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On Wednesday, Stifel analysts kept a Buy rating on Revolve Group (NYSE:RVLV) shares, maintaining a $41.00 price target. The firm is optimistic about the company's performance, anticipating a top and bottom line beat as Revolve prepares to release its fourth-quarter earnings on February 20, 2024. According to InvestingPro data, the company currently trades at a P/E ratio of 54.9x and maintains strong financial health with a current ratio of 2.71. Stifel has increased its estimates for Revolve's revenue to $286.1 million and adjusted EBITDA to $10.7 million, which aligns with the consensus for EBITDA but is higher for expected revenue. The company has demonstrated solid performance, with InvestingPro data showing trailing twelve-month revenue of $1.09 billion and a healthy gross profit margin of 52.4%.
The analysts noted that apparel and e-commerce were significant contributors to a robust U.S. holiday spending season. Revolve Group, in particular, is believed to have experienced stronger consumer engagement than previously estimated, with a projected year-over-year net revenue increase for the fourth quarter exceeding 11%. This assessment is based on third-party web tracking and credit card data.
Stifel also pointed to Revolve's internal efforts to improve product returns and manage expenses, which are expected to result in a positive surprise in the fourth-quarter results. These improvements are anticipated to generate more excitement about the company's revenue growth and margin enhancement prospects for 2025.
The current market sentiment around Revolve Group is considered slack, with a 22% short interest and the company's shares having underperformed since the last earnings report. Revolve's stock declined by 6.9%, in contrast to the S&P 500's 2.0% gain since November 6, 2024. Stifel suggests that this backdrop sets the stage for a favorable reaction to the upcoming positive quarterly report, reinforcing their Buy rating and a street-high price target of $41.
In other recent news, Revolve Group Inc. has demonstrated strong performance in the third quarter of 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.
KeyBanc reiterated its Sector Weight rating for shares of Revolve Group, observing an increase in promotional activity following Black Friday, with about 61% of items on the Revolve platform discounted. The company is adding new SKUs at a slower pace, aiming to align inventory growth with net sales growth for the fourth quarter.
The company'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.
Looking ahead, 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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