Revolve has been downgraded from ‘Buy’ to ‘Hold’ by Jefferies analysts who believe that the online fashion retailer will continue to be pressured by subdued consumer spending.
“Internet apparel retailers have collectively struggled in recent quarters as consumer demand trends have softened,” the analysts wrote in a note to clients.
They pointed to recent survey data that indicates that consumers cite apparel, accessories and footwear as top categories for likely spending cuts as they remain under “meaningful” financial pressure.
“We believe the macro environment is likely to continue to pressure consumer discretionary spending for the foreseeable future, and Revolve is not immune,” they wrote.
The analysts expect Revolve’s sales growth to be muted in fiscal 2024 at 1% compared to the consensus expectation of 4%.
They also noted that the company’s return rate remains elevated at more than 60% which is likely to be an ongoing headwind to its gross margin in the near-term.
“While we continue to believe Revolve will be a long-term share gainer in the highly-fragmented apparel space, we are moving to the sidelines due to near- to medium-term uncertainty,” the analysts summarized.
They maintained their US$17 price target on Revolve. The company’s shares traded down 4.5% at US$15.16 at noon on Thursday.