This trendmaker’s stock is about to crush the reopening

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Revolution group (RVLV -4.80% ) is a fashion retailer with a business plan focused on social media influencers and live marketing events with the goal of targeting Millennial and Gen Z customers. Revolve has been through a tough 2020 in during which all of its events were canceled and came out in decent form.

The stock is up 207% from a year ago, eclipsing the S&P 50025% of earnings. Now, as the world continues to emerge from the lockdowns brought on by the pandemic, Revolve is back to doing what it does best, and the results speak for themselves.

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Impressive results over two years

Revolve’s year-over-year results are impressive, but given that these results are compared to quarters affected by the pandemic, it is more useful to compare its business and financial metrics to 2019. On a two-year basis , the most recent published quarter showed revenue growth of 58%, net income growth of 74% and gross margin growth of 148 basis points. This shows that even during a year when its main marketing strategy was frozen, the company was able to continue to grow its business.

Year-over-year customer metrics also tend to increase. Active customers, total orders placed and average order volume increased by 12%, 60% and 19% respectively. During the third quarter earnings call, management was quick to point out that the number of active customers increased by 124,000 compared to the second quarter, representing the strongest sequential growth in the history of the society.

Not only is Revolve experiencing substantial growth in 2019, the more recent acceleration in the number of active customers shows the impact of the company’s return to live event marketing.

Live Events and Kendall Jenner

Considering Revolve has built its business around live events and influencer marketing, the pandemic has presented a significant challenge to its proven marketing strategy. Revolve specifically targets Gen Y and Gen Z customers. Management believes this digital and mobile native generation is best reached through social media and with the use of influencers. Fortunately, during the third quarter Revolve was able to pick up on the live events that are at the heart of its business.

For the first time, Revolve participated in New York Fashion Week. Among the many other celebrities in attendance was Kendall Jenner, who was recently named Creative Director of Revolve’s FORWARD segment. FORWARD is the premium segment of Revolve that provides a higher average order value and is an important part of growing the business. Jenner’s appointment is an integral part of Revolve’s marketing strategy, and a video she made for Vogue, which depicts a day in Jenner’s life in her new role, has already been viewed 5 million times. It’s a large network of potential customers who might find their way to Revolve due to Jenner’s association with the company. Time will tell if Jenner’s appointment will have an impact on bottom lines, but her addition aligns with the company’s vision of attracting new customers by leveraging Jenner’s celebrity status and base. subscribers on social networks.

The future is bright

The growth Revolve has experienced in recent quarters has been matched by well-managed operating expenses and a clean balance sheet. While overall operating expenses were a higher percentage of revenue in the third quarter, some was expected by management as they planned to spend more on the live events mentioned above. What should be encouraging for investors is that general and administrative expenses have decreased as a percentage of revenue from 12% to 10%. Plus, even with an increase in inventory spending, the company has managed to generate $ 1 million in free cash flow and the balance sheet remains debt-free.

Throughout the pandemic, Revolve has signaled that if the business can weather the storm, it will be poised for strong growth once consumers get back to shopping for clothes and going out. The last two quarters have proven that the thesis is correct. It remains to be seen whether this growth will continue, but Revolve is trading at an attractive price / sales (P / S) of eight, which is on par with online retailers such as FarFetch (FTCH -0.65% ) and Poshmark ( HOT -2.08% ) which have P / S ratios of seven and five, respectively.

Considering that Revolve has been able to keep its business afloat during the pandemic, it stands to reason the company should benefit from favorable winds as more live events take place. For investors who believe that these live marketing events can be the catalyst for accelerated growth – and that these events won’t be too badly impacted by the newly discovered omicron variant – now is the time to grab shares of Revolve like he hopes to capitalize on the reopening of the economy.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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