What happened

Shares of Revolve Group (NYSE:RVLV) were falling today after the online apparel seller posted disappointing results in its fourth-quarter earnings report. Sales came in below expectations, and the company offered weak guidance for 2020, sending shares down 16.7% as of 2:23 p.m. EST Wednesday.

So what

Revolve, which calls itself a next-generation retailer targeting millennials and Gen-Zers, said sales rose 16% to $147.6 million, which missed estimates at $152 million. Active customers increased 27% to 1.49 million, but orders placed rose only 14% to 1.09 million. The company slowed down its ordering in the quarter to work through its existing inventory, which led to increased markdowns. Consequently, gross margin fell from 54.1% to 52.9%, and operating income declined slightly. With the help of a lower tax rate, however, earnings per share rose from $0.11 to $0.12, beating estimates by a penny.

Members of the Revolve team wearing white and celebrating

Members of the Revolve staff. Image source: Revolve Group.

Looking ahead to 2020, co-CEO Mike Karanikolas said, "We are excited about our 2020 initiatives to continue building on the recent momentum in the Forward segment and International markets, while further investing in the core Revolve segment, including enhancing the owned brands platform and continuing to innovate in marketing, technology and customer experience."

Now what

For 2020, Revolve expects sales growth of 13% to 17%, significantly worse than analyst expectations for 22% growth. On the bottom line, it sees adjusted EBITDA of 1% to 10%, for a range of $56 million to $61 million, evidence that the inventory challenges it experienced the fourth quarter are expected to carry over to 2020 as management said on the call.

Shares of Revolve are now trading below their $18 IPO price when it debuted last June. There's no doubt the stock has disappointed the market, but I wouldn't throw in the towel on Revolve just yet. The company is gaining market share, it's profitable, and has a unique approach with its influencer marketing. The growth story may be fading, but it isn't dead yet.

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