Revolve Consumer Feeling Pinch of Economy

The consumer party at Revolve may have stuttered a bit as the economy took a toll on shoppers — but founders Michael Mente and Mike Karanikolas said they’re still going strong and planning the e-commerce player’s next leg of growth.

This includes a new effort to build men in a major category, more to beauty, plans for a Web3 mobile game with Muus Collective and more.

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Mente and Karanikolas, who are co-CEOs, founded Revolve in 2003 and in an interview with WWD they clearly prided themselves on their ability to invest in the business in good times and bad and their ability to do so prudently (the party-strong image of the company notwithstanding).

Like almost every brand outside of luxury, Revolve is grappling with a consumer that feels the pinch of inflation and senses a looming recession.

“While we certainly have our share of customers who are quite affluent, the overall household income doesn’t index that much above the US average,” Karanikolas said. “She is certainly very sensitive to the American economy. When consumer sentiment goes down and people don’t feel so good about things, it definitely weighs on us.”

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Revolve is known for its going-out looks and party wear — and it doesn’t look like it’s giving up anytime soon — but Mente said the company is expanding its lineup by laying the groundwork to grow in men’s, which is currently a small business. . , and beauty.

The company’s own lines are also growing, with Mente referencing Remi Bader’s collection featuring an expanded size range.

“We are expanding the core of where we are,” said Mente. “We’re really proud that we can continue to make these investments while the environment is challenging.”

The co-CEO also sees competitive advantage.

“I love it when I hear people cut back and slow down,” Mente said. “We are able to invest while still being disciplined while driving profit.”

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Still, the company’s third-quarter net income fell 28 percent to $12 million from $16.7 million a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization fell 18 percent to $17.7 million. However, free cash flow grew more than sixfold to $8.6 million, strengthening the company’s balance sheet.

Sales for the three months ended Sept. 30 rose 10 percent to $268.7 million from $244.1 million, as the company’s active customer count rose 34 percent, or 84,000, to 2.2 million. That counts as slow growth for a company targeting 20 percent expansion.

Sales at the Revolve business rose 9 percent to $222.1 million, while the more designer-oriented Fwrd business increased 17 percent to $46.6 million.

Inventories flattened compared to the summer – weighing in at $213.3 million at the end of the quarter, a 2 percent increase from June and a 50 percent increase from a year ago.

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The company has been actively working to get inventory in line with current consumer demand and the economy and Karanikolas said it will continue to right-size and start to decline.

Investors seemed to feel better after seeing the results.

After falling 6.6 percent in regular trading on Wednesday, shares of the company made a U-turn in aftermarket trading, rising 11 percent to $24.69.

And while Wall Street and the market decide exactly how they feel, Revolve is growing in the new digital world.

The company entered into a strategic partnership with Griffin Gaming Partners-backed entertainment studio, Muus Collective Inc.

The pair will create “a fashion-centric Web3 mobile gaming experience that aims to revolutionize how consumers engage with fashion.”

Launching next year, the game will feature “digital playable versions of select fashion and beauty items from Revolve and Fwrd.”

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