REAL - Earnings call transcript Q2 2019

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Operator

Good day ladies and gentleman and welcome to The RealReal Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program may be recorded.

And now, I'd like to introduce your host for today's program, Mr. Investor of Head Bieber, Relations. Paul sir. Please go ahead

Paul Bieber

RealReal. The Thank for call Paul Head at to XX, you. afternoon and Bieber, The Relations Investor Good RealReal’s of the I'm earnings XXXX. welcome quarter June ended

results and our Joining me today an financial Gustke. Wainwright; initiatives discuss and a The update Matt then QX on Chief Officer, will will including and CEO, progress few are Financial on RealReal’s and Julie Julie results to financial Founder review provide our Matt outlook. business key

strategy, This will investor available take webcast These relations relating future results, you projected and we'll from by and website to of statements the to or cause including call to that that to opportunity known conference materially during like future long-term be statements expected risks subject be results this our call prospects. statements on making and uncertainties actual those implied during unknown could this at our investor.therealreal.com. financial overall this forward-looking are differ remind I’d performance growth to business, call.

our those in risk XXXX. and SEC before June risk XX-Q From XXXX described our in for XX, that offering included perspectives with our factors factors in on on XX, initial included be will the filed the particular, filed August our In public financial or

as applicable statements beliefs not as required rely and except make we that on obligation law. forward-looking today of predictions on to this undertake All assumptions no should You are them events. on our as and forward-looking by future update call based we statements of

as on our from Form GAAP filed found of non-GAAP to be in is be may Investor with found These measures. with furnished materials, in Relations our or which results. also today A non-GAAP in the be X-K and our addition isolation website. earnings release SEC results supplemental and may non-GAAP should our discussions Our include for today to not and substitute will considered reconciliation GAAP a financial measures

now call CEO, over to RealReal's The would founder Wainwright. to I like turn the Julie and Julie?

Julie Wainwright

on for public company. you Hey, as thanks, and us Paul. first Good call earnings thank joining our afternoon a

new those to excited For our The to we introduce to you business. are RealReal,

For details provide second are performance. we our share quarter you with everyone you call, thrilled our progress on and financial with on the to

we to this consigners, our and to luxury Before RealReal thank the help opportunity world’s proceed, employees like for goods. largest making marketplace I'd take for online our into buyers our The consigned

well trust in I'd are also like public as thank who capital to market as private and our their investors new investors our that.

market. progress and We are our our with investors’ with very IPO enthusiasm pleased

in in we was our major milestone, detail of which I the TAM, IPO While we more stages will believe capitalizing a shortly. discuss a are very on early massive

QX quick highlights. financial some First,

increase, We of year-on-year generated revenue year-on-year of $XXX.X XX% GMV and XX% a increase. million, million, $XX a

unique a quarter. new our a about initiatives are we with marketing happy financial in performance overview achieved I'd start to that many growth particularly then Matt of on like provide you of are color talk the in key what more given us leverage. later makes few story, to while this and Since brief this second significant driving about will We it our quarterly call.

The honors RealReal’s that and the way luxury life mission in goods buyers is a to cycle of to extend luxury empower brands. the consigners

supply, are instilling our continuously truly luxury by resale revolutionizing unlocking technology in We platform. trust investing and

men's a and platform, and and people, kids. technology our across cultivate continuous investment art watches, authenticated we goods access Our Through marketplace multiple base. infrastructure, fashion, customer home categories and fine consigner to and and buyer loyal jewelry engaged attract large service provides including logistics women's and in

the marketplace. Trust of and service our are cornerstones

pick, authentication, pack end with consign solution. products end them to pickup, warehouse, to and to ship. by easy them pricing, an frictionless For shipping to and in-home photography on our our consigners, we advising make and From consignment providing the copywriting,

for Our data global and reach us the optimize our to quickly scale pricing at of sell consigners. marketplace to allow leveraged and millions from our we transactions and

employ other and rigorous Buyers exclusive experts, item at market, XXX the We a side also the gemologists, than are On marketplace and products are of price. the each more authentication to buyers we who because authenticate us compelling horologists us we because our process. a authentication trust sell. to attracted are have offered

from which we consigners benefits products then The get, Our in more buyers. marketplace effect. turn we more the the more traditional aggregate, attracts network

model is our However, unique effect. a to flywheel

to more and and business our stickiness buyers economics consigners attracting down marketplace and costs. velocity consigners dramatically our more become and the enhances buyers vice the driving versa, acquisition of This become In the of addition buyers increases our consigners. by

