REVOLVE CFO on Q4 earnings

Jesse Timmermans, REVOLVE CFO, joined Yahoo Finance Live to discuss the company's fourth quarter earnings report and the headwinds the company faced due to COVID-19 in 2020.

Video Transcript

ADAM SHAPIRO: Turning to something that is much more palatable and will bring a smile to the face of some investors, the earnings report for REVOLVE. So REVOLVE describes itself as a next-generation fashion retailer from Millennial and Generation Z consumers.

And we wanted to invite into the stream their CFO Jesse Timmermans to discuss the earnings report. Thank you for joining us. Before we jump into-- I went to the website. And some of the stuff you have on there looks very high end to me. But this is going to get to my question and my inexperience in retail.

Your net sales were down 3% year over year, but your net income was up to $57 million, 59%. Explain that one.

JESSE TIMMERMANS: Yeah, yeah. First of all, thanks for having me. Great to be here.

We are a brand known for social occasions, for going out. So COVID had an extremely negative impact on us, especially if you rewind back to a year ago in mid-March, when the lockdowns went into place. That said, the team did a phenomenal job into pivoting into new and different product categories for us, like beauty, like at-home categories, for example, loungewear.

So we were able to reset our inventory position and really drive that record profitability, especially in the back half of this year. So feeling good with a really healthy inventory balance as we look forward to reopening in 2021.

SEANA SMITH: Jesse, you mentioned inventory. And I think that's a big question here for so many retailers at this point because clearly, it was a massive issue for many retailers going back to the start of the pandemic. How are you thinking about your inventory plans then, looking ahead to the rest of this year?

JESSE TIMMERMANS: Yeah, yeah. We were certainly going to reinvest and reinvest ahead of the reopening. You can already see that in our Q4, where we invested in inventory, a $22 million increase sequentially from the third quarter of 2020. So we want to be primed and ready for the reopening. We want to be there for her when she's ready to go out again.

So we'll continue to see that increase in inventory into Q1 and then especially on a year over year basis in Q2 of 2021. Again, last Q2, we cut back significantly on our inventory. And this year, we're in a reinvestment mode. So we're making some calculated bets there. There is a timing risk. But we think it's only a risk of timing. We can't predict when the reopening will exactly happen. But we want to be there for her when she's ready.

ADAM SHAPIRO: I'm on the site right now. And I want to tell all of the hers out there that there's a 65% off sale on must-have styles. How do you grow your net income if you're offering 65% off on must-have styles?

JESSE TIMMERMANS: Yeah, great question. We're constantly working through our inventory. I think, contrary to that 65% off on those styles, our full-price selling was actually at record highs in the back half of 2020 and in Q4. And then within that markdown component of our sales, our markdown margin was the highest it's ever been.

So there's always a markdown component to the inventory and to the sales. We think we have a really healthy inventory balance right now. And potentially left some money on the table because we didn't have enough markdown inventory in the back half of the year.

SEANA SMITH: Jesse, taking a look at some of these numbers that you just reported, international net sales, for example, up just around 24% compared to a 10% decline that you saw in the US. Clearly, a big disparity there. What do you attribute this to? And I guess, what can you learn from the rebound that we've seen overseas just in terms of what you can expect here in the US?

JESSE TIMMERMANS: Yeah, great question. International has outperformed the domestic business over the course of 2020 and especially during the pandemic, I think for a couple of reasons. Number one, the international geography is more dispersed than the concentrated US geography. So that's one thing. And there are certain regions internationally that have managed COVID better than the US.

And if we look to Australia, for example, right now, who is in their summer season and has really effectively managed COVID, they're back, and they're out. We are, as we speak, hosting an influencer event in Australia with 60 really great influencers. So I think that's an early indicator of what we can expect for the US market.

Israel's another great example with their vaccination rollout. Israel has been really strong in Q4 and into this first seven weeks of Q1. And then within the US, we also see some green shoots in territories or regions like Florida, for example, that is more mobile than, for example, New York or California.

ADAM SHAPIRO: As we wrap up, can you just let us know a kind of conversion rate metric or even the average spend when women do land on the page?

JESSE TIMMERMANS: Yeah, yeah. We've got two segments REVOLVE and Forward. REVOLVE is that premium price point, really the lion's share of the business. And that is around a $250 average order value. Then our Forward segment, which is a luxury segment, skews much higher than that. We have seen pressure on the average order value as the purchases during COVID shifted from that higher price point into lower price points like beauty. But optimistic that when the reopening happens, that average order value increases again and shifts back to that historically strong category of dresses.

ADAM SHAPIRO: I'm looking at the site now. It looks great. Even I would consider 65% off, although I don't wear dresses, not that that would be a problem, not in this day and age. I want to thank you Jesse Timmermans, REVOLVE CFO. And we wish you continued success with the site and want to point out, again, that you did have that record net income, 57 million, up 59%.