Revolve Group Announces Fourth Quarter and Full Year 2019 Financial Results

February 25, 2020

LOS ANGELES--(BUSINESS WIRE)-- Revolve Group, Inc. (NYSE: RVLV), the next-generation fashion retailer for Millennial and Generation Z consumers, today announced financial results for the fourth quarter and full year ended December 31, 2019.

“We are proud to extend our long track record of achieving top-line growth and profitability, delivering net sales growth of over 20%, continued growth in profitability and exceptional cash flow in 2019,” said co-founder and co-CEO Michael Mente. “We are excited about our 2020 initiatives to continue building on the recent momentum in the Forward segment and International markets, while further investing in the core REVOLVE segment, including enhancing the owned brands platform and continuing to innovate in marketing, technology and customer experience,” added co-founder and co-CEO Mike Karanikolas.

Fourth Quarter and Full Year 2019 Financial Summary

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

%
Change

 

2019

 

2018

 

%
Change

 

 

(in thousands)

Net sales

$

147,556

$

127,723

16%

$

600,993

$

498,739

21%

Gross profit

$

78,103

$

69,156

13%

$

321,953

$

265,306

21%

Gross margin

 

52.9%

 

54.1%

 

 

53.6%

 

53.2%

 

Net income

$

8,405

$

7,699

9%

$

35,667

$

30,638

16%

Adjusted EBITDA (non-GAAP financial measure)

$

13,650

$

11,876

15%

$

55,605

$

46,495

20%

Net cash provided by (used in) operating activities

$

14,224

$

(1,382)

N/A

$

46,057

$

26,655

73%

Free cash flow (non-GAAP financial measure)

$

13,226

$

(2,762)

N/A

$

33,602

$

23,610

42%

Operational Metrics

 

 

Three Months Ended December 31,

Twelve Months Ended December 31,

 

2019

2018

%
Change

2019

2018

%
Change

 

 

(in thousands, except average order value)

Active customers

 

1,488

 

1,175

27%

 

1,488

 

1,175

27%

Orders placed

 

1,092

 

954

14%

 

4,715

 

3,710

27%

Average order value

$

282

$

274

3%

$

275

$

279

(1)%

Full Year 2019 Highlights

  • Total net sales of $601.0 million, a year-over-year (YoY) increase of 21%
  • Gross margin of 53.6%, a YoY increase of 37 basis points
  • Net income of $35.7 million, a YoY increase of 16%
  • Adjusted EBITDA (a non-GAAP financial measure) of $55.6 million, a YoY increase of 20%
  • Net cash generated by operating activities of $46.1 million, a YoY increase of 73%
  • Free cash flow (a non-GAAP financial measure) of $33.6 million, a YoY increase of 42%
  • Cash and cash equivalents of $65.4 million, an increase of $14.3 million, or 28%, from September 30, 2019, and no debt

Segment Revenue Highlights

  • Revolve segment net sales of $527.3 million in FY 2019 and $125.2 million in Q4 2019, YoY increases of 22% and 13%, respectively
  • Forward segment net sales of $73.7 million in FY 2019 and $22.3 million in Q4 2019, YoY increases of 13% and 33%, respectively

2020 Outlook

Based on information available as of February 25, 2020, we are providing the following outlook for the full fiscal year ending December 31, 2020:

Net Sales

$679 - $703 million

13% - 17% growth

Adjusted EBITDA

$56 - $61 million

1% - 10% growth

8.2% - 8.7% margin

Additional Full Year 2020 Outlook Assumptions

  • The net sales outlook factors in an estimated 1 to 3 point negative impact to the FY 2020 net sales growth rate as a result of the coronavirus outbreak, due primarily to supply constraints for our owned brand products and, to a lesser extent, supply constraints for third party brands that source from China, as well as reduced consumer demand in the greater China region. The situation remains fluid and uncertain, so estimates of the negative impact are subject to change.
  • Gross margin is expected to be below the 52.9% gross margin reported for Q4 2019.
  • Effective tax rate is expected to be approximately 25%.
  • Weighted average diluted shares are expected to be approximately 72 million.
  • Capital expenditures are expected to be approximately $5 million.