$XXX luxury keep for over our Now, personal market consumers significant $XX Considering in each this implies to opportunity of in for $XXX the total terms resale luxury each the in goods. we of luxury scratching resell products create X.X home year. and dollars that billions for year Frost GMV, with an moving in market we surface runway of coming product purchase the XXXX, believe average additional opportunity million value With over in accumulate grow our goods only billion. hundreds on time the have of marketplace years. approximately potentially replenishes in to billion years, are & amazing goods These available and TAM; Sullivan of U.S. is their the luxury consumers alone estimates us. the

of like initiatives retail now facility, automation the on QX our few opening the a and in key our discuss strategy. to Perth I’d including Amboy progress of

quarter in our Perth Perth Jersey XXX,XXX the we lease launched facility New fourth at operations in Amboy, We year. quarter. square the last second on First, the of foot Amboy signed

to thrilled begin there. finally shipping from were we So

Perth have than June hired We Amboy through committed already more and XX. XXX Jersey New employees to are in

in Amboy people hire to year expect the end We our another Perth to the XXX of by operation. scale

Amboy Perth our Importantly, doubles capacity.

a from shipped little order you. to in a was and a first Perth non-test The April on order guest for was Georgia. Our XX $XXX.XX, value trivia buyer,

our to with in goes Next, scale hand efficiently. hand ability let's discuss automation, which

on first inbound We In we of XX% third to volumes. The pace in unit unit approximately automate XX% automated are in automating quarter, of first our step to of pricing the in QX operations quarter. automating we the volume the exited our pricing. began XX% and XX%

pricing photo item. including has automation And per operation, pricing our automating the These parts inbound increase begun operations operations. retouching. and inbound improvements and other and copywriting consistent we have costs more in incremental efforts resulted our importantly Importantly, in significantly scalability of of unit support dollars will

in upper on side, feet strategy. east of XXXX. a X,XXX and in selling feet store XXXX, we our small Finally, I'd July We of opened In first in of this November retail total has by like store square West year, followed square SoHo Hollywood to footprint that of in our of space. opened May the space New York, discuss X,XXX

buyers and experience that Our redefine the retail are of daily. products luxury a selection consignment curated highly stores refreshed shopping offer

all Importantly, products the in stores, the also available are online.

our supply local AOVs, completely and high GMV, stores drive omni-channel. return love market. a as have are create We they brand rates, in low and effect the awareness drive We halo

well, in Upper store to stores only highlighted foot supply been As the it's continued West XXXX. approximately SoHo a And foot we SoHo the East has and in performed strong square per SX, $X,XXX our of $X,XXX generate performing The very but performance The open in our similarly square is Hollywood XXXX. also of Side for few store. per GMV months.

retail our opportunistically expand of by stores excited over momentum plan and footprint to retail we our coming are We the years. the

store with We focusing and the strategic and approximately be judicious will west plan We stores two strategy. our on per launch east rollout to coast. year

you do yet, to we visited so. a If haven't store really you encourage

quarter the call turn I'll to the that, second for over with financial Matt Now results.

Matt Gustke

discuss Thanks Julie. And like afternoon Julie's first results to excited quarter the our share everyone. to our business. echo to that good public our we're I'd outlook and for in comments

million Julie of increase. As million increase. a of XX% generated XX% mentioned, GMV $XXX.X year-on-year QX, In we $XX revenue in year-on-year

discuss the there by how we like of and P&L, the translate that Before results I'd our from to outlook. details business into manage financially the we reiterating start and

First, massive we we're proud And our and addressing very growth are a demonstrated, consignment. opportunity. luxury leadership as position in authenticated satisfaction of customer have our

much and of growth very us. than that of on are more still the front opportunity in We in this confidence us stages there early are is capitalizing behind

remains delivering as removes for all Our supply for buyers. through that primary friction practically focus model as proposition consigners, the our superior unlocking acquisition unique well a supply on of

continue growth expert expanding will our investments, sales and team, operations marketing invest to authenticators, adding growing through aggressively We in our capacity.

