Revolve Group pullback 'offers compelling entry point': Jefferies

Investing.com -- Jefferies raised Revolve Group (NYSE:RVLV) to Buy from Hold on Friday, telling investors in a note that the recent share price pullback as a "compelling entry point." 

The analysts came away from a recent call with management with greater confidence in the company’s long-term growth potential, driven by AI and personalization, owned-brand expansion, physical retail expansion, and international growth.

Web traffic data for February is said to indicate a positive start to 2025, with Revolve's traffic up 8% year-over-year and its luxury segment FWRD growing 57% YoY. 

Jefferies believes these trends support continued revenue growth.

The firm also notes that the company’s investments in AI have boosted engagement and conversion rates in 2024, with management highlighting a 2% increase in total orders and a 2% rise in average order value (AOV). 

Internal AI solutions have outperformed third-party alternatives, reinforcing Revolve’s proprietary technology edge. As a result, Jefferies expects customer retention to improve by 5% and return rates to decline by 140bps in 2025.

“Higher owned-brand penetration offers margin expansion,” said the firm. “Owned-brands accounted for 18% of RVLV in F'24. The co plans to build on this with a focus on premium essentials and adjacent categories  (ie Beauty, Footwear, Outerwear, Workwear).”

Management anticipates a moderate mix increase in 2025, which could help offset tariff pressures. Jefferies projects 100bps of gross margin expansion through 2026 to 53.5%, above the consensus estimate of 52.6%.

Revolve’s physical retail strategy is another growth driver, according to the firm. 

They note that after launching a permanent Aspen store and an LA pop-up, the company plans to open a flagship store in Los Angeles this fall. Jefferies also pointed to management saying early results indicate retail locations boost owned-brand penetration and e-commerce sales in surrounding areas.

With international sales growing 14% YoY in 2024, Jefferies sees this as an opportunity for long-term revenue diversification. The firm maintained its $30 price target on the stock.