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Revolve Group Announces Second Quarter 2019 Financial Results

CERRITOS, Calif.--(BUSINESS WIRE)--

Net Sales Increased 23% to $161.9 million

Net Income Increased 22% to $12.7 million

Revolve Group, Inc. (RVLV), the next-generation fashion retailer for Millennial and Generation Z customers, today announced financial results for the second quarter ended June 30, 2019.

“We are pleased to announce record revenue and profit for our first quarter as a public company,” said co-founder and co-CEO Michael Mente. “We continue to execute with operational excellence, delivering robust sales, gross margin expansion and an increase of nearly 22% in net income all while making significant investments in our infrastructure and customer experience,” added co-founder and co-CEO Mike Karanikolas.

Second Quarter Financial Highlights:

  • Net sales of $161.9 million, a year-over-year increase of 22.8%
    • Revolve segment net sales of $143.9 million, a year-over-year increase of 24.0%
    • Forward segment net sales of $18.0 million, a year-over-year increase of 14.4%
  • Gross profit of $90.4 million, a year-over-year increase of 23.3%
  • Gross margin of 55.8%, a year-over-year increase of 21 basis points
  • Income from operations of $17.7 million, a year over year increase of 25.8%
  • Net income was $12.7 million, a year-over-year increase of 21.7%
  • Adjusted EBITDA (a non-GAAP financial measure) of $19.0 million, a year-over-year increase of 21.5%

Other Highlights:

  • 1,359,000 active customers, a year-over-year increase of 36.2%
  • 1,294,000 orders placed, a year-over-year increase of 30.8%

“Through our unique events and curated premium product offering, we continue to build our customer base and deepen the relationship with our already very loyal customer,” said Michael Mente. “This was highlighted in the quarter with our fifth annual #REVOLVEfestival and the launch of two new influencer brand collaborations – Song of Style with Aimee Song and the Camila Coelho Collection.”

Outlook

Expectations for the full fiscal year ending December 31, 2019:

Net Sales

       

$598 - $608 million

       

 

20% - 22% growth

 

Adjusted EBITDA

       

$51 - $56 million

       

 

10% - 20% growth
8.5% - 9.2% margin

 

We have not reconciled our adjusted EBITDA outlook to GAAP net income because we do not provide an outlook for GAAP net income due to the uncertainty and potential variability of other expense, net, and provision for income taxes and one-time expenses, net, which are reconciling items between adjusted EBITDA and GAAP net income. Because such items cannot be reasonably predicted, we are unable to provide a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure. However, such items could have a significant impact on GAAP net income.

Key Operating and Financial Metrics

We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and long-term performance of our business.

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2018

 

2019

 

2018

 

2019

 

 

(in thousands, except average order value and percentages)

Gross margin

 

 

55.6

%

 

 

55.8

%

 

 

52.9

%

 

 

53.9

%

Adjusted EBITDA

 

$

15,610

 

 

$

18,968

 

 

$

24,307

 

 

$

27,517

 

Free cash flow

 

$

12,834

 

 

$

1,991

 

 

$

24,550

 

 

$

12,928

 

Active customers

 

 

998

 

 

 

1,359

 

 

 

998

 

 

 

1,359

 

Total orders placed

 

 

989

 

 

 

1,294

 

 

 

1,807

 

 

 

2,429

 

Average order value

 

$

281

 

 

$

275

 

 

$

281

 

 

$

268

 

 

Adjusted EBITDA and free cash flow are non-GAAP measures. See the section titled “Adjusted EBITDA” and “Free Cash Flow” below for information regarding our use of Adjusted EBITDA and free cash flow and their reconciliation to net income and net cash provided by operating activities, respectively.

Gross Margin

Gross profit is equal to our net sales less cost of sales. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of sales consists of the purchase price of merchandise sold to customers and includes import duties and other taxes, freight in, defective merchandise returned from customers, receiving costs, inventory write-offs, and other miscellaneous shrinkage. Certain of our competitors and other retailers report cost of sales differently than we do. As a result, the reporting of our gross profit and gross margin may not be comparable to other companies.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income before other expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense and certain one-time expenses. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of equity-based compensation, excludes an item that we do not consider to be indicative of our core operating performance.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less net cash used in capital expenditures. We view free cash flow as an important indicator of our liquidity because it measures the amount of cash we generate. Free cash flow also reflects changes in working capital.

