What happened

Shares of Revolve Group (NYSE:RVLV) fell more than 10% on Friday after the online apparel retailer released quarterly results. Earnings came in ahead of expectations, but the market was spooked by a full-year revenue forecast that implies growth is slowing.

So what

After markets closed Thursday, Revolve reported third-quarter earnings of $0.13 per share on revenue of $154.2 million, beating analyst expectations for $0.11 per share in earnings on sales of $153 million. Net sales were up 22% from the same three months of 2018, and gross profit was up 24% year over year.

A group of friends with shopping bags.

Image source: Getty Images.

But the company said it sees full-year 2019 sales coming in at $598 million to $606 million, just shy of the consensus estimate for $607 million in full-year revenue. At the midpoint of guidance, that implies fourth-quarter revenue of $149 million, which would mean deceleration during the holiday quarter.

Company co-CEO Mike Karanikolas said in a statement that Revolve is trying to find a balance between growth and profitability. "We delivered strong growth in net sales, profitability and cash flows in Q3, while continuing to invest in the large market opportunity ahead of us," Karanikolas said.

Now what

The issue at Revolve seems to be the company's portfolio of 24 in-house brands, with Karanikolas saying during a post-earnings call that the expansion of owned brands as a percentage of total sales has slowed in the past couple of quarters and that inventory levels are higher than hoped. That's likely to put pressure on margins in the quarters to come.

Shares of Revolve are now down nearly 50% from its early-summer IPO, and the shares could face additional near-term turbulence before year's end as the IPO lockup period expires. The Revolve business looks healthier than its stock does right now.

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