Revolve vs. Lulu's Fashion Lounge: Which Online Clothing Retailer is a Better Buy?

Revolve Group, Inc. (RVLV) and Lulu's Fashion Lounge Holdings, Inc. (LVLU) are two prominent players in the global online apparel retailing market, focused on Millennial and Generation Z consumers. RVLV offers women's apparel, footwear, accessories, and beauty styles under established and emerging brands and owned brands. It operates a platform that connects consumers and global fashion influencers. In comparison, LVLU provides women's clothing, shoes, and accessories. The company sells its products through owned media, earned media, and paid media.

Despite growing inflationary pressure and labor and supply chain issues, 2021 holiday retail sales grew 14.1% to $886.70 billion. Rising consumer spending is expected to drive the industry’s sales this year as well. With the continuation of the remote lifestyle, the online apparel retail industry should witness solid growth. Investors’ interest in this space is evident from the ProShares Online Retail ETF’s (ONLN) 8% gains over the past five trading days versus the SPDR S&P 500 Trust ETF’s (SPY) 3.8% returns.

With millennial and Gen Z customers being their prime target, apparel retailers are striving to introduce new fashion trends and eco-friendly clothing in partnership with top fashion influencers. The global online apparel retailing market is expected to grow at a 10.6% CAGR between 2020 and 2025. So, both RVLV and LVLU should benefit.

RVLV is a winner with 12.9% gains versus LVLU’s 6% returns in terms of the past week’s performance. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

RVLV’s net sales for its fiscal 2021 third quarter, ended September 30, 2021, increased 61.6% year-over-year to $244.06 million. The company’s gross profit came in at $134.48 million, up 61.1% from the prior-year period. Its income from operations came in at $19.21 million, representing an 11.9% rise from its prior-year value. RVLV’s net income came in at $16.67 million for the quarter, indicating a 14.3% rise from the prior-year period. Its EPS increased 18.5% year-over-year to $0.22. The company had $221.61 million in cash and equivalents as of September 30, 2021.

For its fiscal 2021 third quarter ended September 30, 2021, LVLU’s net revenue increased 95% year-over-year to $106.32 million. The company’s gross profit came in at $50.77 million, up 108% from the prior-year period. Its income from operations came in at $9.06 million, indicating a 122.7% rise from the year-ago period. LVLU’s net income came in at $2.28 million for the quarter, representing an 872.7% year-over-year improvement. Its EPS increased 1200% year-over-year to $0.13. The company had $40.93 million in cash and equivalents as of October 3, 2021.

Expected Financial Performance

RVLV’s EPS is expected to grow 8.8% year-over-year in the fiscal year 2022, ending December 31, 2022. The company’s revenue is expected to increase 22.8% year-over-year in fiscal 2022.

In comparison, analysts expect LVLU’s EPS to grow 118.5% year-over-year in fiscal 2022, ending December 31, 2022. Its revenue is expected to grow 27.1% year-over-year in fiscal 2022.

Valuation

In terms of forward EV/Sales, 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 with RVLV’s 31.19x.

Profitability

RVLV’s trailing-12-month revenue is almost 2.4 times LVLU’s. RVLV is also more profitable, with a 55.2% gross profit margin versus LVLU’s 47%.

Furthermore, RVLV’s EBITDA margin and net income margin of 11.9% and 11.3% compare favorably with LVLU’s 8.5% and 2%, respectively.

POWR Ratings

While LVLU has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, RVLV has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both LVLU and RVLV have B grades for Momentum, which is consistent with their impressive price performance over the past year. Over the last five trading days, LVLU has gained 6%, while RVLV returned 12.9%.

LVLU has a B grade for Growth. The company’s operating cash flow has grown 38.6% from the prior-year period. RVLV’s C grade for Growth is in sync with its negative EBITDA growth over the past year.

Of the 46 stocks in the C-rated Specialty Retailers industry, LVLU is ranked #13.

RVLV is ranked #36 of 65 stocks in the D-rated Consumer Goods industry.

Beyond what we have stated above, our POWR Ratings system has also rated LVLU and RVLV for Stability, Sentiment, Value, and Quality. Get all LVLU ratings here. Also, click here to see the additional POWR Ratings for RVLV.

The Winner

The continued growth of the online clothing 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 if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Consumer Goods industry, and here for those in the Specialty Retailers industry.

RVLV shares were trading at $51.62 per share on Tuesday afternoon, up $2.30 (+4.66%). Year-to-date, RVLV has declined -7.89%, versus a -4.83% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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