Revolve Group, Inc., a fashion e-tailer aimed at Millennial and Gen Z consumers, reported sales rose 6 percent in the first quarter to $146.1 million from $137.3 million a year ago.

Revolve segment net sales were $124.5 million, a year-over-year increase of 1 percent. Forward segment net sales were $21.6 million, a year-over-year increase of 47 percent.

Net income declined 16 percent to $4.16 million, or 6 cents a share, from $4.96 million, or 7 cents, a year ago.

Cash and cash equivalents at March 31, 2020 were $103.6 million, an increase of $38.2 million from December 31, 2019. The Company generated approximately $8 million in free cash flow during Q1 2020. Additionally, given the uncertain environment with the COVID-19 pandemic and out of an abundance of caution, in March 2020 the company drew down $30 million from its revolving credit line, further strengthening its cash position.

“While the COVID-19 pandemic has created significant headwinds for many companies, including REVOLVE, I am very proud of how the organization has responded,” said co-founder and co-CEO Mike Karanikolas. “Ensuring the health and safety of employees is our top priority. The team has done an outstanding job transitioning to working remotely, where possible, and safeguarding employees where their roles require them to remain on-site, all while staying laser-focused on maintaining exceptional service for our valued customers.”

“Our competitive position and our recent business results give me continued confidence in our long-term future,” Karanikolas added. “We began the first quarter strong with net sales for January and February combined increasing by more than 20 percent year-over-year and with our inventory turning approximately 20 percent faster year-over-year before the COVID-19 impact led to a significant decrease in net sales in the final weeks of March. Importantly, early in the second quarter, our efforts have helped drive improved net sales trends with sequential improvement in the year-over-year net sales declines for each of the past four weeks.”

“I would like to thank our great team for their dedication, agility, hard work and sacrifice demonstrated through this difficult time,” added co-founder and co-CEO Michael Mente. “This is one of the most challenging periods we have experienced in our 17 years of operating the business, yet from challenge comes opportunity. Our brand connection with customers continues to grow stronger and we believe the pandemic will further accelerate the shift to consumer spending online. We are confident in our ability to manage through this environment and thrive over the long term.”

COVID-19 Impact on First Quarter 2020 Financial Results
The first quarter of 2020 began strong with year-over-year growth in net sales of more than 20 percent in January and February on a combined basis. This strong trend continued into the first week of March. As previously disclosed, starting in the second week of March, the net sales trend meaningfully changed coincident with the escalation of the COVID-19 outbreak in the United States and elsewhere. These COVID-19 impacts resulted in year-over-year decreases in net sales of nearly 50 percent through the latter part of March.

COVID-19 Impact on Results Since the End of Q1 2020
COVID-19 has continued to have a material negative impact on the Company’s financial results in several weeks after the end of the first quarter on March 31, 2020. For the full month of April 2020, net sales decreased approximately 40 percent year over year, in particular, because the month of April has in recent years been one of Revolve’s largest net sales months of the year with peak sales typically occurring during the #REVOLVEFestival event held in the Coachella Valley. The 2020 #REVOLVEFestival event was postponed due to the COVID-19 pandemic. Importantly, since mid-April, the magnitude of year-over-year net sales declines has been reduced every week for the past four consecutive weeks, and for the first ten days of May, the year-over-year net sales trend further improved to a roughly 25 percent year-over-year decline.

Additionally, with hundreds of millions of people sheltering in place around the globe during the month of April 2020, the composition of Revolve net sales shifted meaningfully to “at home” categories such as beauty products and loungewear with relatively lower average selling prices than the average Revolve offerings often purchased for special occasions outside the home. While this creates an exciting opportunity to develop deeper relationships with valued Revolve customers over time, particularly with newer categories such as beauty, the shift in category net sales mix will result in a meaningful decrease in average order value in the near term.

As previously disclosed, in early April 2020 the Company took a variety of actions to align its cost structure with the reduced consumer demand in the current environment. Variable costs were adjusted in line with the reduced volume, non-personnel operating expenses were significantly reduced and marketing investments were significantly moderated. Personnel costs were also reduced through a combination of reduced work schedules, lower salaries, furloughs and, to a much lesser extent, layoffs.

Updated Assumptions for 2020
Due to the unpredictability associated with COVID-19, the Company is not providing net sales or Adjusted EBITDA guidance. However, the Company is providing some updated assumptions for the fiscal year ending December 31, 2020:

  • Gross margin for the full year 2020 is now expected to be below the 48.6 percent gross margin reported for the first quarter of 2020, reflecting a further expected reduction of the net sales mix contribution from REVOLVE’s Owned Brands in 2020, the shift in the mix of net sales by product category to “at home” goods like the beauty category that generates a relatively lower gross margin, and an increased promotional environment industrywide (as many retailers are seeking to clear excess inventory). These updated assumptions are a direct outcome of the unprecedented operating environment caused by the COVID-19 pandemic.
  • Weighted average diluted shares are expected to be approximately 72 million.
  • Capital expenditures are expected to be approximately $2 million.

Photo courtesy Revolve Group