On Wednesday, KeyBanc reiterated its Sector Weight rating for shares of Revolve Group (NYSE:RVLV) without specifying a new price target. The firm observed an increase in promotional activity following Black Friday, noting that approximately 61% of items on the core Revolve platform are discounted as of December 2, 2024.
The figure is slightly down from the mid-October peak of about 62% but up from around 57% at the same time in the previous year. The company's stock has shown remarkable resilience, posting a 147% return over the past year according to InvestingPro data, despite the promotional environment.
The analyst highlighted that the level of promotions during the week of Black Friday was consistent with the previous year, at roughly 60% for the week ending November 27, 2023.
Despite the deep markdowns, the total SKU count on Revolve's website has grown by approximately 9% year-to-date, with a notable increase in the first week of August. Revolve is adding new SKUs, albeit at a slower pace, as it aims to align inventory growth with net sales growth for the fourth quarter.
Moreover, the percentage of final sale items rose to about 11%, compared to 15% during the same period last year and 6% at the start of this year. The total number of final sale SKUs has surged by approximately 109% since January 1, a rise attributed to seasonal promotions driven by Black Friday.
KeyBanc plans to continue monitoring promotional trends in the weeks leading up to the holiday season. This period is considered crucial for assessing retailer sentiment regarding demand and inventory levels. However, the firm noted that Revolve's business is not as dependent on the fourth quarter as other competitors in the retail sector.
According to InvestingPro analysis, the company appears overvalued at current levels, though it maintains healthy gross profit margins of 52.4%. Subscribers can access 14 additional ProTips and a comprehensive Pro Research Report for deeper insights into RVLV's valuation and growth prospects.
In other recent news, Revolve Group Inc. showcased a robust performance in Q3 2024, with net sales rising 10% year-over-year to reach $283 million. The company's net income also saw a significant increase, reaching $11 million, or $0.15 per diluted share, a notable rise from the $3 million reported in the same quarter of the previous year. Adjusted EBITDA also grew by 85% to reach $18 million.
Revolve's co-CEOs, Mike Karanikolas and Michael Mente, attribute this growth to improved logistics, decreased return rates, and strong performance in key categories such as Fashion Apparel and Dresses. The company has also been investing in AI technology, international expansion, and marketing initiatives, which have contributed to its positive outlook.
In terms of future expectations, the company plans to open a Revolve Holiday Shop and a flagship store by mid-2025. Despite inventory levels being higher than desired, alignment with sales growth is expected by Q4.
Lastly, despite a projected slight decline in Q4 gross margin due to markdowns and freight costs, the company's management remains optimistic about Revolve's trajectory.
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