Update on Revolve Group (NYSE: RVLV)
This post is an update on Revolve’s Q2 2024.
The screencaps below display Revolve’s financial highlights for Q2 2024 and were taken from the press released linked here. I have added comments of my own below each screencap.
Great to see net income more than double YoY. Per the corresponding 10-Q, this was mainly due to “increases in marketing efficiency.” Total orders placed and average order values being about the same weren’t encouraging.
Revolve continues to dominate segment sales and shows no signs of slowing down. International sales performed quite well as evidenced by growth “in nearly all major regions.”
I like that management continues to buy back shares of the business. Revolve remains financially healthy given its cash balance and lack of debt. Inventories were up, but management expects growth in the business, so that is to be expected.
Additional notes
Alexandre Vauthier acquisition - Per p. 11 of Revolve’s Q2 2024 10-Q, “In February 2024, Alexandre Vauthier, a French luxury fashion brand, filed for bankruptcy due to difficulties resulting from an increase in its working capital requirements. On June 19, 2024, pursuant to a decision rendered by the Commercial Court of Paris, Revolve Group, Inc. acquired the business of Alexandre Vauthier, for $0.4 million. The acquisition was made through L.A. Rive Droite, a newly incorporated French joint stock company. As of the acquisition date, the approximate fair value of net assets acquired was $2.3 million. The difference between the aggregate consideration paid and the fair value of the net assets acquired was recorded as a bargain purchase gain within other income, net. The results of operations of the acquired business are included in the Company’s consolidated results beginning June 19, 2024.
On July 1, 2024, the Company entered into a shareholders’ agreement with Mr. Alexandre Vauthier, according to which Mr. Alexandre Vauthier transferred all intellectual property and other rights relating to the business held by him in exchange for 20% share capital and voting interest in L.A. Rive Droite. Following that transfer, the Company recorded a noncontrolling interest of $0.7 million within its condensed consolidated balance sheets, which was measured based on the fair value of L.A. Rive Droite’s net identifiable assets as of July 1, 2024.
Total acquisition costs incurred by the Company in connection with the purchase were $0.3 million and primarily related to legal fees. These costs are recorded within general and administrative expenses in the condensed consolidated statements of income.”
Per the Q2 2024 Management Transcript, Revolve went through with this transaction because:
Alexandre Vauthier is one of only fifteen officially recognized haute couture brands on the planet. Other include Chanel and Christian Dior. Revolve expects to benefit from the association of this well known brand.
Brand marketing impact should be substantial considering that Rihanna, Beyonce, Taylor Swift, and Brigitte Macron, the first lady of France, have all been spotted wearing clothes from this company.
Expected synergies from Revolve’s e-commerce experience, data-driven merchandise experience, and operational excellence to help grow this brand’s DTC business.
Possible physical retail expansion – Michael Mente hinted that Revolve is considering expanding their physical presence due to the success of Revolve’s Aspen location. The business has gone as far as “engaging one of the most accomplished retail advisory firms in the market” who has helped with the expansion of Apple, lululemon, Abercrombie & Fitch, and Restoration Hardware. An update on this should take place on the Q3 call in November.
I’m pretty skeptical of this expansion. Running physical stores isn’t Revolve’s core competence and neither CEO has any experience in this arena. I’m eagerly waiting for the update on this during the Q3 call.