We have not reconciled our adjusted EBITDA outlook to GAAP net income because we do not provide an outlook for GAAP net income due to the uncertainty and potential variability of other expense, net, the provision for income taxes and non-routine items, which are reconciling items between adjusted EBITDA and GAAP net income. Because such items cannot be reasonably predicted, we are unable to provide a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure. However, such items could have a significant impact on GAAP net income.

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 (866) 393-4306 within the United States or (734) 385-2616 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 8389657. 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 (855) 859-2056 within the United States or (404) 537-3406 outside the United States. The replay ID is 8389657.

Forward-Looking Statements

This press release contains ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the 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 future growth and our financial outlook for the full fiscal year 2020. 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 upon 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 general economic conditions, our fluctuating operating results, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, 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, including, without limitation, the final prospectus related to our initial public offering filed with the SEC on June 7, 2019 and the Annual Report on Form 10-K for the year ended December 31, 2019, which we expect to file with the SEC on or before February 26, 2019. 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 Revolve Group, Inc. undertakes 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, free cash flow and adjusted diluted earnings per share.

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 expense, net, taxes, 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 (used in) operating activities less net cash used in capital expenditures. 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.

Adjusted Diluted Earnings per Share

Adjusted diluted earnings per share is a non-GAAP financial measure that we calculate as diluted earnings (net loss) per share adjusted to exclude the per share impact of the issuance and repurchase of Class B common stock as part of our initial public offering.

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.

Total Orders Placed

We define total orders placed as the total number of customer orders placed by our customers across our platform in any period.

Average Order Value

We define average order value as the sum of the total gross sales from our sites in a given period divided by the total orders placed in that period. We believe our high average order value demonstrates the premium nature of our product. Average order value varies depending on the site through which we sell merchandise.

About Revolve Group, Inc.

Revolve Group, Inc. (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 and beauty styles. Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers, and hundreds of emerging, established and owned brands.

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

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

Three Months Ended December 31,

 

Years Ended December 31,

 

2019

 

2018

 

2019

 

2018

Net sales

$

147,556

$

127,723

$

600,993

 

$

498,739

Cost of sales

 

69,453

 

58,567

 

279,040

 

 

233,433

Gross profit

 

78,103

 

69,156

 

321,953

 

 

265,306

Operating expenses:

 

 

 

 

 

 

 

 

 

Fulfillment

 

4,499

 

3,920

 

19,413

 

 

13,292

Selling and distribution

 

20,895

 

17,794

 

87,706

 

 

70,621

Marketing

 

21,602

 

18,924

 

89,141

 

 

74,394

General and administrative

 

20,471

 

17,836

 

77,595

 

 

65,201

Total operating expenses

 

67,467

 

58,474

 

273,855

 

 

223,508

Income from operations

 

10,636

 

10,682

 

48,098

 

 

41,798

Other expense, net

 

278

 

156

 

931

 

 

631

Income before income taxes

 

10,358

 

10,526

 

47,167

 

 

41,167

Provision for income tax

 

1,953

 

2,827

 

11,500

 

 

10,529

Net income

 

8,405

 

7,699

 

35,667

 

 

30,638

Less: Net loss attributable to non-controlling interest

 

 

 

 

 

47

Net income attributable to Revolve Group, Inc.

 

8,405

 

7,699

 

35,667

 

 

30,685

Less: Repurchase of Class B common stock upon corporate conversion

 

 

 

(40,816

)

 

Net income (loss) attributable to common stockholders

$

8,405

$

7,699

$

(5,149

)

$

30,685

Earnings (net loss) per share of Class A and Class B common stock:

 

 

 

 

 

 

 

 

 

Basic

$

0.12

$

0.12

$

(0.09

)

$

0.47

Diluted

$

0.12

$

0.11

$

(0.09

)

$

0.44

Weighted average Class A and Class B common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

68,921

 

41,936

 

57,294

 

