Revolve shares sink 17% after inventory troubles pressure sales

Revolve Group Inc. RVLV, +2.39% shares sank 17.7% in Wednesday premarket trading after the e-commerce apparel business reported a sales miss and gave weak guidance. Net income totaled $8.4 million, or 12 cents per share, up from $7.7 million, or 11 cents per share, last year. Sales of $147.6 million were up from $127.7 million the previous year. The FactSet consensus was for EPS of 11 cents and sales of $152 million. Revolve said inventory issues put pressure on results. "We slowed the receipt of new inventory in the fourth quarter, which we believe impacted conversion and revenue growth," said Michael Karanikolas, Revolve’s co-chief executive on the Tuesday after-hours earnings call, according to the FactSet transcript. "[A]s we work through the existing inventory, the slightly higher levels of markdowns we experienced in the second half of 2019 are likely to continue into the first half of 2020." Revolve expects 2020 sales of $679 million to $703 million, below the FactSet guidance of $706.9 million. "With management noting lighter sales and inventory issues, we believe too much internal faith in Revolve’s algorithm may be preventing management from taking deep enough discounts to clear slow-moving inventory," wrote Simeon Siegel, analyst at BMO Capital Markets. "And holding old inventory too long may well have driven the decision to reduce the receipts of new product, which could ultimately turn away new customers." BMO rates Revolve stock market perform with a $15 price target. Revolve stock has gained 12.3% over the last three months while the S&P 500 index SPX, -3.03% has slipped 0.4% for the period.

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