Revolve Group Announces Third Quarter 2023 Financial Results
- Revolve Group achieved a key objective of rebalancing its inventory, resulting in favorable year-over-year inventory and sales trends in Q3 2023.
- The company surpassed 2.5 million active customers, an increase of 12% YoY.
- Net sales for Q3 2023 were $257.6 million, a decrease of 4% YoY.
- Gross profit decreased by 6% YoY to $133.2 million.
- Net income decreased by 73% YoY to $3.2 million.
- Adjusted EBITDA was $9.5 million, a decrease of 46% YoY.
- Gross margin decreased by 127 basis points to 51.7%.
- Net income was negatively impacted by a pending legal matter, resulting in a decrease of 73% YoY.
- FWRD segment net sales decreased by 14% YoY.
- Diluted earnings per share decreased by 75% YoY.
"We achieved a key 2023 objective of rebalancing our inventory as the spread between our year-over-year inventory and sales trends was favorable in the third quarter for the first time in more than two years," said co-founder and co-CEO Mike Karanikolas. "This important accomplishment contributed to our strong and increased cash flows year-over-year, even in an environment where spending on discretionary products by our consumer demographic continues to be pressured."
"A key highlight of the third quarter was surpassing 2.5 million active customers, an increase of
Third Quarter 2023 Financial Summary | ||||||||||
Three Months Ended September 30, | ||||||||||
2023 | 2022 | YoY Change | ||||||||
(in thousands, except percentages) | ||||||||||
Net sales | $ | 257,603 | $ | 268,711 | (4 %) | |||||
Gross profit | $ | 133,232 | $ | 142,382 | (6 %) | |||||
Gross margin | 51.7 | % | 53.0 | % | ||||||
Net income | $ | 3,178 | $ | 11,988 | (73 %) | |||||
Adjusted EBITDA (non-GAAP financial measure) | $ | 9,484 | $ | 17,676 | (46 %) | |||||
Net cash provided by operating activities | $ | 12,486 | $ | 10,006 | 25 % | |||||
Free cash flow (non-GAAP financial measure) | $ | 11,492 | $ | 8,618 | 33 % | |||||
Operational Metrics | ||||||||||
Three Months Ended September 30, | ||||||||||
2023 | 2022 | YoY Change | ||||||||
(in thousands, except average order value and percentages) | ||||||||||
Active customers (trailing 12 months) | 2,510 | 2,249 | 12 % | |||||||
Total orders placed | 2,133 | 1,951 | 9 % | |||||||
Average order value | $ | 299 | $ | 320 | (7 %) | |||||
Additional Third Quarter 2023 Metrics and Results Commentary
- Trailing 12-month Active customers increased by 52,000 during the third quarter of 2023, growing to 2,510,000 as of September 30, 2023, an increase of
12% year-over-year. - Net sales were
$257.6 million 4% . - Gross profit was
$133.2 million 6% . - Gross margin was
51.7% , a year-over-year decrease of 127 basis points, primarily reflecting a lower mix of net sales at full price and a lower mix of owned brands as a percentage of Revolve segment net sales in the third quarter of 2023 as compared to the third quarter of 2022. - Operating expenses increased year over year, despite the year-over-year decline in net sales, due to a
$6.6 million - Net income was
$3.2 million 73% , primarily due to the decline in net sales, reduction in gross profit year-over-year, continued pressure on certain operating expenses, and the$6.6 million - Adjusted EBITDA was
$9.5 million 46% . - Diluted earnings per share (EPS) was
$0.04 75% that was negatively impacted by the accrual for a pending legal matter of$6.6 million $0.07
Additional Net Sales Commentary
- REVOLVE segment net sales were
$217.7 million 2% . - FWRD segment net sales were
$39.9 million 14% . - Domestic net sales were
$207.2 million 5% . - International net sales were
$50.4 million 1% .
