Best Idea Short RVLV out with a revenue and EBITDA miss, and material slowdown in almost every KPI. Revenue was down 1% for the quarter (was +8% last qtr), which was almost entirely driven by the US market, which was down 5% (Int’l +16%). New active customer additions came in at a mere 84,000 – yet another sub-100k quarter. For reference, the yy change in customers came in at 19%, down meaningfully from 27% last quarter. Total orders were up 6%, down from 11% last quarter. Avg order value was flat, compared to +5% last q. Gross margins were terrible, down 468bps vs last year, again, sequentially worse than -340bps last quarter. That drove EBITDA margins down 580bps yy. The only thing slightly redeeming about the print was that inventories got better on the margin, up 6% yy on -1% sales growth (bad) but better than the 23% increase last quarter (see SIGMA chart below). We think the problems here are part cyclical, and part secular. The secular point is what concerns us more here, and that’s that this company is running out of TAM. The days of adding 200-300k new customers in a quarter are gone. Now the company has to rely on over-assorting its site – going too broad and too deep with SKUs – and beyond its influencer-led model of being the go-to place for ‘must have right now’ fashion apparel. We think that the right margin structure for this model is about 5%, which gets us to about $0.50-$0.70 in earnings over both a TREND and a TAIL duration. We don’t think this slowing growth model is worth anywhere near the 23x PE or 13x EBITDA multiple it currently has. We’re thinking more like low to mid teens PE, not EBITDA. Ultimately we think RVLV will re-rate at lower numbers as the model continues to disappoint. This should be a $10 stock – or 50%+ downside from current levels.
