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Why Revolve Group Stock Surged Today

By Jeremy Bowman - Aug 13, 2020 at 11:29AM

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Shares jumped after the online apparel retailer beat estimates in its second-quarter report.

What happened

Shares of Revolve Group (RVLV 0.00%) were climbing today after the influencer-driven online fashion retailer posted better-than-expected results in its second-quarter earnings report.

As of 10:45 a.m. EDT, the stock was up 12.7%.

Eleven members of the Revolve staff dressed in white

Image source: Revolve Group.

So what

Revolve said sales in the quarter declined 11.8% to $142.8 million as consumers generally avoided shopping for discretionary items like clothes during the lockdown period, but that result was still well ahead of estimates for $119.4 million in revenue.  

Despite the challenges from the pandemic, the company managed to actually grow its bottom line after cutting back on expenses like marketing, administration, and distribution, which helped it overcome a decline in gross profit. Gross margin fell from 55.8% to 50.5%. 

Adjusted EBITDA increased 10% to $20.9 million, and adjusted earnings per share rose from $0.18 to $0.20, crushing expectations for adjusted EPS of $0.02.

The market was clearly impressed with Revolve's ability to adapt to a downturn in demand, and co-CEO Michael Mente said, "Our team has done a phenomenal job remaining extremely nimble throughout this highly uncertain and fluid environment, finding innovative ways to deliver operating efficiencies throughout the business and rapidly adjusting our marketing and merchandising strategies to stay connected with our customer."

Management also noted that inventory turned over 30% faster than it did in the quarter a year ago, which drove a strong increase in free cash flow.

Now what

Revolve did not provide guidance for the current quarter, but said that sales had improved in the first six weeks of Q3 to low-single-digit growth. It continues to see an impact from the pandemic, as demand has shifted to "at-home" categories like loungewear, intimates, and accessories. The company is seeing weakness in areas like dresses, its biggest category, as well as other types of clothing associated with social occasions.

Nonetheless, during a time when the entire apparel industry is being severely threatened, Revolve is demonstrating the strength of its model, and the company should be able to gain market share as the economy gradually normalizes.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Revolve Group Inc. The Motley Fool has a disclosure policy.

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