Revolution Beauty growth initiatives announced provide strong momentum into FY23E says Zeus Capital

Revolution Beauty Group plc (LON:REVB) has released H1 results, confirming trading remains in line with full year expectations, despite well flagged input cost pressures. Today’s announcement unveils the roll out of a major new US retail partnership from Q4, as well as the launch of several new product categories, underpinning growth expectations into FY23 and beyond.

  • H1 results: Revenue of £78.6m is +38.8% YOY (H1 FY21: £56.6m) with strong growth across Makeup (+35% YOY), Skincare (+34% YOY) and its relaunched Haircare category. Store revenue of £56.8m was +75.8% YOY (H1 FY21: £32.3m) benefitting from a recovery in store trading as Covid-19 restrictions eased. USA store revenue of £20.3m +102% YOY, boosted by the roll out of the Group’s Makeup Revolution brand across 1,800 target stores at the start of this year. UK store revenue of £15.8m is +78% YOY as trading restrictions lifted and footfall increased. In ROW revenue of £20.7m was +56% YOY, a more moderate increase due to persistent lockdown restrictions, notably in Australia. Digital revenue of £21.8m was 10% lower YOY reflecting supernormal growth in H1 FY21 as lockdowns drove consumers online, with digital sales +53.3% compared to the same period two years ago.  This decline was driven by a softening in demand across its digital partnerships, with the Group’s own D2C business growing in the period, including 200k increase in active customers, supported by the roll out of localised D2C platforms in the USA, Australia, and New Zealand. Gross margin of 47.9% is +20bps YOY as the Group successfully mitigated input cost inflation. Adj. EBITDA of £5.1m is +38.6% YOY, driven by revenue growth, despite incremental investment in supply chain and an increase commissions paid on licenced products. The Group had £17.6m in net cash at the period end.
  • New US retail partnership & new categories: Revolution Beauty has announced a major new US retailer partnership, commencing with a roll out into 2,800 of its stores nationally in Q4. New category launches in H2 include fragrance and Derma Skin, with Revolution Man to be launched in FY23.
  • Current trading & Forecasts: Trading in Q3 has started strongly, with an acceleration in sales across both store and digital. Our forecasts are unchanged, reflecting management’s confidence in achieving full year expectations, despite ongoing supply chain volatility. We believe the growth initiatives announced today provide strong momentum into FY23E.
  • Valuation: At last night’s close Revolution Beauty trades on an FY22E EV/EBITDA of 17.2x with a PE of 50.2x, a discount to listed peers average PE of 58.1x, despite its sector leading revenue growth profile over the next three years. Our DCF implies 55% upside to current valuation.
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