Investors greeted Revolve Group as a retail savior when the influencer-savvy company went public in June. On Friday it was, What have you done for me lately?
But cofounders and co-chief executive officers Michael Mente and Mike Karanikolas took the turnaround in stride and maintained that even though they’re now under the microscope of Wall Street, they’re not changing the approach that they’ve spent 16 years honing. (It doesn’t hurt that they are firmly in corporate control, holding 67 percent of the company’s voting rights).
“In terms of how we operate the business, not much has changed at all,” Mente said in an interview with his co-ceo. “Other than the fun, check the score every now and then…our life is very much the same.”
Late Thursday, the company reported second-quarter net losses to common stockholders of $28.1 million — reflecting $40.8 million spent to repurchase stock in conjunction with the initial public offering. Without the repurchase, profits rose as sales increased 22.8 percent to $161.9 million. But investors — perhaps spooked by the bottom line or just hoping for more — sent Revolve shares down 15.6 percent to $26.12.
“The stock heated up a little bit,” Karanikolas said. “It’s hard to say what happened, we’re not concerned about short-term and day-to-day movements. It’s really just a minor blip as far as we see it.”
Revolve, along with The RealReal Inc., Farfetch, Stitch Fix Inc. and a few others, have come to market with fresh business models, but are still finding footing with investors and registering some blips (The RealReal’s stock was down 23.3 percent to $17.74 on Friday, while Farfetch was off 44.5 percent to $10.13).
Mente noted that while the conversation was once all about the Nordstroms and Neiman Marcus’ and the now-bankrupt Barneys New York, there is a new generation connecting with new consumers.
“We grew up with data,” he said about Revolve. “Data and technology are at the core of our business and we worked around that.” On the other hand, the brick-and-mortar crowd had a legacy business that needed to be worked around as technology was layered in.
Revolve relies heavily on influencers to market its product and algorithms to pick just what part of the fashion landscape to focus on, but there’s wiggle room in the assortment.
“Not every style is going to be a bestseller,” Mente said. “At any time, we have close to 40,000 products on sale just for the Millennial customer. Our customer will have a range of products across an entire range of lifestyle needs.”
To keep that business humming, Revolve recently finished a distribution facility that saw $10 million in capital expenditures, half of which went to automation. Karanikolas said that should provide the needed capacity for the next four to five years.
But not every part of the business can be planned that far out and Karanikolas said the company would be patient where necessary, such as the U.S.-China trade war.
Revolve has diversified its supply chain and is also betting that its many exclusive products will help it maintain its business.
Karanikolas said: “We don’t want to overreach too quickly to something that could otherwise be short-term. We’re building for the long run and there’s no need…for a knee-jerk reaction to something that likely won’t be around two, three years from now.”