Revolve Is Latest Retailer Hit by Inflation, Despite Increased Sales

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Revolve feels the pinch of increased costs.

The fashion-focused platform based in Los Angeles announced its quarterly results on Wednesday after closing the market. The company reported a rise in revenue. However, it could not meet its bottom line profits as it faced macro challenges, including supply chain bottlenecks, rising operating costs, and ongoing closures and lockdowns throughout China. The shares of Revolve Group dropped over 14% during after-hours trading because of this.

However, Revolve founder and CEO Mike Karanikolas insisted the company was able to deliver a substantial period “highlighted by record net sales that increased 27% year-over-year; gross margin expansion to record levels for a second quarter, and continued strong growth in active customers. We delivered these results despite macroeconomic conditions that became more challenging as the quarter progressed, creating cost pressures that impacted profitability and contributed to a moderating year-over-year growth trend in net sales in June that has continued into the third quarter.”

The co-founder of the company and CEO, Michael Mente, added: “Over our nearly 20 years of operating history, we believe we have demonstrated a unique track record for outperforming the competition in times of disruption and volatility, and we have complete confidence in our team’s ability to continue to execute through even the most challenging circumstances. I’m excited about our future and believe that our strong team, data-centric culture, entrepreneurial spirit, operational excellence and strong connection with the next-generation consumer position us to gain further market share in the months and years ahead.”

Revenues for the three-month period, which ended June 30, grew by 27% to over $290 million, a jump from $229 million a year prior. Segment-wise, Revolve net sales increased by 30 per cent to $245 million over the year, while the revenues of Ford, the online retailer’s premium segment, increased 14% over the year to over $45 million. In the US, net sales increased by 30% during the quarter as international sales increased 14% year-over-year.

However, net income dropped approximately 48% between $31.5 million for 2021’s first period to $16.2 million in the most recent quarter.

The rising cost of fuel that is up by four times over the past year — causing the most extensive slash to the firm’s balance sheet. Additionally, the increased marketing expenditures in the last quarter to promote the Revolve Festival’s return Revolve Festival, as well as a rise in return rates (higher than levels before the pandemic) due to the expansion of the company’s Revolve Canadian business, reduced profits.

“Yet it’s a tradeoff we’ll make all day long,” Karanikolas said to analysts during Wednesday’s conference call.

Revolve is currently anticipating that the 4th quarter will be the most difficult due to the ongoing pressures of inflation and lower consumption by consumers.

“The Revolve brand is about consumers living their best lives, and certainly consumers aren’t feeling that way right now,” Karanikolas stated. However, he said that the present “softness of the consumer doesn’t change our 2023 outlook.”

Mente mentioned an increasing number of customer activity, the introduction of Revolve’s resale programme and categories for going out like dresses and other formal wear as the main drivers for growth.

“She’s travelling, going to weddings and living her life again,” Mente stated during the phone call.
Revolve was co-founded by Mente and Karanikolas in 2003 and went public in June of this year. The company today sells over 1,000 brands, including its own, on its platform. Ford was launched in late 2019 and has announced that it would make Kendall Jenner its creative director in 2021.

The company finished the quarter with a total of $ 238million in cash or cash equivalents and no loans.

The shares from Revolve Group, which closed up 6.51 per cent at $30.94 each, are now dropping by nearly 57% year-to-year.

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