Retailer Revolve gets 2019's third-best US trading debut

[HONG KONG] Shares of online fashion retailer Revolve Group Inc briefly doubled after its US$212 million initial public offering but still closed the day with the year's third-best US trading debut.

Revolve opened trading Friday up 40 per cent from its $18 offer price and then soared as much as 111 per cent. It closed the day up 89 per cent to $34 a share, valuing the company at about US$2.33 billion based on the outstanding shares as listed in its IPO filing.

That first-day performance has been topped on US exchanges this year only by Beyond Meat Inc, the meat-substitute maker whose stock popped 163 per cent on its first day after the company raised US$277 million and by biotechnology company Cortexyme Inc, whose shares rose more than 93 per cent the day of its US$75 million listing. Beyond Meat's shares have risen almost 300 per cent since its May 1 IPO, making it the best performer of the year's listings.

Revolve sold 11.8 million shares Thursday at the top of a marketed range of $16 to $18, the 76th US IPO this year, bringing the total raised to more than US$27 billion, according to data compiled by Bloomberg. That's amid the surge of higher-profile listings including Uber Technologies Inc's US$8.1 billion IPO in May.

The offering by Revolve follows September's listing by luxury-clothing platform Farfetch Ltd, which raised US$855 million in its US IPO. This year, three other e-commerce companies have gone public in the US, raising a combined US$471 million, the data shows.

Revolve focuses on millennial customers, the generation that's currently in their mid-20s to late-30s, according to its prospectus. It attracts many of its customers through its own Instagram account with more than 5.5 million followers, and through a network of more than 3,500 influencers - users with large followings on social media - and social events.

PROFITABLE

The company, based in Cerritos, California, is profitable, earning US$31 million on sales of US$499 million last year, up from net income of US$5.3 million on sales of almost US$400 million in 2017, Revolve said in its filings.

Sales for the quarter ended March 31 rose 21 per cent to US$137 million, while net income fell 7.8 per cent to US$5 million. Revolve's average order value fell to US$259 for the quarter, down from US$282 for the same period last year.

Only a quarter of the Class A shares issued in the IPO were sold by the company, according to the filing. The remaining US$8.8 million shares were sold by current investors.

CONTROLLING CEOS

Those shares will carry one vote each, while Class B shares will have 10 votes each. That will give the Class B owners about 98 per cent of the voting rights, according to the filings. MMMK Development Inc, an entity controlled by co-chief executive officers Michael Karanikolas and Michael Mente, will control 67 per cent of the voting power.

Revolve plans to use the proceeds to buy back stock from existing stakeholders and to continue growing the company, its filing shows.

Last year, 18 per cent of the company's sales came from outside the US. Revolve cautions that expanding internationally will likely require fulfillment centres among other expenditures. The company also warns that its manufacturing operations in China could be affected by the political and economic climate there, as well as by tariffs imposed by the US government.

Revolve is also considering adding to its more than 20 private-label brands, as well as opening physical stores. Unlike most fashion retailers, Revolve's labels aren't entry-level products, with the average price topping those of third-party brands sold by the company.

"The future includes a lot of what we have right now," Mr Mente said in an interview. "Everything we're doing right now is working very well."

INSTAGRAM STRATEGY

While Revolve expects Instagram to continue to be the home for fashion content, it intends to stay ahead of the competition if that changes, Mr Karanikolas said.

"We have a long history of staying ahead of the competition there," Mr Karanikolas said. "We welcome shifts in the landscape. It usually represents opportunities for us."

Revolve's offering was led by Morgan Stanley, Credit Suisse Group AG and Bank of America Corp. Its shares are trading on the NYSE under the symbol RVLV.

BLOOMBERG