Secondly, improving with so driving and cost economics will with as operating investments We profitability. leverage. in unit are balance fixed efficiencies, benefit from always growth these we we unit toward have done, and consistent our investments level to leverage to scale drive

will continue across spending the business. we to Additionally, to of all leverage parts drive optimize our

take our the as on we per Third, average these operating and through order order profit amplify rate gross value, our of will leverage cost of expenses. sales, focus increases increasing

our others. monitor in among metrics We bit our which believe diving spend of I'll after full the marketplace. the So key into for performance business financials. key of of I'll each for and are operating using a We GMV an time metrics let's QX measure the buyers indicators our growth in on active year. these QX the discuss these before overall metrics of results provide outlook one and including health

active GMV, of retention of generated total strong. $XXX.X and is Trailing XX% Trailing In XX-month increase quarter, to active was primary our GMV of we X% per be XXX,XXX, measure GMV GMV trends the year-over-year. of XX.X% more up to was QX, We XX% continue buyer year-over-year. year-over-year GMV QX. to than up repeat marketplace. were very Buyer buyers scale XX-month growth from in second in the buyers believe in million an $X,XXX.

AOV XX% remains orders approximately QX at and were up $XXX. year-over-year XXX,XXX strong

by resulted reflected year-over-year was per than on an XXXX in sold our increase items the lower activity of in per item average prices AOV order. expected promotional $X first increased which AOV retailers by months This For basis. year-over-year. offset six a QX by in QX earlier

prices so year-over-year retail resale our of consistent on anticipate the And AOV increase with to in the years third QX we quarter. promotional is and far in impact environment the prior

all remained the Men’s level, in of growing was with category in At of essentially categories excess the jewelry level and line categories the business Women's and Streetwear. our grew QX year-over-year. a and largest Sneakers overall strength fastest in category two experienced XX% with in top growth growth.

also growth. Los store Angeles category aided Our in men’s

year take February this Returns increase and increase driven points of products lower XX.X% rate. driven that year-over-year. cancellation below rate by $XXX. of an basis a was increase take XXX This and our cancellations high rate certain basis was year-over-year, rate down consignment changes XXX approximately primarily take items of XX.X% rate we an lowered take points QX for for with by value offset when in were

we as see rate quarters changes, we the third in we the fourth year increase to year-over-year implemented expect strong anniversary continued a increases and these growth price of take in And result changes. in as modest full have low XXXX we a supplies Notably, changes. these since year-over-year and

the note with in state, high take also mix in year from sold rates can We vary a to be expect the highest which of well decrease QX products. based mix of the had item on product sales. consigners a of as the and to quarter-to-quarter steady take rates quarters higher priced third as, and second In we

million, shipping compared to Consignment in Look. to program subscription revenue higher accelerated take increase Now the service P&L, million, revenue $XX.X by approximately from consignment moving of our outpaced and as XX% growth Revenue points points onto GMV growth. revenue rates QX $X.X and up First includes million of an and services QX’s basis revenue and XX% was due year-over-year called XX percentage XXX year-over-year. year-over-year. QX $XX fees total primarily was

Direct revenue year-over-year. up was million, $XX.X XXX%

QX reminder, $XX.X have recognize the year-over-year by when as profit consigner. revenue already revenue was As to than In when $XX. buyers XX% good paid per profit such returns increased a order year-over-year. we gross million, X% from after gross generate we the accept more the an of resell. increase proceeds we instances, subsequently we direct Gross

driven XX year-over-year up gross take rate. a higher by consignment XX.X%, was Our margin basis points

gross direct a direct gross basis on of basis points gross sales. margins. margin XX.X%, product gross Our because recognized cost higher XXX revenue driven margin consignment corresponding with was up is Direct margin, by is direct year-over-year than lower

teens going be high a We but variability gross there could margins basis. quarterly expected forward, direct the in on

operating I about basis, that to note excluding equity-based on please speak expenses, and on compensation related a Moving OpEx taxes. non-GAAP will

release. revenue percentage as earnings in a XX.X% an For the $XX.X year a million in our of XX.X% same year-over-year. of XX% QX, expense reconciliation to Marketing was ago. to GAAP, please compared was a refer to period increase Marketing

buyers become QX; GMV one, of XX% mix There Importantly, marketing in from we of where revenue comprised in marketplace, XX% TV of growth conversion factors long to basis are our our delivering and buyers optimizing two, XXX XX.X% driving demonstrated GMV XX% growth effects television. mix including finally media consigners in several while points three, buyer media marketing consigners within from retention, buyers of our tail network our our leverage QX; members. came leverage and flywheel and advertising repeat our become QX. buyers; towards including

continue We second to from centers, vary expect timing will half product generally a consignment and local the year-over-year. relating offices, QX, in million spend. on which marketing our $XX.X leverage of and the but fulfillment increase of expense, our was in to management stores, advertising merchandising, costs XX% quarter-to-quarter year, the Operations includes engineering based an technology

new Angeles which and revenue Operations XX.X% center productivity Jersey. The stores and New offset in was driven period than percent fulfillment technology Amboy, for inbound improvement Avenue in to was our XX.X%, a by more the of year Perth expenses and compared as Madison a new our Los increases operations, in same our ago.