Cash Flow and Balance Sheet
- Net cash provided by operating activities was
$12.5 million $47.2 million 25% and37% , respectively. - Free cash flow was
$11.5 million $44.1 million 33% and44% , respectively. - The company repurchased 907,219 shares of its Class A common stock during the third quarter of 2023, at an average cost of
$13.87 $87.4 million $100 million - Cash and cash equivalents as of September 30, 2023 were
$266.9 million $22.9 million 9% , from September 30, 2022 and a decrease of$2.4 million 1% , from$269.3 million - Inventory as of September 30, 2023 was
$202.9 million $10.5 million 5% , from$213.3 million
Additional trend information regarding Revolve Group's third quarter of 2023 financial results and operating metrics is available in the Q3 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 Third Quarter of 2023
Net sales in October 2023 decreased by a low-single digit percentage year-over-year amidst ongoing uncertainty in the macroeconomic and geopolitical environment that we believe continues to pressure consumer spending on discretionary products.
2023 Business Outlook
Based on information available to us as of November 1, 2023, we are providing the following guidance for the full year ending December 31, 2023 and the fourth quarter ending December 31, 2023.
Updated FY 2023 Outlook | Prior FY 2023 Outlook | |
Gross margin | ||
Fulfillment expenses | ||
Selling and distribution expenses | ||
Marketing expenses | ||
General and administrative expenses |
| |
Effective tax rate | ||
Fourth Quarter 2023 Outlook | ||
Gross margin | ||
Fulfillment expenses | ||
Selling and distribution expenses | ||
Marketing expenses | ||
General and administrative expenses |
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
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 our expectations regarding average spending per active customer, our financial performance for the fourth quarter and full year of 2023 and statements regarding macroeconomic conditions. 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; demand for our products; supply chain challenges; inflation; the war in
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 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 | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 257,603 | $ | 268,711 | $ | 810,941 | $ | 842,263 | ||||||||
Cost of sales | 124,371 | 126,329 | 390,791 | 383,228 | ||||||||||||
Gross profit | 133,232 | 142,382 | 420,150 | 459,035 | ||||||||||||
Operating expenses: | ||||||||||||||||
Fulfillment | 9,185 | 8,072 | 27,657 | 23,272 | ||||||||||||
Selling and distribution | 48,925 | 46,477 | 151,276 | 145,030 | ||||||||||||
Marketing | 39,581 | 44,584 | 129,421 | 141,755 | ||||||||||||
General and administrative | 35,217 | 28,498 | 91,861 | 86,497 | ||||||||||||
Total operating expenses | 132,908 | 127,631 | 400,215 | 396,554 | ||||||||||||
Income from operations | 324 | 14,751 | 19,935 | 62,481 | ||||||||||||
Other income, net | (3,984) | (1,440) | (12,950) | (3,769) | ||||||||||||
Income before income taxes | 4,308 | 16,191 | 32,885 | 66,250 | ||||||||||||
Provision for income taxes | 1,130 | 4,203 | 8,232 | 15,421 | ||||||||||||
Net income | $ | 3,178 | $ | 11,988 | $ | 24,653 | $ | 50,829 | ||||||||
Earnings per share of Class A and Class B | ||||||||||||||||
Basic | $ | 0.04 | $ | 0.16 | $ | 0.34 | $ | 0.69 | ||||||||
Diluted | $ | 0.04 | $ | 0.16 | $ | 0.33 | $ | 0.68 | ||||||||
Weighted average number of shares of Class A and | ||||||||||||||||
Basic | 73,262 | 73,328 | 73,358 | 73,302 | ||||||||||||
