So let's go have a look at the Excel. So we open up the empty Excel file and here we are. So I'm going to start rattling through these assumption updates that I want to make. So the first one is the revenue growth. We've got that compound annual growth rate of 10% great over five years, but I want to get the revenue figures in line with consensus estimates. So let's go to Felix.

Here I am at Felix.FE.training, and on the right hand side I want to go to the analyze section. I'm going to type in the name of the company, Revolve group, open it up, and it's come to the categorized page that's got loads of information about their financial statements. Instead, I want to go to the valuation tab, and if I scroll to the bottom here, we've got consent assessments for earnings. In particular, I've got the next three years here available to me and I'm actually given hard-coded revenue information. My model uses growth figures.

I've got the December 24 revenue figure in my model already, if I just scroll down, there it is. I want to grow, using the growth rate here. It says 6% to get to this revenue figure here. So 1,197.5. I'm going to memorize that quickly. I'll put 6% into the growth. That's my first update. Now, 1,197.5 is what I was after. I've got a slightly higher figure here. Now there are two things you could do here. You could decide, do you know what I'm going to go with the round 6% or I'm going to go through exactly the same figure as the consensus system. And that's what I'm going to do here. So I'm ever so slightly off here, 1,197.7, 1,197.5. Because I've done this in advance, I can tell you that the actual growth figure that I'm going to use that will work is 5.98% and that gets me 1,197.5. Brilliant. Now I'm going to quickly put these growth figures in it. So 7.610.2.

So I'd put 7.6 in here. I'm going to actually put in 7.635 and then I'll put the 10.2. And you might notice that these three figures that pop out here are exactly the same as the consensus assessments from Felix. There we go. So revenue for those three years, I'm happy with. However, the CAGR, we were told from the handouts that our five year CAGR needs to be 10%, and at the moment it's going by 6, 7.6, 10.2, and then 10 and 10. That's not going to give me a CAGR of 10% over the five years. So we're going to have to do a bit of trial and error on these last two figures until I come up with a 10% at the end. So to help you out, I'm going to go 16% here, and then I could very roughly go down from 16 to kind of 10 to five. That's almost a straight line. And that 5% we were given in the handouts, I'm not quite at the 10% yet for my CAGR. So my last figure hit, I'm going to change to 10.5 and great. That gets me to my 10% CAGR.

So that's an example of how we use our consensus assessments. We use the first three years we were given explicit numbers. Then we use a five year CAGR on the revenue figures, which enabled us to change forecast assumption growth year four and five. And then for the last year we were given a 5%, brilliant. Now the next figures we were after was EBITDA. So I go back to Felix again and I've got EBITDA, we've got explicit numbers, and we've even got the margin figures underneath as well. So fantastic. Again, I'm going to be aiming for these explicit numbers.

So we were told that our cost of sales has been rising due to inflation, but that's going to be coming back down to 2022 levels. So I'm going to go with this 46.2% And I'll copy that all the way to the right marketing expense. Again, we were told that that was going to be coming back to previous levels, so I'll change that to 16.5% copy to the right, the company's feeling a bit healthier, less cost inflation pressures, marketing can go up now for the least expense, let's go back to the handout and see what it said.

It said management are going to be building some fulfillment centers. They're going to be leased. The expansion will double the size of their operating lease portfolio versus 2024. Now this goes into my EBITDA, so I do need to be focusing on this one. So let's go down to their balance sheets. Let's see how the leases have been calculated. And here we got it. What we're doing is we're taking the lease expense from the income statements and then multiplying it by a lease capitalization multiple. Now we've been given that 3.7. It's pretty much an industry standard, so I don't want to be touching that. But the operating lease expense figure, we definitely can get that to go up. The handout told me that my 2026 figure should be roughly double what my 2024 figure is. So again, I need to play around with my assumptions here to try and get to the right figure for double. I'm going to go with 1.5 and let's see what that's done.

My operating lease figure is now 71.5 versus 36. Yeah, that's just just under double. Great. So that 1.5, I'm going to take that figure and I'll copy that to the right. Now, that's a big assumption. We're assuming that that increase is going to continue as revenue continues as well. We do have to ask ourselves whether we think the assets needs to grow with the revenues. I think it's very likely that needs to happen. Your fulfillment centers, your stores, maybe factories, warehouse, whatever kinda company you are. As your revenue grows, chances are your assets need to grow with it.

So that leaves us with the other operating expenses and we need to use that as our balancing figure to get our EBITDA margin up to 8%. If we go back to the handouts, it said that our long-term EBITDA margins, were going to be circa 8%. So that doesn't mean it has to be in this very first year, but we do want to be getting to 8%. Eventually I'm going to be thinking year five onwards is going to be 8%. Now, luckily for the first three years we've been given EBITDA figures from our consensus estimates. So we're going to have to use other operating expenses, percentage of revenue as our plug to get to the EBITDA figures. We're going to have to because our cost to sales, marketing and lease expenses all have a driver of their assumption. Other operating expenses is the only one left.

So I go back to Felix. I have a look at the figures that we're aiming for. So 52.5 is my EBITDA. Luckily, because I've done this in advance, I know exactly the other operating expense percentage that will get me to that figure. So I'm going to type in 31.815, And if I scroll down to my EBITDA, there it is, there's 52.5 and my EBITDA margin 4.4%, exactly the same as in Felix. Great. Now I need to do similar for the next two years. So I'd be using trial and error to change these other operating expenses percentages to get me to the correct EBITDA. Luckily, I've done that in advance. So I'll tell you the figures I've used is 30.64 and 28.52. Again, we'll just double check EBITDA, 66.5, 103.4, 66.5, 103.4. Now how am I going to get myself to 8% in the final years? The figures I'm going to need, I'm going to need 27.8% in both those years. Great. Now I need something that's going to be roughly in the middle. So 7.5, 7.6%, something like that. So I'm going to change my other operating expenses percentage to 28.3. There we go. So my big drivers for my figures were revenue from Felix, EBITDA from Felix, we then had some assumption drivers on cost of sales and marketing, particularly to with inflation, operating lease expense. Again, we looked at the company's fulfillment center requirements in 2026, and we use other operating expenses as our plug.

Great. Now to go back to the handouts, a few other things.

It says in management expect to receive a proportion of its compensation through stock options. Now, this is very tempting to include as an add back to EBIT or EBITDA. We clean this out of EBIT or EBITDA. However, for valuation, we tend not to do this. Some companies think, oh, it's not a cash flow, it's not real cash flow, therefore we can count it as an add back. But for valuation, we do not do that. Stock options are are just another way of paying someone's salary. So we leave it in. Therefore, we have nothing we need to do here. For other expenses in 2023 and 2024, we had some non-recurring insurance proceeds. And if I go back into the Excel, so there's those two figures there, and in the year prior to that we had 6.4 million of non-recurring legal expenses. So where do we think our other expenses are going to go? I think if we were to strip out that non-recurring 6.4 there, this would roughly go down to 6 as an expense. These incomes, they're non-recurring, so we would not have them happening in the future. So I'm aiming for a figure of 6 going forward and that's exactly what we've got here. So I don't want to update the assumption. I think the assumption we've got here is good.