facility, currently operates capacity our very utilization Perth opened May Our in low in Amboy fulfillment at rates. which doubles

leverage compared expect store expense second was and technology inbound as by as of XX% revenue and Selling, half the or our investments well driven million, SG&A IPO general year-over-year in increased operations period IPO of opening. administrative the same of year other We a to ago, in percentage $XX.X and administrative to XX.X% operations as in our the driven LA of headcounts to year advance our up continue anniversary related XX.X%, in year-over-year. SG&A automation primarily and the spend. function a by

net of was revenue. the proceeds QX cash the $XXX.X IPO the was The $XXX from quarter, received proceeds at reflecting June, investments in QX million are cash July. late XX.X% QX. totaled Inclusive $XX.X of equivalents of million At our IPO. for or cash cash, end we our million loss we end our not pro sheet short-term the EBITDA of second million. In and balance in raised adjusted Our proceeds, balance approximately as $XX.X forma

is As a funded. result, fully business our existing

to path move we I’d on spend into like to Before guidance, time profitability. some

higher expect to expansion forward, top and Going expense in line we profit order, fixed all from including of the per gross leverage in areas costs. business resulting margin of areas several come variable operating efficiencies leverage

increases increase per to from expect More take AOV in improved profit we shipping specifically, and in gross order overtime. modest improvements rates rate,

expect improving and order inbound decrease cost and process buyer by our and to efficiencies acquisition improvement operations. costs, retention We and due variable marketing our per to automation from sustainable in fulfillment

we technology fixed in company expect driven headcounts rent technology, will to operations, leverage G&A, We be and by Fixed overtime our leverage and expenses, to cost marketing, be expense. and cost will continue in modest but public the near-term as increase. invest

expect one-third our our gross to leverage margin. EBITDA and fixed margin toward target contribute expansion variable expense each expense of profit, We total approximately efficiencies, long-term

$XXX on growth XX% guidance, million $XXX annual QX to XX%. Now we moving an of representing expect million rate to GMV of to

XX%. margin XX% We expect to loss of the our EBITDA QX range in percent

XX% to rate an the For we $XXX year, million of full XX%. representing of GMV growth million to expect annual $XXX

percent expect loss to XX% XX%. the of range We our margin QX in EBITDA

of expect $XXX to full of an rate $XXX year, representing annual XX%. For million XX% we million, growth to GMV the

XX% XX%. our expect in XXXX margin loss We the of EBITDA percent to range

notes And a few for those models. building final

Our guidance, normal decline the before AOV for quarter. in that trends with third the quarter-over-quarter increasing seasonal seems in a fourth quarter

take pro We QX was to $XX.X count our million. both share post and rates QX, increase IPO forma in expect year-over-year

our report to pleased we’re strong momentum and encouraged closing, In are business. QX by the in results

improvements continue growth, towards will strong we We top to driving delivering line also profitability. while on focus as drive margin

With we will questions. open Operator? for the that, line

Operator

Binetti from Our the Instructions] first of Suisse. [Operator Michael from Credit comes line Certainly. question

mute. to you. next still the you to hearing not might question Would your Your phone on like Michael, we’re question, move here? Michael, you on have please.

Matt Gustke

can Michael. please. to back come Yes, We

Operator

Great.

question Our Post Lynch. of comes line America Bank the Justin of next Merrill from from

Your question, please.

Justin Post

on second the Great, on Julie just I secondly, the about manager sell update then key one Maybe know and the a in GMV And I’m should your rates on thank initiatives? that And the supply. second half. what guidance. the is have Matt be process. you. you and take how the an head revenue other And important in were other those. you any returns appreciate Any besides the or other first Thank you. things or congrats to of affect feel so count you initiatives Matt. half. guidance, how then such the key mix us could in aware guess, through quarter, give one are supply revenue as for for getting we in direct half. I Julie, the luxury wondering I for revenues through rates, to nuances the second guess, IPO

Julie Wainwright

Justin. much, Julie, Hi, obviously. so it’s Thanks

I be of through we what vary about all, trends and of rates the to rates But give pricing going about we we control our see – give about. marketplace. and first do you what the don’t can So were based product as healthy, the we we know, I’m don’t careful in sell the on