Diluted | 73,716 | 74,354 | 74,058 | 74,598 | ||||||||||||
REVOLVE GROUP, INC. AND SUBSIDIARIES | ||||||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 266,899 | $ | 234,724 | ||||
Accounts receivable, net | 12,614 | 5,421 | ||||||
Inventory | 202,877 | 215,224 | ||||||
Income taxes receivable | 7,555 | 2,974 | ||||||
Prepaid expenses and other current assets | 63,578 | 59,874 | ||||||
Total current assets | 553,523 | 518,217 | ||||||
Property and equipment (net of accumulated depreciation of | 8,062 | 8,934 | ||||||
Right-of-use lease assets | 38,041 | 22,964 | ||||||
Intangible assets, net | 1,834 | 1,600 | ||||||
Goodwill | 2,042 | 2,042 | ||||||
Other assets | 1,241 | 807 | ||||||
Deferred income taxes | 24,754 | 24,754 | ||||||
Total assets | $ | 629,497 | $ | 579,318 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 44,479 | $ | 50,789 | ||||
Income taxes payable | 1,435 | 229 | ||||||
Accrued expenses | 42,639 | 38,266 | ||||||
Returns reserve | 72,137 | 63,381 | ||||||
Current lease liabilities | 6,249 | 5,844 | ||||||
Other current liabilities | 30,465 | 22,577 | ||||||
Total current liabilities | 197,404 | 181,086 | ||||||
Non-current lease liabilities | 35,567 | 18,659 | ||||||
Total liabilities | 232,971 | 199,745 | ||||||
Stockholders' equity: | ||||||||
Class A common stock, | 40 | 41 | ||||||
Class B common stock, | 33 | 33 | ||||||
Additional paid-in capital | 115,053 | 110,338 | ||||||
Retained earnings | 281,400 | 269,161 | ||||||
Total stockholders' equity | 396,526 | 379,573 | ||||||
Total liabilities and stockholders' equity | $ | 629,497 | $ | 579,318 | ||||
REVOLVE GROUP, INC. AND SUBSIDIARIES | ||||||||
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Operating activities: | ||||||||
Net income | $ | 24,653 | $ | 50,829 | ||||
Adjustments to reconcile net income to net cash provided by operating | ||||||||
Depreciation and amortization | 3,752 | 3,519 | ||||||
Equity-based compensation | 4,229 | 4,410 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (7,193) | (2,081) | ||||||
Inventories | 12,347 | (42,069) | ||||||
Income taxes receivable | (4,581) | (758) | ||||||
Prepaid expenses and other current assets | (3,704) | (16,989) | ||||||
Other assets | (434) | (349) | ||||||
Accounts payable | (6,310) | (1,156) | ||||||
Income taxes payable | 1,206 | 439 | ||||||
Accrued expenses | 4,373 | 10,592 | ||||||
Returns reserve | 8,756 | 23,015 | ||||||
Right-of-use lease assets and current and non-current lease liabilities | 2,236 | 825 | ||||||
Other current liabilities | 7,888 | 4,224 | ||||||
Net cash provided by operating activities | 47,218 | 34,451 | ||||||
Investing activities: | ||||||||
Purchases of property and equipment | (3,114) | (3,904) | ||||||
Net cash used in investing activities | (3,114) | (3,904) | ||||||
Financing activities: | ||||||||
Proceeds from the exercise of stock options, net | 486 | 496 | ||||||
Repurchases of Class A common stock | (12,584) | — | ||||||
Net cash (used in) provided by financing activities | (12,098) | 496 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 169 | (5,452) | ||||||
Net increase in cash and cash equivalents | 32,175 | 25,591 | ||||||
Cash and cash equivalents, beginning of period | 234,724 | 218,455 | ||||||
Cash and cash equivalents, end of period | $ | 266,899 | $ | 244,046 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes, net of refund | $ | 11,580 | $ | 15,909 | ||||
Operating leases | $ | 5,649 | $ | 4,033 | ||||
Supplemental disclosure of non-cash activities: | ||||||||
