Revolve (RVLV) has carved out a niche for itself as a tech-powered retailer. The company has harnessed artificial intelligence to adapt swiftly to changing trends, which sets it apart from traditional brick-and-mortar stores. Revolve can reduce overhead retail expenses as a purely online entity while expanding its reach globally. As other retailers have felt the pinch of inflation, Revolve has reported increased sales, net income, and active customers. The stock is up over 73% in the past three months. While the stock isn’t cheap, it’s a promising pick for investors willing to pay a premium for upside growth potential.
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Revolve Integrates AI to Its Business
Revolve is an online fashion retailer primarily targeting Millennial and Gen Z consumers. The company provides a platform that bridges consumers, global fashion influencers, and brands of various stages, including emerging, established, and owned. It offers a wide range of products, including apparel, footwear, accessories, beauty items, home products curated from emerging and established brands, and high-end luxury brands. Consumers access these products via its websites and mobile apps.
The company has integrated AI technology to adapt swiftly to changing fashion trends and consumer demands. Recently, Revolve introduced an AI-driven size and fit feature, leading to more conversions and reduced return rates.
Unlike traditional brick-and-mortar businesses, Revolve’s digital presence allows for a more flexible approach to merchandise changes and inventory management, thus increasing full-price sales and reducing the need for inventory clearance through discounts. However, like many other retailers, Revolve has encountered challenges due to inflation, which has impacted the affordability of its products. Despite this, the customer loyalty cultivated through effective social media marketing strategies has kept sales steady, even if in smaller quantities.
How Do Revolve’s Financials Look?
The company recently reported Q3 2024 results. Revenue was slightly lower than expected, coming in at $283.15 million, missing analysts’ expectations by $33.04 million. The company’s net sales increased by 7% for domestic segments, while international net sales spiked by 20%. However, the company saw a 5% year-over-year increase in active customers, bringing the total to 2,628,000. Net sales increased by 10% year-over-year, gross profit by 9%, and adjusted EBITDA soared by 85%.
Nevertheless, the gross margin decreased by 56 basis points due to deeper markdowns, higher third-party brand sales, and increased shipping rates. However, the company reported increased efficiency in fulfillment, distribution, and marketing costs. Net income increased to $10.8 million, up from $3.2 million during the same period in 2023. Diluted earnings per share also rose to $0.15 from $0.04 in the third quarter of 2023, beating predictions by $0.05.
As of the quarter’s end, the company reported cash and cash equivalents of $252.8 million, a 3% increase from Q2 2024. It also remained debt-free.
Following the company’s encouraging third-quarter earnings, RVLV’s management has revised the outlook for the fourth quarter and full FY 2024, projecting a gross margin of 51.2%-51.5%, fulfillment expenses of 3.4% of net sales, selling and distribution costs of 17.3% of net sales, marketing expenses of 15.9% of net sales, and general and administrative expenses of $35.6 million.
Is RVLV a Buy?
The stock has been trending upward, climbing over 140% in the past year. It trades near the top of its 52-week price range of $13.96 – $39.03 and shows ongoing positive price momentum as it trades above all moving averages. Its P/S ratio of 2.4x reflects a relative premium to the Consumer Discretionary sector average of 0.96x.
Analysts following the company have taken a cautiously optimistic view of RVLV stock. For instance, BTIG analyst Janine Stichter, a four-star analyst according to Tipranks’ ratings, recently raised the price target on the shares to $35 and kept a Buy rating after the Q3 earnings beat, noting the potential for margin expansion from efficiency initiatives, lower return rates and leverage off an improving top line.
Revolve Group is rated a Moderate Buy overall, based on the recommendations of 12 analysts. The average price target for RVLV stock is $32.30, representing a potential -13.10% downside from current levels.
Revolve in Review
Revolve Group has uniquely leveraged artificial intelligence for swift adaptation to ever-changing fashion trends. Despite inflation challenges faced by the industry, Revolve has reported an upward trend in sales, net income, and active customers. Its revenues may have been slightly below expectations in the third quarter of 2024. Still, the overall profitability metrics have seen significant growth, presenting a promising picture to investors seeking growth potential, even at a premium.