Adjusted Diluted Earnings per Share

Adjusted diluted earnings per share is a non-GAAP financial measure that we calculate as diluted earnings (net loss) per share adjusted to exclude the per share impact of the issuance and repurchase of Class B common stock as part of our initial public offering.

Active Customers

We define an active customer as a unique customer account from which a purchase was made across our platform at least once in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period. We view the number of active customers as a key indicator of our growth, the reach of our sites, the value proposition and consumer awareness of our brand, the continued use of our sites by our customers and their desire to purchase our products. Our number of active customers drives both net sales and our appeal to vendors.

Total Orders Placed

We define total orders placed as the total number of customer orders placed by our customers across our platform in any period. We view total orders placed as a key indicator of the velocity of our business and an indication of the desirability of our products and sites to our customers. Total orders placed, together with average order value, is an indicator of the net sales we expect to recognize in a given period. Total orders placed and total orders shipped in any given period may differ slightly due to orders that are in process at the end of any particular period.

Average Order Value

We define average order value as the sum of the total gross sales from our sites in a given period divided by the total orders placed in that period. We believe our high average order value demonstrates the premium nature of our product. Average order value varies depending on the site through which we sell merchandise.

Forward-Looking Statements

This press release contains ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this press release are forward-looking statements, including but not limited to statements regarding our future growth and our financial outlook for the full fiscal year 2019. Forward-looking statements include statements containing words such as “expect,” “anticipate,” “believe,” “project,” “will” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to general economic conditions, our fluctuating operating results, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, our ability to attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders and other risks and uncertainties included under the caption “Risk Factors” and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, the final prospectus related to our initial public offering filed with the SEC on June 7, 2019 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which we expect to file with the SEC on or before August 14, 2019. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Revolve Group, Inc. undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), we reference in this press release and the accompanying tables the following non-GAAP financial measures: adjusted EBITDA, free cash flow and adjusted diluted earnings per share. Adjusted EBITDA is net income before other expense, net, taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and certain one-time expenses. Free cash flow is net cash provided by (used in) operating activities less net cash used in capital expenditures. Adjusted diluted earnings per share is diluted earnings (net loss) per share adjusted to exclude the per share impact of the issuance and repurchase of Class B common stock as part of our initial public offering.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

We use these non-GAAP financial measures to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses that may not be indicative of our ongoing core operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and when planning, forecasting, and analyzing future periods.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned “Reconciliation of Non-GAAP Financial Measures” included at the end of this release.

Conference call information

Revolve Group management will host a call today at 5 pm ET/2 pm PT to discuss today’s results in more detail. To participate, please dial (866) 393-4306 within the United States or (734) 385-2616 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 1299819. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the Revolve Group website at investors.revolve.com. A replay of the conference call will be available online at investors.revolve.com. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (855) 859-2506 within the United States or (404) 537-3406 outside the United States. The replay ID is 1299819.

About Revolve Group, Inc.

Revolve Group, Inc. (RVLV) is the next-generation fashion retailer for Millennial and Generation Z consumers. As a trusted, premium lifestyle brand, and a go-to online source for discovery and inspiration, we deliver an engaging customer experience from a vast yet curated offering of apparel, footwear, accessories and beauty styles. Our dynamic platform connects a deeply engaged community of millions of consumers, thousands of global fashion influencers, and hundreds of emerging, established and owned brands.

We were founded in 2003 by our co-CEOs, Michael Mente and Mike Karanikolas. We sell merchandise through two differentiated segments, REVOLVE and FORWARD, that leverage one platform. Through REVOLVE we offer a highly curated assortment of full-price premium apparel and footwear, accessories and beauty products from emerging, established and owned brands. Through FORWARD we offer an assortment of iconic and emerging luxury brands. For more information, visit www.revolve.com.

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except unit, share and per share data)

 

 

 

December 31,

 

 

June 30,

 

 

 

2018

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,369

 

 

$

44,845

 

Accounts receivable, net

 

 

5,337

 

 

 

8,373

 

Inventory

 

 

102,220

 

 

 

102,533

 

Income taxes receivable

 

 

 

 

 

1,142

 

Prepaid expenses and other current assets

 

 

15,227

 

 

 

25,374

 

Total current assets

 

 

139,153

 

 

 

182,267

 

Property and equipment, net

 

 

5,907

 

 

 

14,239

 

Intangible assets, net

 

 

564

 

 

 

403

 

Goodwill

 

 

2,042

 

 

 

2,042

 

Other assets

 

 

731

 

 

 

695

 

