What happened

Shares of digital fashion company Revolve Group (RVLV -0.47%) lost 17% of their value in August, according to data provided by S&P Global Market Intelligence. The company delivered a pretty good second-quarter earnings report, but it warned of pressure for the rest of the year.

So what

Revolve Group operates a website selling fashion goods for millennials. It uses artificial intelligence and machine learning to curate its collection of 70,000 products, and it generates customer interest and loyalty through its vast network of social media influencers and celebrities. It's a fashion company for the digital age.

Business has been brisk, especially as more people got online during the pandemic. It's been posting double-digit growth and robust profitability for many quarters, but it's hitting a snag in the middle of 2022 as inflation and rising costs are finally catching up. Sales increased 27% year over year in the second quarter, but net income sank 48%. Gross margin inched up 0.3%.

This was impressive performance when other fashion companies were posting declines. For example, Gap posted an 8% year-over-year decline in sales in the second quarter. However, the issue for Revolve investors is the rest of the year. Decelerating growth and pressured profitability was reasonable in this environment, and Revolve's performance under these conditions was fairly positive. But management also alerted investors that July sales slowed down further to a 10% year-over-year increase, and that they shouldn't expect much improvement in the third and fourth quarters. Revolve stock was already declining, and that only made it worse.  

Now what

Things at Revolve may not be as bad as they seem, at least in the long run. Between its strong model and its loyal customers, the company is well positioned for soaring growth. But it's going to take time.

There were many encouraging signs in the second quarter. Active customers increased 39% to 2.1 million, total orders placed increased 27% to 2.2 million, and average order value increased 19% to $303. Total second-quarter revenue of $290 million means this company is just getting started, and it has a huge addressable market in online fashion.

Revolve Group stock is down 58% this year, and at the current price, shares trade at 21 times trailing-12-month earnings, a low price for a company posting double-digit growth. Investors may want to consider adding shares on the dip.