On Wednesday, Needham & Company adjusted its outlook on Revolve Group (NYSE:RVLV), increasing the price target to $23 from the previous $16, while retaining a Buy rating on the stock. The fashion retailer has shown promising signs of recovery, with the REVOLVE brand experiencing its first positive sales quarter in a year, surpassing holiday expectations. This uptick came with improved margins, indicating a healthier financial position for the company.
The current quarter-to-date trend is somewhat subdued due to a decrease in markdown sales as both brands have reduced promotional activities. However, full price sales have seen a slight increase. With an easier comparison in March on the horizon, the company anticipates a more favorable sales trend moving forward. Needham projects a modest 1% sales decline for the first quarter of 2024.
Revolve Group has also seen a sequential improvement in its return rate, suggesting that recent initiatives are beginning to yield results. Company guidance points to stable margins throughout 2024, with potential for further gains if return rates continue to improve. Management has noted that each 1% change in return rates could result in a 30 to 50 basis point impact on annual Selling & Distribution margins.
Currently, Revolve Group's stock is trading at over 20 times its expected enterprise value to EBITDA for 2024. Despite this, Needham believes that the stock is positioned for multiple expansion. This optimism is based on the anticipation that both the company's top line and margins are on an upward trajectory.
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