Revolve Group LLC (RVLV, Financial) offers good value for money, in my opinion, after its 52% stock price decline since its IPO in June 2019.
The clothing retailer is investing in its website, plans to launch a loyalty program and is aiming to become more efficient.
Website investment
The designer clothing company has improved its website to boost its online sales. For example, in the fiscal 2019 fourth quarter, it launched upgraded navigational features on its website to improve the shopping experience for its online customers. It also introduced an option where its customers can order a second size of certain products at no additional cost to ensure they obtain the right size. This could differentiate Revolve from its retail sector peers, and may strengthen its competitive position.
In addition, the retailer increased the amount of personalization it uses on its mobile app and on its website. It uses data from the previous purchases of its customers to show them more relevant product recommendations. This could increase its average customer order value and lead to an improving financial performance for the business.
Revolve has reduced the amount of time it takes to ship its items to customers and has also introduced a more convenient return process. This could increase its customer loyalty levels and encourage a higher level of repeat business.
Growth strategy
The business plans to launch a loyalty program in 2020. It will offer unique benefits to its members, including access to exclusive discounts and events. The company’s loyalty program will use new technology and data on the spending habits of its customers to make more relevant product recommendations. This could catalyze the retailer’s sales performance and make it more competitive compared to sector peers that already have loyalty programs in place.
Revolve is increasing its investment in own brands, which help to differentiate it from sector peers and can produce higher margins than its third-party products in many cases. The retailer reported in its fourth quarter results that it does not yet have its own brands in a large number of its most important product categories. This could mean that it has room to release more of its own brands in upcoming quarters, which may boost its profitability.
Possible threats
The outbreak of the novel coronavirus (Covid-19) could negatively impact the company’s financial prospects. It relies heavily on shipments from China across its range of products. Factory closures and restrictions in production across significant parts of China could hurt both supply and investor sentiment. The retailer also expects weak consumer demand in China in 2020.
In response, Revolve is aiming to cut its costs and become more efficient to offset the prospect of weaker sales growth. For example, it invested $10 million in a new fulfilment center in the fiscal 2019 fourth quarter. This expands its warehouse capacity and could reduce its transportation costs.
In addition, it implemented automation in its warehouses that could reduce its labor requirements. This contributed to zero growth in its number of warehouse employees in 2019 compared to 2018, even though its number of orders increased 27%. The retailer’s use of automation in its distribution centers may also lead to greater speed and reliability in dispatching its customer orders. This could enhance its market position in upcoming years.
Future prospects
Market analysts forecast that the company will report a 30% rise in its earnings per share in fiscal 2021. Its forward price-earnings ratio of 27.4 suggests that its stock price can recover as the business implements its growth strategy.
Disclosure: The author has no position in any stocks mentioned.
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