 

41,936

Diluted

 

71,947

 

44,810

 

57,294

 

 

44,584

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except unit, share and per share data)

 

 

December 31,

 

2019

2018

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

65,418

$

16,369

Accounts receivable, net

 

4,751

 

5,337

Inventory

 

104,257

 

102,220

Income taxes receivable

 

761

 

Prepaid expenses and other current assets

 

24,155

 

15,227

Total current assets

 

199,342

 

139,153

Property and equipment, net

 

14,734

 

5,907

Intangible assets, net

 

240

 

564

Goodwill

 

2,042

 

2,042

Other assets

 

642

 

731

Deferred income taxes, net

 

15,290

 

13,677

Total assets

$

232,290

$

162,074

Liabilities and Members'/Stockholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

29,813

$

20,219

Income taxes payable

 

470

 

917

Accrued expenses

 

19,399

 

18,398

Returns reserve

 

35,104

 

29,184

Other current liabilities

 

16,740

 

13,538

Total current liabilities

 

101,526

 

82,256

Members' equity:

 

 

 

 

Class T Preferred Units, no par value—zero and 23,551,834 units authorized, issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.

 

 

15,000

Class A Common Units, no par value—zero and 41,936,219 units authorized, issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.

 

 

3,548

Stockholders' equity:

 

 

 

 

Class A common stock, $0.001 par value; 1,000,000,000 and zero shares authorized as of December 31, 2019 and December 31, 2018, respectively; 14,009,859 and zero shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.

 

14

 

Class B common stock, $0.001 par value; 125,000,000 and zero shares authorized as of December 31, 2019 and December 31, 2018, respectively; 55,069,124 and zero shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.

 

55

 

Accumulated members' equity

 

 

61,270

Additional paid-in capital

 

74,018

 

Retained earnings

 

56,677

 

Total members'/stockholders' equity

 

130,764

 

79,818

Total liabilities and members’/stockholders’ equity

$

232,290

$

162,074

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Year Ended December 31,

 

2019

2018

Operating activities:

 

 

Net income

$35,667

$30,638

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

3,952

2,867

Equity-based compensation

2,067

1,400

Deferred income taxes, net

(1,613)

(3,768)

Changes in operating assets and liabilities:

 

 

Accounts receivable

586

361

Inventories

(15,623)

(26,046)

Income taxes receivable

(761)

3,708

Prepaid expenses and other current assets

1,662

(3,356)

Other assets

89

(517)

Accounts payable

9,594

2,365

Income taxes payable

(447)

917

Accrued expenses

1,001

5,579

Returns reserve

5,920

10,179

Other current liabilities

3,963

2,328

Net cash provided by operating activities

46,057

26,655

Investing activities:

 

 

Purchases of property and equipment

(12,455)

(3,045)

Net cash used in investing activities

(12,455)

(3,045)

Financing activities:

 

 

Proceeds from initial public offering, net of underwriting discounts paid

57,077

Repurchase of Class B common stock upon corporate conversion

(40,816)

Repayment of line of credit

(15,100)

Payment of deferred offering costs

(1,834)

(2,521)

Proceeds from the exercise of stock options, net

752

Net cash provided by (used in) financing activities

15,179

(17,621)

Effect of exchange rate changes on cash and cash equivalents

268

(208)

Net increase in cash and cash equivalents

49,049

5,781

Cash and cash equivalents, beginning of period

16,369

10,588

Cash and cash equivalents, end of period

$65,418

$16,369

Supplemental disclosure of cash flow information:

 

 

Cash paid during the period for:

 

 

Interest

$ —

$87

Income taxes, net of refund

$14,324

$9,673

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
December 31,

 

Twelve Months Ended
December 31,

Net sales

2019

 

2018

 

2019

 

2018

REVOLVE

$

125,230

$

110,960

$

527,251

$

433,548

FORWARD

 

22,326

 

16,763

 

73,742

 

65,191

Total

$

147,556

$

127,723

$

600,993

$

498,739

Gross profit

 

 

 