Lease assets obtained in exchange for new operating lease liabilities | $ | 20,452 | $ | 21,938 | ||||
REVOLVE GROUP, INC. AND SUBSIDIARIES | ||||||||||||||||
The following table summarizes our net sales and gross profit for each of our reportable segments (in thousands): | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Net sales | 2023 | 2022 | 2023 | 2022 | ||||||||||||
REVOLVE | $ | 217,698 | $ | 222,069 | $ | 684,500 | $ | 704,538 | ||||||||
FWRD | 39,905 | 46,642 | 126,441 | 137,725 | ||||||||||||
Total | $ | 257,603 | $ | 268,711 | $ | 810,941 | $ | 842,263 | ||||||||
Gross profit | ||||||||||||||||
REVOLVE | $ | 119,003 | $ | 123,622 | $ | 370,474 | $ | 398,140 | ||||||||
FWRD | 14,229 | 18,760 | 49,676 | 60,895 | ||||||||||||
Total | $ | 133,232 | $ | 142,382 | $ | 420,150 | $ | 459,035 | ||||||||
The following table lists net sales by geographic area (in thousands): | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
$ | 207,171 | $ | 217,591 | $ | 656,747 | $ | 696,375 | |||||||||
Rest of the world | 50,432 | 51,120 | 154,194 | 145,888 | ||||||||||||
Total | $ | 257,603 | $ | 268,711 | $ | 810,941 | $ | 842,263 | ||||||||
REVOLVE GROUP, INC. AND SUBSIDIARIES | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(in thousands, except average order value and percentages) | ||||||||||||||||
Gross margin | 51.7 | % | 53.0 | % | 51.8 | % | 54.5 | % | ||||||||
Adjusted EBITDA | $ | 9,484 | $ | 17,676 | $ | 34,871 | $ | 76,097 | ||||||||
Free cash flow | $ | 11,492 | $ | 8,618 | $ | 44,104 | $ | 30,547 | ||||||||
Active customers | 2,510 | 2,249 | 2,510 | 2,249 | ||||||||||||
Total orders placed | 2,133 | 1,951 | 6,679 | 6,350 | ||||||||||||
Average order value | $ | 299 | $ | 320 | $ | 296 | $ | 303 | ||||||||
REVOLVE GROUP, INC. AND SUBSIDIARIES | ||||||||||||||||
A reconciliation of non-GAAP Adjusted EBITDA to net income for the three and nine months ended September 30, 2023 and 2022 is as follows: | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income | $ | 3,178 | $ | 11,988 | $ | 24,653 | $ | 50,829 | ||||||||
Excluding: | ||||||||||||||||
Other income, net | (3,984) | (1,440) | (12,950) | (3,769) | ||||||||||||
Provision for income taxes | 1,130 | 4,203 | 8,232 | 15,421 | ||||||||||||
Depreciation and amortization | 1,293 | 1,214 | 3,752 | 3,519 | ||||||||||||
Equity-based compensation | 1,228 | 1,524 | 4,229 | 4,410 | ||||||||||||
Non-routine items(1) | 6,639 | 187 | 6,955 | 5,687 | ||||||||||||
Adjusted EBITDA | $ | 9,484 | $ | 17,676 | $ | 34,871 | $ | 76,097 | ||||||||
(1) | Non-routine items in the three and nine months ended September 30, 2023 and 2022 included an accrual for a pending legal matter and an accrual and a charge for a separate settled legal matter. |
A reconciliation of non-GAAP free cash flow to net cash provided by operating activities for the three and nine months ended September 30, 2023 and 2022 is as follows: | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash provided by operating activities | $ | 12,486 | $ | 10,006 | $ | 47,218 | $ | 34,451 | ||||||||
Purchases of property and equipment | (994) | $ | (1,388) | (3,114) | (3,904) | |||||||||||
Free cash flow | $ | 11,492 | $ | 8,618 | $ | 44,104 | $ | 30,547 | ||||||||
Net cash used in investing activities | $ | (994) | $ | (1,388) | $ | (3,114) | $ | (3,904) | ||||||||
Net cash (used in) provided by financing activities | $ | (12,508) | $ | 128 | $ | (12,098) | $ | 496 | ||||||||
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SOURCE Revolve Group, Inc.
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