.8	%			54.5	%
Adjusted EBITDA		$	15,010			$	31,543
Free cash flow		$	47,681			$	52,727
Active customers			2,424				2,041
Total orders placed			2,278				2,156
Average order value		$	288			$	288

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
A reconciliation of non-GAAP Adjusted EBITDA to net income for the three months ended March 31, 2023 and 2022 is as follows:
		Three Months Ended March 31,
		2023				2022
		(in thousands)
Net income		$	14,172			$	22,568
Excluding:
Other income, net			(6,585)				(516)
Provision for income taxes			4,669				6,398
Depreciation and amortization			1,218				1,102
Equity-based compensation			1,278				1,491
Non-routine items(1)			258				500
Adjusted EBITDA		$	15,010			$	31,543

(1)	Non-routine items in the three months ended March 31, 2023 and 2022 relate to an accrual for a legal matter.

 

A reconciliation of non-GAAP free cash flow to net cash provided by operating activities for the three months ended March 31, 2023 and 2022 is as follows:
		Three Months Ended March 31,
		2023				2022
		(in thousands)
Net cash provided by operating activities		$	48,829			$	53,797
Purchases of property and equipment			(1,148)			$	(1,070)
Free cash flow		$	47,681			$	52,727
Net cash used in investing activities		$	(1,148)			$	(1,070)
Net cash provided by financing activities		$	161			$	126

 

 

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SOURCE Revolve Group, Inc.

FAQ

What was the year-over-year change in net sales for Q1 2023?

Net sales decreased by 1% compared to the previous year.

What was the year-over-year change in gross profit for Q1 2023?

Gross profit decreased by 10% compared to the previous year.

What was the year-over-year change in net income for Q1 2023?

Net income decreased by 37% compared to the previous year.

What was the year-over-year change in adjusted EBITDA for Q1 2023?

Adjusted EBITDA decreased by 52% compared to the previous year.

What was the year-over-year change in active customers for Q1 2023?

Active customers increased by 19% compared to the previous year.

What was the year-over-year change in cash and cash equivalents for Q1 2023?

Cash and cash equivalents increased by 21% to $283.3 million.

What was the year-over-year change in inventory for Q1 2023?

Inventory decreased by 12% to $190.2 million.

What was the net cash provided by operating activities for Q1 2023?

Net cash provided by operating activities was $48.8 million.

What was the free cash flow for Q1 2023?

Free cash flow was $47.7 million.