The fashion e-tailer revealed quarterly results Wednesday after the market closed, falling short on top-line revenues, but still managing to increase profits, year-over-year. Even so, company shares fell more than 13 percent in after-hours trading.
For the three-month period ending Sept. 30, top-line revenues were more than $151 million, down from more than $154 million the same time last year. Meanwhile, the company widened profits to $19.4 million for the quarter, compared with $9.5 million from the year-ago period. The company also had record adjusted earnings before interest, taxes, depreciation and amortization, which increased 66 percent year-over-year.
Cofounder and co-chief executive officer Mike Karanikolas credited several cost-saving measures, such as the company’s merchandising and operational initiatives, for the strong quarter.
“Despite the challenging backdrop and short-term pressures, we continued to drive efficiencies throughout the business in the third quarter, leading to higher margins and record profitability,” Karanikolas said in a statement. “A key driver of our significantly increased profitability was our highest gross margin for a third quarter, which reflects a high percentage of net sales at full price and improved inventory dynamics.”
Michael Mente, Revolve cofounder and co-ceo, added in a statement, “We achieved the strong profitability while continuing to invest in key initiatives to maximize our growth potential over the long term, such as elevating our international service levels, further innovation in broadening our marketing playbook and category expansion within our owned brands.”
The Los Angeles-based company also benefited from reduced investments in marketing branded events while large-scale gatherings remain on hold. And Revolve profited from fewer returns during the quarter.
“We attribute the significantly lower return rate [year-over-year] to a combination of more deliberate purchasing behavior by consumers during the COVID-19 pandemic, as well as a COVID-19 driven shift in mix to product categories with lower price points and lower return rates, such as beauty, and away from occasion wear, such as dresses, a category with a higher-than-average return rate,” the company said in a statement.
Beauty, in particular, was a stand-out category during the quarter, with net sales improving 100 percent year-over-year. Sales of activewear, accessories, intimates, swimwear and at-home apparel, including knits and sweaters, also fared well during the quarter.
The company said it will continue to invest in denim, activewear and sustainable merchandise in 2021.
Still, executives told analysts on Wednesday evening’s conference call that social distancing and the inability to host in-person events continue to have a negative impact on the business.
Revolve, which was founded in 2003 and went public in June 2019, is a favorite among Millennial and Gen Z shoppers. It’s known for its use of influencers, selection of festival attire and Instagram-friendly backdrops, demand for which has dwindled amid the pandemic.
Meanwhile, occasion wear, including dresses — Revolve’s largest category, which have a higher average order value than many other categories — and skirts were challenged during the quarter.
Revolve is expecting further declines in its owned brands during the fourth quarter as coronavirus cases surge around the world and unemployment remains high Stateside.
“It’s a very uncertain environment until we get to a post-COVID-19 world,” Mente said on the conference call. But he added, “When that pent-up demand is unleashed and the world goes back to doing what it loves, we’re going to be there to take advantage of it.”
The company ended the quarter with more than $158 million in cash and equivalents on hand. Shares of Revolve, which closed up 3.62 percent to $22.63 each, are up nearly 46 percent year-over-year.
“We’re starting to ramp up in-person events, for Q1 and Q2 [of 2021],” Karanikolas said on the call. “We’ll have to be a little patient. Depending on the environment, the events will get larger and larger. When it’s safe to do so, we’ll probably be hosting the largest party in the world, in the Roaring Twenties, where people can wear their favorite clothes and hang out with their friends.”