Which online clothing retailer is a better buy?
Revolve Group, Inc. (RVLV) and Lulu’s Fashion Lounge Holdings, Inc. (LVLU) are two leading players in the global online apparel retail market, focused on Millennials and Gen Z consumers. RVLV offers apparel, footwear, accessories and beauty styles for women under established and emerging brands and own brands. It operates a platform that connects consumers and global fashion influencers. In comparison, LVLU offers clothing, shoes and accessories for women. The Company sells its products through owned media, earned media and paid media.
Despite growing inflationary pressure and labor and supply chain issues, holiday 2021 retail sales grew 14.1% to $886.70 billion. Rising consumer spending is also expected to boost industry sales this year. With the continuation of the remote lifestyle, the online clothing retail industry is expected to experience solid growth. Investor interest in this space is evident in ProShares Online Retail ETFs (ONLN) Gains of 8% in the last five trading days compared to the SPDR S&P 500 Trust ETFs (TO SPY) 3.8% returns.
With Millennials and Gen Z customers being their primary target, apparel retailers strive to introduce new fashion trends and eco-friendly clothing in partnership with top fashion influencers. The Global Online Clothing Retail Market is Expected to Grow at a Pace 10.6% CAGR between 2020 and 2025. Thus, RVLV and LVLU should benefit from it.
RVLV is a winner with gains of 12.9% against LVLU’s returns of 6% in performance last week. But which of these actions is a better choice now? Let’s find out.
Recent financial results
RVLV’s net sales for its third quarter of fiscal 2021, ended September 30, 2021, increased 61.6% year-over-year to $244.06 million. The company’s gross profit was $134.48 million, up 61.1% from the prior year period. Its operating income amounted to $19.21 million, representing an increase of 11.9% over its value in the previous year. RVLV’s net profit was $16.67 million for the quarter, indicating a 14.3% increase over the prior year period. Its EPS rose 18.5% year-over-year to $0.22. The company had $221.61 million in cash and cash equivalents as of September 30, 2021.
For its third quarter of fiscal 2021 ended September 30, 2021, LVLU’s net revenue increased 95% year-over-year to $106.32 million. The company’s gross profit was $50.77 million, up 108% from the prior year period. Its operating income was $9.06 million, representing an increase of 122.7% over the prior year period. LVLU’s net profit was $2.28 million for the quarter, representing an 872.7% year-over-year improvement. Its EPS rose 1,200% year-over-year to $0.13. The company had $40.93 million in cash and cash equivalents as of October 3, 2021.
Expected financial performance
RVLV’s EPS is expected to increase 8.8% year-over-year in fiscal 2022, ending December 31, 2022. The company’s revenue is expected to increase 22.8% d year over year in fiscal year 2022.
By comparison, analysts expect LVLU’s EPS to grow 118.5% year-over-year in fiscal 2022, ending Dec. 31, 2022. Its revenue is expected to increase 27.1% year-over-year in fiscal 2022.
In terms of EV/Futures, RVLV is currently trading at 3.58x, 146.9% higher than LVLU’s 1.45x. In terms of forward EV/EBITDA, LVLU’s 13.91x compares to RVLV’s 31.19x.
RVLV’s revenue over the past 12 months is almost 2.4 times that of LVLU. RVLV is also more profitable, with 55.2% Gross margin against 47% for LVLU.
Additionally, RVLV’s EBITDA margin and net profit margin of 11.9% and 11.3% compare favorably to LVLU’s 8.5% and 2%, respectively.
While LVLU has an overall rating of B, which translates to Buy in Our Own POWR Rankings system, RVLV has an overall rating of C, equivalent to a neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
Both LVLU and RVLV have B ratings for Momentum, which is consistent with their impressive price performance over the past year. Over the past five trading days, LVLU has gained 6%, while RVLV has gained 12.9%.
LVLU has a B rating for growth. The company’s operating cash flow increased by 38.6% over the prior year period. RVLV’s C rating for growth is in line with its negative EBITDA growth over the past year.
Of the 46 shares listed C Specialized retailers industry, LVLU is ranked #13.
RVLV is ranked No. 36 out of 65 stocks in the D rating Consumer goods industry.
Beyond what we stated above, our POWR rating system also rated LVLU and RVLV for stability, sentiment, value, and quality. Get all the LVLU ratings here. As well, Click here to see additional POWR ratings for RVLV.
Continued growth in the online apparel industry should benefit both RVLV and LVLU, but better analyst sentiment and relatively lower valuations make LVLU a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the consumer goods sector, and here for those in the specialty retail industry.
Shares of RVLV were trading at $51.62 per share on Tuesday afternoon, up $2.30 (+4.66%). Year-to-date, RVLV is down -7.89%, compared to a -4.83% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. Following…