 

 

 

 

 

REVOLVE

$

68,951

$

62,725

$

292,042

$

241,061

FORWARD

 

9,152

 

6,431

 

29,911

 

24,245

Total

$

78,103

$

69,156

$

321,953

$

265,306

The following table lists net sales by geographic area (in thousands):

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

 

2019

 

2018

 

2019

 

2018

United States

$

123,188

$

107,814

$

502,882

$

409,320

Rest of the world

 

24,368

 

19,909

 

98,111

 

89,419

Total

$

147,556

$

127,723

$

600,993

$

498,739

REVOLVE GROUP, INC. AND SUBSIDIARIES

KEY OPERATING AND FINANCIAL METRICS

(Unaudited)

(In thousands, except average order value and percentages)

 

 

Three Months Ended
December 31,

 

 

Twelve Months Ended
December 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(in thousands, except average order value and percentages)

 

Gross margin

 

52.9

%

 

54.1

%

 

53.6

%

 

53.2

%

Adjusted EBITDA

$

13,650

 

$

11,876

 

$

55,605

 

$

46,495

 

Free cash flow

$

13,226

 

$

(2,762

)

$

33,602

 

$

23,610

 

Active customers

 

1,488

 

 

1,175

 

 

1,488

 

 

1,175

 

Total orders placed

 

1,092

 

 

954

 

 

4,715

 

 

3,710

 

Average order value

$

282

 

$

274

 

$

275

 

$

279

 

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 and twelve months ended December 31, 2019 and 2018 is as follows (in thousands):

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

2019

 

2018

 

(in thousands)

Net income

$

8,405

$

7,699

$

35,667

$

30,638

Excluding:

 

 

 

 

 

 

 

 

Other expense, net

 

278

 

156

 

931

 

631

Provision for income tax

 

1,953

 

2,827

 

11,500

 

10,529

Depreciation and amortization

 

1,236

 

658

 

3,952

 

2,867

Equity-based compensation

 

522

 

536

 

2,067

 

1,400

Non-routine items (1)

 

1,256

 

 

1,488

 

430

Adjusted EBITDA

$

13,650

$

11,876

$

55,605

$

46,495

(1)

Non-routine items in the three and twelve months ended December 31, 2019 primarily relate to legal settlements. Non-routine items in the twelve months ended December 31, 2018 primarily relate to our entity restructuring and our initial public offering.

A reconciliation of non-GAAP free cash flow to cash provided by operating activities for the three and twelve months ended December 31, 2019 and 2018 is as follows (in thousands):

 

Three Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(in thousands)

 

Net cash provided by (used in) operating activities

$

14,224

 

$

(1,382

)

$

46,057

 

$

26,655

 

Purchases of property and equipment

 

(998

)

 

(1,380

)

 

(12,455

)

 

(3,045

)

Free cash flow

$

13,226

 

$

(2,762

)

$

33,602

 

$

23,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

$

(998

)

$

(1,380

)

 

(12,455

)

 

(3,045

)

Net cash provided by (used in) financing activities

$

612

 

$

(741

)

 

15,179

 

 

(17,621

)

A reconciliation of non-GAAP adjusted diluted earnings per share to diluted earnings (net loss) per share for the three and twelve months ended December 31, 2019 and 2018 is as follows (in dollars):

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2019

 

2018

 

2019

 

 

2018

 

Class A

 

Class B

 

Class B

 

Class A

 

 

Class B

 

 

Class B

Earnings (net loss) per share — diluted

$

0.12

$

0.12

$

0.11

$

(0.09

)

$

(0.09

)

$

0.44

Repurchase of Class B common stock, net

 

 

 

 

0.59

 

 

0.59

 

 

Adjusted earnings per share — diluted

$

0.12

$

0.12

$

0.11

$

0.50

 

$

0.50

 

$

0.44

 

Investors:
Erik Randerson, CFA
562.677.9513
IR@revolve.com

or

Media:
Kendall Sargeant
kendall.sargeant@revolve.com

Source: Revolve Group, Inc.