Shares of Revolve Group (RVLV 1.57%) jumped today after the online fashion retailer posted better-than-expected results in its second-quarter earnings report, showing signs of a potential recovery after several years of disappointing results.
As a result, the stock closed up 32.5% on the news.
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Revolve is turning the corner
Revolve returned to revenue growth after five quarters of decline, though its growth was modest. Revenue increased 3% to $282.5 million, but that still beat the consensus at $277.2 million.
Sales at the Revolve segment were up 4% to $245.5 million, while sales at the Forward segment, its higher-end brand, fell 4% to $36.9 million. International sales were also a bright spot with sales up 13% to $57.4 million.
The company continued to deliver strong gross margins at 54%, showing the resilience of its business model, and Revolve succeeded in lowering operating expenses by cutting marketing expenditures. As a result, operating income more than doubled from $7.4 million to $16.4 million.
On the bottom line, earnings per share (EPS) jumped from $0.10 to $0.21, which was much better than the consensus at $0.13.
Co-CEO Mike Karanikolas said:
I'm thrilled with our team's performance that fueled a strong second quarter, highlighted by a return to top-line growth and a more than doubling of our net income year-over-year. Key contributors to our strong results were significantly improved marketing efficiency and greater efficiency in our logistics costs, helped by the first year-over-year decrease in our return rate in more than three years.
Is Revolve turning the corner?
Revolve's guidance was limited in its guidance as it just gave guidance around expenses, forecasting 52.5% to 53% gross margin for the year. It also sees an operating margin of at least 3% for the full year.
However, investors seemed more focused on the return to revenue growth and strong improvement in margins. Revolve stock looks a lot more affordable after the surge in EPS. While the company still needs to reaccelerate top-line growth, the business is moving in the right direction, and that's enough for the stock to bounce off of the recent lows.