Deferred income taxes

 

 

13,677

 

 

 

15,918

 

Total assets

 

$

162,074

 

 

$

215,564

 

Liabilities and Members'/Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

20,219

 

 

$

29,687

 

Income taxes payable

 

 

917

 

 

 

881

 

Accrued expenses

 

 

18,398

 

 

 

22,138

 

Returns reserve

 

 

29,184

 

 

 

36,355

 

Other current liabilities

 

 

13,538

 

 

 

15,240

 

Total current liabilities

 

 

82,256

 

 

 

104,301

 

Members' equity:

 

 

 

 

 

 

 

 

Class T Preferred Units, no par value—23,551,834 and zero units authorized, issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.

 

 

15,000

 

 

 

 

Class A Common Units, no par value—41,936,219 and zero units authorized, issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.

 

 

3,548

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value; zero and 1,000,000,000 shares authorized as of December 31, 2018 and June 30, 2019, respectively; zero and 13,529,411 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.

 

 

 

 

 

14

 

Class B common stock, $0.001 par value; zero and 125,000,000 shares authorized as of December 31, 2018 and June 30, 2019, respectively; zero and 55,340,994 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively.

 

 

 

 

 

55

 

Accumulated members' equity

 

 

61,270

 

 

 

 

Additional paid-in capital

 

 

 

 

 

72,736

 

Retained earnings

 

 

 

 

 

38,458

 

Total members'/stockholders' equity

 

 

79,818

 

 

 

111,263

 

Total liabilities and members’/stockholders’ equity

 

$

162,074

 

 

$

215,564

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net sales

 

$

131,802

 

 

$

161,897

 

 

$

245,107

 

 

$

299,240

 

Cost of sales

 

 

58,470

 

 

 

71,479

 

 

 

115,342

 

 

 

138,068

 

Gross profit

 

 

73,332

 

 

 

90,418

 

 

 

129,765

 

 

 

161,172

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulfillment

 

 

3,263

 

 

 

5,301

 

 

 

6,045

 

 

 

9,796

 

Selling and distribution

 

 

18,669

 

 

 

23,639

 

 

 

34,522

 

 

 

44,230

 

Marketing

 

 

21,161

 

 

 

24,914

 

 

 

36,514

 

 

 

44,412

 

General and administrative

 

 

16,145

 

 

 

18,836

 

 

 

31,085

 

 

 

38,105

 

Total operating expenses

 

 

59,238

 

 

 

72,690

 

 

 

108,166

 

 

 

136,543

 

Income from operations

 

 

14,094

 

 

 

17,728

 

 

 

21,599

 

 

 

24,629

 

Other expense, net

 

 

123

 

 

 

444

 

 

 

320

 

 

 

660

 

Income before income taxes

 

 

13,971

 

 

 

17,284

 

 

 

21,279

 

 

 

23,969

 

Provision for income tax

 

 

3,504

 

 

 

4,543

 

 

 

5,480

 

 

 

6,266

 

Net income

 

 

10,467

 

 

 

12,741

 

 

 

15,799

 

 

 

17,703

 

Less: Net loss attributable to non-controlling interest

 

 

 

 

 

 

 

 

47

 

 

 

 

Net income attributable to Revolve Group, Inc.

 

 

10,467

 

 

 

12,741

 

 

 

15,846

 

 

 

17,703

 

Less: Repurchase of Class B common stock upon corporate conversion

 

 

 

 

 

(40,816

)

 

 

 

 

 

(40,816

)

Net income (loss) attributable to common stockholders

 

$

10,467

 

 

$

(28,075

)

 

$

15,846

 

 

$

(23,113

)

Earnings (net loss) per share of Class A and Class B common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

(0.57

)

 

$

0.24

 

 

$

(0.51

)

Diluted

 

$

0.15

 

 

$

(0.57

)

 

$

0.23

 

 

$

(0.51

)

Weighted average Class A and Class B common shares

outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,936

 

 

 

49,025

 

 

 

41,936

 

 

 

45,481

 

Diluted

 

 

44,394

 

 

 

49,025

 

 

 

44,289

 

 

 

45,481

 

REVOLVE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

15,799

 

 

$

17,703

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,459

 

 

 

1,584

 

Equity-based compensation

 

 

512

 

 

 

1,032

 

Deferred income taxes

 

 

1,410

 

 

 

(2,241

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(278

)

 

 

(3,036

)

Inventories

 

 

(6,061

)

 

 

(13,184

)

