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Revolve Group Announces Third Quarter 2022 Financial Results

11/02/2022

LOS ANGELES, Nov. 2, 2022 /PRNewswire/ -- Revolve Group, Inc. (NYSE: RVLV), the next-generation fashion retailer for Millennial and Generation Z consumers, today announced financial results for the third quarter ended September 30, 2022.

"We delivered another profitable quarter with double-digit growth in net sales in the third quarter of 2022, despite the increasingly challenged macro environment," said co-founder and co-CEO Mike Karanikolas. "Furthermore, we generated meaningful growth in cash flow year-over-year, further bolstering our already strong balance sheet." 

"With our profitable business model and strong balance sheet, we are excited about our continued investments in our brand and technology that we believe will enable us to further capture market share in pursuit of our very large global market opportunity," said co-founder and co-CEO Michael Mente. 

Third Quarter 2022 Financial Summary




Three Months Ended September 30,



2022



2021



YoY Change



(in thousands, except percentages)

Net sales


$

268,711



$

244,064



10 %

Gross profit


$

142,382



$

134,476



6 %

Gross margin



53.0

%



55.1

%



Net income


$

11,988



$

16,668



(28 %)

Adjusted EBITDA (non-GAAP financial measure)


$

17,676



$

21,666



(18 %)

Net cash provided by operating activities


$

10,006



$

1,855



439 %

Free cash flow (non-GAAP financial measure)


$

8,618



$

1,340



543 %

 

Operational Metrics




Three Months Ended September 30,



2022



2021



YoY Change



(in thousands, except average order value and percentages)

Active customers (trailing 12 months)



2,249




1,678



34 %

Total orders placed



1,951




1,830



7 %

Average order value


$

320



$

276



16 %

Additional Third Quarter 2022 Metrics and Results Commentary
  • Active customers increased by 84,000 during the third quarter of 2022, growing to 2,249,000 as of September 30, 2022, an increase of 34% year-over-year.
  • Total net sales were $268.7 million, an increase of 10% year-over-year.
  • Gross profit was $142.4 million, an increase of 6% year-over-year.
  • Gross margin was 53.0%, a decrease of 211 basis points year-over-year that primarily reflects a lower mix of net sales at full price in the third quarter of 2022.
  • Our effective tax rate for the prior-year comparable period in the third quarter of 2021 was an unusually low 14%, primarily due to excess tax benefits realized as a result of the exercise of non-qualified stock options. Absent such discrete tax items in future quarters, we expect our effective tax rate to be around 25%.
  • Net income was $12.0 million, a year-over-year decrease of 28%, a comparison that was impacted by the meaningful differences in our effective tax rate, the lower gross margin referenced above and an increase in operating expenses that slightly outpaced sales growth year-over-year.
  • Adjusted EBITDA was $17.7 million, a year-over-year decrease of 18%.
  • Diluted earnings per share (EPS) was $0.16, a year-over-year decrease of 27%.
Additional Net Sales Commentary
  • REVOLVE segment net sales were $222.1 million, an increase of 9% year-over-year.
  • FWRD segment net sales were $46.6 million, an increase of 17% year-over-year.
  • Domestic net sales increased 10% year-over-year and international net sales increased 12% year-over-year.
Cash Flow and Balance Sheet
  • Net cash provided by operating activities was $10.0 million for the third quarter and $34.5 million for the nine-month year-to-date period. Free cash flow was $8.6 million for the third quarter and $30.5 million for the nine-month year-to-date period. Net cash provided by operating activities and free cash flow increased significantly year-over-year in the third quarter of 2022, but trailed the prior-year comparison for the nine-month year-to-date period ended September 30, 2021, primarily due to lower net income year-over-year and our increased investment in inventory in 2022 (especially in the first half of 2022).
  • Cash and cash equivalents as of September 30, 2022 grew to $244.0 million, an increase of $22.4 million, or 10%, from September 30, 2021, and an increase of $6.2 million, or 3%, from June 30, 2022. Our balance sheet as of September 30, 2022 remains debt free.
  • Inventory as of September 30, 2022 was $213.3 million, an increase of $4.8 million, or 2%, from June 30, 2022, and an increase of $71.6 million year-over-year, or 50%, from the inventory balance of $141.8 million as of September 30, 2021. We have taken swift action to balance our inventory levels given the moderation of consumer discretionary spending in the current economic climate.

