U.S. Markets close in 4 hrs 15 mins

Retailer Revolve Gets 2019's Third-Best U.S. Trading Debut

Crystal Tse and Kim Bhasin
Retailer Revolve Gets 2019's Third-Best U.S. Trading Debut

(Bloomberg) -- Shares of online fashion retailer Revolve Group Inc. briefly doubled after its $212 million initial public offering but still closed the day with the year’s third-best U.S. trading debut.

Revolve opened trading Friday up 40% from its $18 offer price and then soared as much as 111%. It closed the day up 89% to $34 a share, valuing the company at about $2.33 billion based on the outstanding shares as listed in its IPO filing.

That first-day performance has been topped on U.S. exchanges this year only by Beyond Meat Inc., the meat-substitute maker whose stock popped 163% on its first day after the company raised $277 million and by biotechnology company Cortexyme Inc., whose shares rose more than 93% the day of its $75 million listing. Beyond Meat’s shares have risen almost 300% since its May 1 IPO, making it the best performer of the year’s listings.

Revolve sold 11.8 million shares Thursday at the top of a marketed range of $16 to $18, the 76th U.S. IPO this year, bringing the total raised to more than $27 billion, according to data compiled by Bloomberg. That’s amid the surge of higher-profile listings including Uber Technologies Inc.’s $8.1 billion IPO in May.

The offering by Revolve follows September’s listing by luxury-clothing platform Farfetch Ltd., which raised $855 million in its U.S. IPO. This year, three other e-commerce companies have gone public in the U.S., raising a combined $471 million, the data shows.

Revolve focuses on millennial customers, the generation that’s currently in their mid-20s to late-30s, according to its prospectus. It attracts many of its customers through its own Instagram account with more than 5.5 million followers, and through a network of more than 3,500 influencers -- users with large followings on social media -- and social events.

Profitable

The company. based in Cerritos, California, is profitable, earning $31 million on sales of $499 million last year, up from net income of $5.3 million on sales of almost $400 million in 2017, Revolve said in its filings.

Sales for the quarter ended March 31 rose 21% to $137 million, while net income fell 7.8% to $5 million. Revolve’s average order value fell to $259 for the quarter, down from $282 for the same period last year.

Only a quarter of the Class A shares issued in the IPO were sold by the company, according to the filing. The remaining $8.8 million shares were sold by current investors.

Controlling CEOs

Those shares will carry one vote each, while Class B shares will have 10 votes each. That will give the Class B owners about 98% of the voting rights, according to the filings. MMMK Development Inc., an entity controlled by co-chief executive officers Michael Karanikolas and Michael Mente, will control 67% of the voting power.

Revolve plans to use the proceeds to buy back stock from existing stakeholders and to continue growing the company, its filing shows.

Last year, 18% of the company’s sales came from outside the U.S. Revolve cautions that expanding internationally will likely require fulfillment centers among other expenditures. The company also warns that its manufacturing operations in China could be affected by the political and economic climate there, as well as by tariffs imposed by the U.S. government.

Revolve is also considering adding to its more than 20 private-label brands, as well as opening physical stores. Unlike most fashion retailers, Revolve’s labels aren’t entry-level products, with the average price topping those of third-party brands sold by the company.

“The future includes a lot of what we have right now,” Mente said in an interview. “Everything we’re doing right now is working very well.”

Instagram Strategy

While Revolve expects Instagram to continue to be the home for fashion content, it intends to stay ahead of the competition if that changes, Karanikolas said.

“We have a long history of staying ahead of the competition there,” Karanikolas said. “We welcome shifts in the landscape. It usually represents opportunities for us.”

Revolve’s offering was led by Morgan Stanley, Credit Suisse Group AG and Bank of America Corp. Its shares are trading on the NYSE under the symbol RVLV.

(Updates with details of Beyond Meat’s listing in third paragraph. The year was corrected in the headline in an earlier version of this story.)

To contact the reporters on this story: Crystal Tse in Hong Kong at ctse44@bloomberg.net;Kim Bhasin in New York at kbhasin4@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, ;Anne Riley Moffat at ariley17@bloomberg.net, Michael Hytha, Matthew Monks

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.