What happened
Shares of Revolve Group (RVLV +3.37%) were heading lower after the online apparel seller posted disappointing top-line results in its third-quarter earnings report. Like other clothing businesses, the influencer-driven e-commerce company has struggled during the pandemic.
As of 1:55 p.m. EST, the stock was down 9% on the news.
Image source: Revolve Group.
So what
A core part of Revolve's business is selling clothes for social events, many of which have been canceled because of the coronavirus pandemic. As a result, revenue declined 2% to $151 million, which missed analyst estimates at $158.2 million.
Sales declined at both Revolve, its principal site, and Forward, its luxury-focused brand. International markets, however, were a bright spot as sales increased 18%, but that wasn't enough to make up for a 6% decline in domestic sales.
Despite the top-line headwinds, management was still able to grow profits as gross margin increased to a record, rising from 53.6% to 55.3%, due to improvements in inventory and a decline in markdowns. Management also noted a less promotional overall environment, especially in luxury, and the company also saw a boost from lower return rates and saved on marketing costs. As a result, earnings per share more than doubled in the quarter from $0.13 to $0.27, beating estimates at $0.14.
"Strong execution on our merchandising and operational initiatives led to another quarter of record results," Co-CEO Mike Karanikolas said in a statement. "Despite the challenging backdrop and short-term pressures, we continued to drive efficiencies throughout the business in the third quarter, leading to higher margins and record profitability."
Now what
Management did not offer guidance, but said that sales had declined by high-single digits in October as the company continues to experience headwinds from COVID-19, an uncertain macro environment, and an elevated unemployment rate. Nonetheless, the company has seen strength in categories that are primarily worn at home, like beauty, accessories, intimates, and activewear. That's a sign that business should bounce back when the pandemic ends, and the news from Pfizer earlier in the week makes it more likely that will happen in the coming months.
Considering the strong bottom-line growth in a difficult environment, investors may want to take advantage of the sell-off.
