Reformation grows Q3 sales 19.1% to $173.6 million and lifts its outlook

Reformation reported third-quarter revenue of $173.6 million, up 19.1 percent, and raised its full-year sales outlook on the strength of the flow-through from the quarter and early fourth-quarter selling. The figure was $3.9 million ahead of what analysts had forecast, according to Yahoo Finance.

It was the company's 22nd straight quarter of double-digit growth. Adjusted earnings before interest, taxes, depreciation and amortization rose 64.2 percent to $23.1 million in the quarter ended Sept. 26, a measure that strips out the cost behind the headline loss.

That loss was $1.1 million. The tax impact of stock-based compensation after Reformation's July initial public offering pushed the company into the red for the quarter, even as sales and adjusted earnings both rose strongly.

Chief executive Hali Borenstein told WWD on Thursday that public life suits her. “I get to tell our story more” since the listing, she said, adding that she is getting over her own inclination to avoid boastfulness and now enjoys bragging about her teams.

The active customer file expanded by 23.4 percent to 1.25 million. Reformation opened seven stores in the quarter and ended it with 77 doors, so the physical estate grew alongside the customer base that is buying from it.

The brand also runs a wholesale business, which grew 40.8 percent to $20.8 million. Borenstein said the company was pleased with the quarter and that growth was broad-based across geographies, across categories and across selling points.

How a purple bet paid off

Part of the secret, Borenstein said, is Reformation's ability to react quickly. Pop colours began to turn more profitable last spring, and the company started testing more colours in limited quantities to see which ones gained traction.

“In late spring, late summer, we saw crazy momentum against purple,” she recalled. Reformation then invested in more depth, adding purple to different silhouettes and different fabrications. She said the site now carries more purple than it has ever had.

A traditional retailer, Borenstein argued, would not invest in purple 12 months out without evidence to support it. “Historically I’ve never seen purple perform the way it’s performing now,” she said, adding that such conviction is impossible in a more traditional model.

New ideas are always being tried and account for at least 10 percent to 20 percent of the assortment. “That gives us enough of an opportunity to constantly learn,” the chief executive said, warning that brands who chase too much forget to learn and let ranges go stale.

The raised forecast and the investor test

For the full year, Reformation now expects revenue to grow by 20 percent to 21 percent, to a range of $610 million to $612 million. That compares with the $602 million to $606 million it had previously forecast.

Borenstein said the company is entering the fourth quarter with a lot of momentum. The guidance raise, she said, reflects both the flow-through from the third-quarter beat and the outperformance seen quarter to date in the fourth.

Before the results were released on Thursday, shares fell 8.5 percent to $16.85 during a heavy technology rout in the market. The stock still stood comfortably ahead of the $15 price at which Reformation went public.

Investors were due to weigh in on the quarter on Friday. Borenstein said “how we’ve been able to turn retail on its head” is resonating with them, and that a strong financial profile is a differentiator alongside the company’s willingness to be brave.

She was candid about the hurdle ahead. “We’re still small,” she said, and so many fashion businesses before Reformation have struggled in public markets that there is “a little bit of show me, prove it.” Investors are still feeling out whether they can get comfortable with apparel again.

The task, in her words, is to prove Reformation can keep growing consistently over time. She said the company knew going public meant an uphill battle, but that people there like challenges.

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Image: Courtesy of Reformation