Additional trend information regarding Revolve Group's third quarter of 2022 financial results and operating metrics is available in the Q3 2022 Financial Highlights presentation available on the company's investor relations website:  https://investors.revolve.com/events-and-presentations/default.aspx 

Results Since the End of the Third Quarter of 2022

Net sales in October 2022 increased approximately 3% year-over-year amidst an increasingly uncertain macroenvironment highlighted by meaningful inflationary pressures and foreign exchange headwinds due to significant appreciation of the U.S. dollar against foreign currencies in recent months, and against a more elevated prior-year comparison than we faced in the first nine months of 2022. 

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  ability to capture market share and our expected future effective tax rate.  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  economic conditions and their impact on consumer demand and our business, operating results and financial condition;  the impact of the COVID-19 pandemic 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, 2021 and our subsequent Quarterly Reports on Form 10-Q, including for the quarter ended September 30, 2022, which we expect to file with the SEC on November 2, 2022.  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. (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:
Meghan Murray-Merriman
meghan.murraymerriman@revolve.com

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)




Three Months Ended
September 30,



Nine Months Ended
September 30,




2022



2021



2022



2021


Net sales


$

268,711



$

244,064



$

842,263



$

651,585


Cost of sales



126,329




109,588




383,228




293,226


Gross profit



142,382




134,476




459,035




358,359


Operating expenses:













Fulfillment



8,072




5,776




23,272




15,452


Selling and distribution



46,477




38,354




145,030




95,470


Marketing



44,584




46,955




141,755




108,054


General and administrative



28,498




24,180




86,497




66,028


Total operating expenses



127,631




115,265




396,554




285,004


Income from operations



14,751




19,211




62,481




73,355


Other (income) expense, net



(1,440)




(158)




(3,769)




339


Income before income taxes



16,191




19,369




66,250




73,016


Provision for income taxes



4,203




2,701




15,421




2,558


Net income


$

11,988



$

16,668



$

50,829



$

70,458


Earnings per share of Class A and Class B
   common stock:













Basic


$

0.16



$

0.23



$

0.69



$

0.97


Diluted


$

0.16



$

0.22



$

0.68



$

0.95


Weighted average number of shares of Class A and
   Class B common stock outstanding:













Basic



73,328




72,810




73,302




72,330


Diluted



74,354




74,881




74,598




74,449


 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)




September 30,



December 31,




2022



2021


Assets







Current assets:







Cash and cash equivalents


$

244,046



$

218,455


Accounts receivable, net



6,720




4,639


Inventory



213,328




171,259


Income taxes receivable



4,133




3,375


Prepaid expenses and other current assets



59,103




42,114


Total current assets



527,330




439,842


Property and equipment (net of accumulated depreciation of $12,771 and $9,347
   as of September 30, 2022 and December 31, 2021, respectively)



9,158




8,946


Right-of-use lease assets



24,646




6,566


Intangible assets, net



1,385




1,212


Goodwill



2,042




2,042


Other assets



3,095




2,746


Deferred income taxes



19,059




19,059


Total assets


$

586,715



$

480,413


Liabilities and Stockholders' Equity







Current liabilities:







Accounts payable


$

53,189



$

54,345


Income taxes payable



439





Accrued expenses



44,491




33,899


Returns reserve



72,311




49,296


Current lease liabilities



5,769




3,766


Other current liabilities



23,140




18,916


Total current liabilities



199,339




160,222


Non-current lease liabilities



20,079




3,177


Total liabilities



219,418




163,399


Stockholders' equity:







Class A common stock, $0.001 par value; 1,000,000,000 shares
   authorized as of September 30, 2022 and December 31, 2021;
   40,736,255 and 40,276,417 shares issued and outstanding as of September 30, 2022
   and December 31, 2021, respectively



41




40


Class B common stock, $0.001 par value; 125,000,000 shares authorized
   as of September 30, 2022 and December 31, 2021; 32,597,119 and
   32,956,904 shares issued and outstanding as of September 30, 2022 and December 31,
   2021, respectively



33




33


Additional paid-in capital



108,495




103,590


Retained earnings



258,728




213,351


Total stockholders' equity



367,297




317,014


Total liabilities and stockholders' equity


$

586,715



$

480,413


 

REVOLVE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)




Nine Months Ended September 30,




2022



2021


Operating activities:







