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Bull of the Day: Revolve Group (RVLV)

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Based in California, Revolve Group RVLV is a popular online fashion retailer, selling a wide range of men’s and women’s apparel, shoes, accessories, and beauty items; their core customers are Millennial and Gen Z shoppers, and Revolve is known for carrying on-trend brands and styles at all price points. The company went IPO in June 2019.

Revolve Delivers Excellent Growth in Q2

Net sales increased 60% year-over-year to $228 million (and 41% over Q2 2019), while diluted net profit more than doubled compared to the year-ago period to $0.42 per share.

Domestic net sales were up 59% and international net sales increased 63%.

Gross margin increased 517 basis points to 55.6%, benefitting from healthy inventory levels and consumer demand dynamics. Also helping were higher sales at full-price and a decrease in “the depth of markdowns.”

Free cash flow was $32.8 million for the second quarter, helping to further the retailer’s balance sheet. As of June 30, cash and cash equivalents and net borrowings were $219.6 million.

“Our exceptional second quarter results were driven by record new customer additions and unprecedented numbers of reactivated customers who hadn’t purchased from us in several quarters while social events were on pause,” said co-founder and co-CEO Mike Karanikolas.

Can RVLV Surge Higher?

Revolve Group, Inc. Price and Consensus
Revolve Group, Inc. Price and Consensus

Year-to-date, shares of Revolve have over 117% compared to the S&P 500’s gain of 16.1%. However, because of the stock’s run so far this year, it’s reached quite a lofty valuation this year (shares currently trade at about 66X forward earnings).

This may have been one of the reasons, along with a sales deceleration after the end of Q2, why investors sold RVLV despite its impressive second-quarter report. RVLV sunk over 20% the day after its earnings release.

Despite this hiccup, Revolve still remains a top shopping destination for fashion-minded consumers, positioning it as a stock that could still deliver great returns over the long term.

For the current fiscal year, one analyst has revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate remains steady at $1.04 per share. Earnings are expected see double-digit growth for fiscal 2021, with 2022 continuing that growth trend.

Another big growth catalyst for Revolve is its recent hire Kendall Jenner; she was brought on to be the creative director of the company’s Forward brand. Forward, which is luxury-focused, is starting to take off thanks to a new loyalty program, and sales spiked 120% on a two-year basis through Q2.

RVLV is a Zacks Rank #1 (Strong Buy) right now.

If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep RVLV on your shortlist.


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