Income taxes receivable

 

 

3,590

 

 

 

(1,142

)

Prepaid expenses and other current assets

 

 

(704

)

 

 

(271

)

Other assets

 

 

(107

)

 

 

36

 

Accounts payable

 

 

(3,971

)

 

 

9,468

 

Income taxes payable

 

 

 

 

 

(36

)

Accrued expenses

 

 

4,215

 

 

 

3,137

 

Returns reserve

 

 

9,314

 

 

 

7,171

 

Other current liabilities

 

 

449

 

 

 

2,462

 

Net cash provided by operating activities

 

 

25,627

 

 

 

22,683

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,077

)

 

 

(9,755

)

Net cash used in investing activities

 

 

(1,077

)

 

 

(9,755

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of underwriting discounts

paid

 

 

 

 

 

57,077

 

Repurchase of Class B common stock upon corporate conversion

 

 

 

 

 

(40,816

)

Repayment of line of credit

 

 

(15,100

)

 

 

 

Payment of deferred offering costs

 

 

 

 

 

(726

)

Net cash (used in) provided by financing activities

 

 

(15,100

)

 

 

15,535

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(35

)

 

 

13

 

Net increase in cash and cash equivalents

 

 

9,415

 

 

 

28,476

 

Cash and cash equivalents, beginning of period

 

 

10,588

 

 

 

16,369

 

Cash and cash equivalents, end of period

 

$

20,003

 

 

$

44,845

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

87

 

 

$

 

Income taxes, net of refund

 

$

355

 

 

$

9,674

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Deferred offering costs accrued, unpaid

 

$

 

 

$

603

 

 

 

REVOLVE GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

A reconciliation of non-GAAP adjusted EBITDA to net income for the three and six months ended June 30, 2018 and 2019 is as follows (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net income

 

$

10,467

 

 

$

12,741

 

 

$

15,799

 

 

$

17,703

 

Excluding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

 

123

 

 

 

444

 

 

 

320

 

 

 

660

 

Provision for income tax

 

 

3,504

 

 

 

4,543

 

 

 

5,480

 

 

 

6,266

 

Depreciation and amortization

 

 

730

 

 

 

889

 

 

 

1,459

 

 

 

1,584

 

Equity-based compensation

 

 

403

 

 

 

521

 

 

 

512

 

 

 

1,032

 

One-time expenses, net(1)

 

 

383

 

 

 

(170

)

 

 

737

 

 

 

272

 

Adjusted EBITDA

 

$

15,610

 

 

$

18,968

 

 

$

24,307

 

 

$

27,517

 

__________________
(1)  

One-time expenses, net in the three and six months ended June 30, 2018 primarily relate to our entity restructuring and our initial public offering. One-time expenses, net in the three and six months ended June 30, 2019 primarily relate to legal settlements.

A reconciliation of non-GAAP free cash flow to cash provided by operating activities for the three and six months ended June 30, 2018 and 2019 is as follows (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net cash provided by operating activities

 

$

13,471

 

 

$

6,759

 

 

$

25,627

 

 

$

22,683

 

Purchases of property and equipment

 

 

(637

)

 

 

(4,768

)

 

 

(1,077

)

 

 

(9,755

)

Free cash flow

 

$

12,834

 

 

$

1,991

 

 

$

24,550

 

 

$

12,928

 

Net cash used in investing activities

 

$

(637

)

 

$

(4,768

)

 

$

(1,077

)

 

$

(9,755

)

Net cash provided by (used in) financing activities

 

$

 

 

$

15,783

 

 

$

(15,100

)

 

$

15,535

 

A reconciliation of non-GAAP adjusted diluted earnings per share to diluted earnings (net loss) per share for the three and six months ended June 30, 2018 and 2019 is as follows (in dollars):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

 

Class B

 

 

Class A

 

 

Class B

 

 

Class B

 

 

Class A

 

 

Class B

 

Earnings (net loss) per share — diluted

 

$

0.15

 

 

$

(0.57

)

 

$

(0.57

)

 

$

0.23

 

 

$

(0.51

)

 

$

(0.51

)

Repurchase of Class B common stock, net

 

 

 

 

 

0.75

 

 

 

0.75

 

 

 

 

 

 

0.76

 

 

 

0.76

 

Adjusted earnings per share — diluted

 

$

0.15

 

 

$

0.18

 

 

$

0.18

 

 

$

0.23

 

 

$

0.25

 

 

$

0.25

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190808005690/en/