Revolve Group, Inc. reported a steep decline in profits in the fourth quarter due to markdown pressures. Sales for the fashion e-commerce site were up 9 percent. For the year, net income was down 41 percent, while sales grew 24 percent.

“2022 was the 19th full year since Mike and I founded Revolve, and I’m proud of our financial performance and the accomplishments our team delivered in such a dynamic operating environment,” said company Co-founder and Co-CEO Michael Mente.  “Our net sales for the year increased 24 percent to $1.1 billion, we delivered record growth in active customers, and we generated significant profitably and cash flow that further strengthened our balance sheet.”    

 “While the macroenvironment has become more challenging in recent quarters, we have moved quickly and made progress in balancing our inventory investments while continuing to deliver profitable growth that truly stands out within our sector,”  said Mike Karanikolas, co-founder and co-CEO.  “We are more excited than ever about the opportunity that lies ahead. With our technology and data-driven culture, financial discipline, operational excellence, and innovative team, we believe we are well positioned to continue to take market share.”

Fourth Quarter 2022 Metrics and Results Commentary  

  • Active customers increased by 91,000 during the fourth quarter of 2022, growing to 2,340,000 as of December 31, 2022, an increase of 27 percent year-over-year. The addition of 500,000 active customers during 2022 represents record active customer growth for a full year by a wide margin;
  • Total net sales were $259.2 million, a year-over-year increase of 8 percent and representing a three-year compound annual growth rate of 21 percent;
  • Gross margin was 51.4 percent, a year-over-year decrease of 339 basis points, primarily reflecting a lower mix of net sales at full price and deeper markdowns in the fourth quarter of 2022 as compared to the fourth quarter of 2021;
  • Effective income tax rates were 24 percent and 7 percent in the fourth quarter of 2022 and 2021, respectively. The unusually low effective tax rate in the prior-year comparable period primarily reflects excess tax benefits as a result of the exercise of non-qualified stock options in the fourth quarter of 2021;
  • Net income was $7.9 million, a year-over-year decrease of 73 percent, a comparison that was impacted by the lower gross margin referenced above, an increase in operating expenses that outpaced sales growth year-over-year and the differences in its effective tax rate;
  • Adjusted EBITDA was $14.1 million, a year-over-year decrease of 59 percent; and
  • Diluted earnings per share (EPS) was $0.11, a year-over-year decrease of 72 percent.

Fourth Quarter 2022 Net Sales Commentary

  • Revolve segment net sales were $217.1 million, a year-over-year increase of 9 percent;
  • FWRD segment net sales were $42.0 million, a year-over-year increase of 5 percent; and
  • Domestic net sales increased 9 percent year-over-year, and International net sales increased 1 percent year-over-year.

Results Since the End of Fourth Quarter 2022
During the first seven weeks of the first quarter of 2023 ending on March 31, 2023 (January 1, 2023 to February 18, 2023), net sales increased by a mid-single-digit percentage year-over-year during the period.