While it was a fairly quiet week for the IPO market, it was an encouraging one. Considering the volatility in the stock market, it would not have been surprising if the IPO market closed up shop for a while. But, demand for both of these IPOs was healthy, which is a good omen for the four deals that are expected to launch next week.
Also, RVLV's strong pricing is a little surprising given the struggles two other recent fashion e-tailer IPOs have had. Namely, Farfetch (FTCH) has plummeted by nearly 30% since early March driven by a bad Q1 earnings miss. Stitch Fix (SFIX) has fared somewhat better this year, but, its shares have also slid 33% from its highs.
Nevertheless, investors were not deterred as RVLV's growth potential and improving margins generated enthusiasm for its deal.
The deal raised $212 mln in total gross proceeds which is intends to use to buy back Class B shares from private investors and for general corporate purposes.
The lead underwriters on the IPO were Morgan Stanley, Credit Suisse, and BofA Merrill Lynch. The stock is set to open for trading later this morning on the NYSE.
REVOLVE describes itself as the next-generation fashion retailer for Millennial and Generation Z consumers. Through 16 years of investment in technology, data analytics, and marketing and merchandising strategies, it has built a platform and brand that it believes is connecting with the next generation of consumers and is redefining fashion retail.
RVLV has a curated offering totaling over 45,000 apparel, footwear, accessories and beauty styles. It's platform connects with thousands of global fashion influencers, and more than 500 emerging, established and owned brands.
It also has built a portfolio of 21 owned brands. The company believes its consumers perceive these as highly desirable, independent brands, rather than private labels or house brands. As a result, during the 12 months ended March 31, 2019, its owned brands represented eight out of its top 10 brands, 32.6% of the REVOLVE segment’s net sales, and four out of the top five brand search terms on external search engines that led to a purchase.
To improve on the merchandise offerings from traditional retail, RVLV has built a custom, proprietary technology platform to manage nearly all aspects of its business, with a particular focus on developing highly automated inventory management, pricing, and trend-forecasting algorithms.
For the three months ended March 31, 2019, net sales increased 21% to $137.3 mln. The overall increase in net sales was primarily due to sales to a larger number of customers, as the number of active customers increased 39.6% in this quarter as compared to the same period in 2018.
Additionally, the number of orders placed by customers increased 38.9% in the three months ended March 31, 2019 as compared to the same period in 2018.
Gross margin improved to 51.5% from 49.8%. RVLV experienced a higher mix of REVOLVE merchandise sales in 2019 which generally carry a higher margin.
Marketing expenses increased by 27% to $19.5 mln as it ramped up efforts to acquire new customers and retain existing customers.
The jump in expenses caused its operating income to decline to $6.9 mln from $7.5 mln.