Shares of Revolve Group (RVLV 1.57%) were styling Wednesday after the online fashion retailer delivered a strong fourth-quarter report after the close Tuesday. While its top-line growth was still down slightly, the e-commerce company showed signs that it was turning the corner.
As of 12:50 p.m. ET, the stock was up 16.9% on the news.
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Revolve is making progress
Revolve's business initially soared coming out of the pandemic as its core customer base of young adults resumed going to parties and events, but growth has been sluggish in the last several quarters due to weaker spending overall on apparel and discretionary goods, and the stock is still down 77% from its pandemic-era peak.
On Tuesday afternoon, the company reported that revenue in the fourth quarter fell 1% year over year to $257.8 million, but that was ahead of the consensus estimate of $246.4 million. It grew active customers by 33,000 in the quarter, and the overall number rose 9% year over year to 2.54 million.
Gross margin in the quarter ticked up from 51.4% to 52%, though other profitability metrics worsened. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 40% to $8.5 million and generally accepted accounting principles (GAAP) earnings per share fell from $0.11 to $0.05, but that still topped the consensus estimate of $0.02.
"Despite the challenging backdrop for consumer discretionary spending, we closed out the year with a solid fourth quarter that included improved sales trends, year-over-year expansion of our gross margin, and early progress on selling and distribution cost efficiencies," said co-CEO Mike Karanikolas in the earnings release.
What's next for Revolve Group
The worst of the correction Revolve has been enduring over the last year or two seems to be behind it, and the increases in active customers and gross margins bode well for the stock.
Management did not offer revenue guidance for 2024, though it said that revenue had fallen by a mid-single-digit percentage in the first eight weeks of 2024. It also forecast that gross margin would improve to the 52.5% to 53% range for the year, up from 51.9% in 2023, which should help lift overall profits.
While its Q4 numbers show the company still has work to do, the business appears to be moving in the right direction, and given how far below its peak it's trading, the stock is set up for a potential comeback opportunity if the numbers continue to improve.