Net income


$

50,829



$

70,458


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







Depreciation and amortization



3,519




3,390


Equity-based compensation



4,410




3,664


Changes in operating assets and liabilities:







Accounts receivable



(2,081)




(2,094)


Inventories



(42,069)




(46,496)


Income taxes receivable



(758)




246


Prepaid expenses and other current assets



(16,989)




(19,021)


Other assets



(349)




(2,260)


Accounts payable



(1,156)




15,576


Income taxes payable



439




800


Accrued expenses



10,592




13,005


Returns reserve



23,015




25,240


Right-of-use lease assets and current and non-current
   lease liabilities



825




(472)


Other current liabilities



4,224




6,375


Net cash provided by operating activities



34,451




68,411


Investing activities:







Purchases of property and equipment



(3,904)




(1,768)


Net cash used in investing activities



(3,904)




(1,768)


Financing activities:







Proceeds from the exercise of stock options, net



496




9,448


Net cash provided by financing activities



496




9,448


Effect of exchange rate changes on cash and cash equivalents



(5,452)




(499)


Net increase in cash and cash equivalents



25,591




75,592


Cash and cash equivalents, beginning of period



218,455




146,013


Cash and cash equivalents, end of period


$

244,046



$

221,605


Supplemental disclosure of cash flow information:







Cash paid during the period for:







Income taxes, net of refund


$

15,909



$

1,511


Operating leases


$

4,033



$

4,029


Supplemental disclosure of non-cash activities:







Lease assets obtained in exchange for new operating lease liabilities


$

21,938



$

1,440


 

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 September 30,



Nine Months Ended September 30,


Net sales


2022



2021



2022



2021


REVOLVE


$

222,069



$

204,207



$

704,538



$

545,155


FWRD



46,642




39,857




137,725




106,430


Total


$

268,711



$

244,064



$

842,263



$

651,585



Gross profit













REVOLVE


$

123,622



$

115,098



$

398,140



$

306,842


FWRD



18,760




19,378




60,895




51,517


Total


$

142,382



$

134,476



$

459,035



$

358,359



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




Three Months Ended September 30,



Nine Months Ended September 30,




2022



2021



2022



2021


United States


$

217,591



$

198,506



$

696,375



$

527,171


Rest of the world



51,120




45,558




145,888




124,414


Total


$

268,711



$

244,064



$

842,263



$

651,585


 

REVOLVE GROUP, INC. AND SUBSIDIARIES
KEY OPERATING AND FINANCIAL METRICS
(Unaudited)




Three Months Ended September 30,



Nine Months Ended September 30,




2022



2021



2022



2021




(in thousands, except average order value and percentages)


Gross margin



53.0

%



55.1

%



54.5

%



55.0

%

Adjusted EBITDA


$

17,676



$

21,666



$

76,097



$

80,409


Free cash flow


$

8,618



$

1,340



$

30,547



$

66,643


Active customers



2,249




1,678




2,249




1,678


Total orders placed



1,951




1,830




6,350




4,881


Average order value


$

320



$

276



$

303



$

263


 

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 nine months ended September 30, 2022 and 2021 is as follows:




Three Months Ended September 30,

Nine Months Ended September 30,




2022



2021



2022



2021




(in thousands)


Net income


$

11,988



$

16,668



$

50,829



$

70,458


Excluding:













Other (income) expense, net



(1,440)




(158)




(3,769)




339


Provision for income taxes



4,203




2,701




15,421




2,558


Depreciation and amortization



1,214




1,119




3,519




3,390


Equity-based compensation



1,524




1,336




4,410




3,664


Non-routine items(1)



187







5,687





Adjusted EBITDA


$

17,676



$

21,666



$

76,097



$

80,409



(1) Non-routine items in the three and nine months ended September 30, 2022 relate to an accrual for a pending 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, 2022 and 2021 is as follows:




Three Months Ended September 30,



Nine Months Ended September 30,




2022



2021



2022



2021




(in thousands)


Net cash provided by operating activities


$

10,006



$

1,855



$

34,451



$

68,411


Purchases of property and equipment



(1,388)



$

(515)




(3,904)




(1,768)


Free cash flow


$

8,618



$

1,340



$

30,547



$

66,643


Net cash used in investing activities


$

(1,388)



$

(515)



$

(3,904)



$

(1,768)


Net cash provided by financing activities


$

128



$

1,231



$

496



$

9,448


 

 

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SOURCE Revolve Group, Inc.

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