Golf clap on RVLV putting up numbers above consensus (and our model) – revenue growth of 10% (Street at 6%) and EPS of $0.16 vs the Street at $0.09. But the good news ends there. Based on how we think the financial model will evolve over a TREND and TAIL duration, we’d be pressing this short aggressively on this print. October sales came in at +3% and management noted that they should moderate further from here – likely a down top line. Then we have 1Q sales down 13% admittedly off of a tough comp, but we have the 2-year TREND decelerating by a full 1,000 basis points in 1H23. The problem is in all the KPIs, we think that net customer additions decelerate further (slowed by 32% this quarter) as we enter into the most competitive apparel environment in history, which should also impact orders per customer and average order value. We’re below guidance on Gross Margin as well (inventories +50% yy) which hardly helps the EPS equation for the next three quarters. Ultimately, we think that the company flat-out misses next quarter, but would be surprised if management team (which has horrible forecast accuracy) guides down 2023 as much as it ultimately should. We’re modeling a 20% down year for 2023, compared to the Street modeling 30% earnings growth. Then over a TAIL duration, we think that the company begins to run out of outsized customer additions – but are giving the company credit for $300+ avg order value as it shifts mix toward its higher priced FORWARD brand. But margins here are the problem. As the company gets even more over-assorted than it is today, we think that a 50% gross margin will be tough to hold – and keep in mind that it carries an astonishingly high 50% return rate. Ultimately, we build to TAIL earnings of $0.69 – less than half of the consensus, and a far cry from what the company printed in its first full year as a public company -- $1.34. We think that lower margin structure and earnings stream is worth 15x at best (and that’s being generous), which gets us to about a $10 stock vs $22 after hours. We’ve been short this name since $66.22, so it’s been a big win for us so far. But the trajectory of earnings and the change in the narrative (overassorting to chase growth that’s not there) here is almost reminiscent of SFIX. Punchline is that this stock is headed a lot lower. This is a Best Idea Short and we’d be pressing it here.
Takeaway: EPS here going FAR lower than the Street is modeling. We shorted at $66, and while it’s been a win – at $22 today -- we see downside to $10.
