Each investor desires a inventory that may develop quicker than the broad market, however this outperformance is not all the time simple to search out. Let’s discover how Revolve Group (NYSE:RVLV) can use its progressive enterprise mannequin to disrupt the style trade to spice up its income and earnings.
A vogue retail disruptor
Based in 2003, Revolve Group boasts a singular tackle vogue retail. The corporate curates and sells designer attire, footwear, and equipment with the assistance of a proprietary algorithm to handle stock and faucet into vogue developments. However its advertising technique — which depends on a community of about 4,500 Instagram influencers — is what units it other than rivals within the trade.
As a substitute of conventional promoting such show advertisements, billboards, and so on., Revolve pampers its social media influencers with free garments and unique experiences to assist them create participating social media content material. As only one instance, the corporate’s 2019 #REVOLVEfestival (affiliated with the Coachella music pageant) dressed over 750 influencers and helped the corporate appeal to 130,000 new Instagram followers.
This distinctive technique has fueled the expansion of the corporate’s model visibility and its prime line. Revenue grew at a compound annual price of extra tha 24% from 2016 to 2019, earlier than the disruptions of the coronavirus pandemic.
Revolve additionally boasted a powerful gross margin of 51.5% by way of the primary three quarters of 2020, considerably greater than competing attire firms like City Outfitters and Sew Repair. That implies the corporate has environment friendly stock administration, and Revolve can be capable of promote gadgets at full worth as a substitute of counting on markdowns to spice up gross sales. The corporate can leverage its digital-only distribution technique to cut back working prices as effectively.
Over the long-term, these benefits might result in wholesome bottom-line development as the corporate scales up its enterprise mannequin.
Bouncing again from the disaster
Nonetheless, the coronavirus pandemic took a significant toll on Revolve’s advertising technique as the corporate will depend on journey and tourism to generate engagement. However the firm is rapidly recovering from the disaster by pivoting to digital-only programming. Influencers now create stay-at-home content material round cooking, hair routines, and dances in lieu of their earlier glitzy outings. In accordance with Revolve Chief Model Officer Raissa Gerona, engagement with this new advertising technique might turn out to be a brand new development metric for the corporate (even perhaps after the pandemic is over).
Third-quarter web gross sales fell 2% yr over yr to $151 million, however that was an enchancment from the second quarter when gross sales had been down 12%. Revolve can be utilizing the pandemic as a possibility to streamline its operations by automating its achievement system and briefly decreasing govt salaries to avoid wasting on working prices. These efforts (together with decreased markdowns and fewer returns on gadgets) helped the corporate enhance third-quarter web revenue from $9.6 million within the prior-year interval to $19.4 million, regardless of the difficult financial surroundings.
Administration did not present formal steerage within the newest earnings report, however they did count on continued uncertainty within the fourth quarter resulting from world headwinds, together with rising coronavirus circumstances and excessive unemployment within the U.S. However the U.S. is present process a large vaccination effort because it inoculates as much as a million People per day, and work on a 3rd stimulus bundle (which can embrace money distributions) might help client spending close to time period.
Revolve Group at present trades at a ahead price-to-earnings (P/E) ratio of 56, which represents a major premium to the S&P 500 a number of of 25 because the market costs in aggressive expectations for the corporate.
However Revolve has set itself aside in an ultra-competitive trade, making it a development inventory with huge potential due to its disruptive, social media-driven advertising technique. Although the inventory has greater than doubled up to now yr, buyers who need the most effective the style and attire trade can provide ought to choose up shares earlier than Revolve resumes its development trajectory within the wake of the pandemic.