So we can the maybe vary price.

had we the sell or seen in QX. past what rate different we’ve a and So since extraordinary than nothing through healthy

doing supply it’s least And then what at and New worth in terms for LA forward, I that York. of we’re think noting in going

Our supply And a the significant small it is component, supply hopefully to also footprint did contributing our a – coming a all from but store stores. not component open that’s retail mix. Madison, at component, we a has

we But them by are followed the in-home as our supply products inside most they’ve past, send of in from sales. product get products initiatives been people visits glove from white regarding our them, and our the who of

for business as to and then our lastly, pretty opportunistic we’re work from vendors a small third do and we a of hoc lesson, aside product to And that stores – X% ad with channel. source. total opportunities some that’s have going put aggregate Now supply, an

Certainly, is great second not important in second hire bring number, repeat the exact change indicate We XX% really One in tend the hiring the reminder numbers, of year. we’re going on year. really speed, to half. ahead has give consigners. LMs feel I’m into we you about of happen of to to our but are track. and of historically seen come our up half going shape for the that won’t second that from quarter going actually the are curve us. half we the who maybe to them good other in second haven’t to the So the to any new those supply Again, We forward

we’re So for of the our about pretty excited balance year. the prospects

Matt Gustke

I’ll second take And question. the Okay.

the all, first for question. thanks So, of

get So guide we affect believe single items and them. your revenue return our direct to the proportion include because can our Within the of course, Other to you to health derive GMV, point rate chiefly some revenue. trends we measure that talked of marketplace. the it rate of other that the the business. be have among our about and use our from that best that, of Take We’ve to scale to there. expectations to are sales are

return with rate, seen we’ve modest Our decrease essentially in a year-over-year stable QX.

year-over-year we fourth the the pretty in product much of quarter year, products the in of the mix and quarter. stabilization see a slight third decrease Typically, given

QX, of that’s piece. a So then percentage was in higher total return and then how holiday the we recall, it think our as was about from as reflecting period. revenue, the that QX buildup might inventory direct And of you

quarter and quarter-over-quarter So a to to the basically our third strongest. so as more inventory I as run is sales through quarter-over-quarter, of percent fourth bit see a in decreased in of trends the then quarter, that would total sales modestly are direct seasonal and a expect decrease

Justin Post

Matt. Thanks, Thanks, Julie. Great.

Julie Wainwright

Thank you.

Operator

you. Thank

Suisse. from comes Binetti next Our line Credit Michael question from of the

Your question, please.

Michael Binetti

on congrats guys, a start here. Hey great

had before. difficulty Sorry, a technical little there we

minute. the Let out we muted in Matt for me quarter, you a ask got AOV the on

think the was I through year-over-year. You in was you I made in may typically back the on AOV lower it metrics if said on a buyers little if a the think apologize spike That half think bit in And give. the factor it, did, down But pretty at way feel my guys And quarter. come new but a you I the we have into an I bit little I of think you big does year that explaining think comments how I of quarter? a for AOV? AOV. – in that the the play about Was that buyers

Matt Gustke

Potentially.

that. through go just me Let

in than $XXX. through many environment. activity the pretty per That We aggressive AOV earlier average order. was number in earlier at happened That effect had flat has year decreases an call the That it the quarter on years price the promotional year-over-year and this in trace quarter. depressive offset essentially than the item So items categories. some relatively across back by as was now all a increase expected, prices retail to reflected in past resell of on but

to see customer go To your see We down. point, prices correlation in inverse an new tend when we growth.

growth periods, So in to be new lowest. prices customer tends strongest where are

metrics saw think saw I the the strong supply our or quarter growth very to in in new subsequent it. and it’s post third the we leading whether and consigners, by quarter that, both the trends encouraged traffic we trends and surrounding of in growth, in Beyond for membership the terms and new quarter, quarter-to-date buyers, very indicator IPO, demand,

Michael Binetti

Okay. ball number question up maybe if One change keeps between then an unusual the and called much us Julie, and modeling that the maybe P&L Matt number, some is some this direct where up? but that there on in think initiatives us be that itself? Julie, maybe moving just Is you of I what on so basis on the could that jump we'll might've was you I'm pricing see thoughts would out. rest saw walk on line you small some gross the manifest but you that that to it fundamental gave very of looked there through more know curious quarter, how little the the the that year. a improvement a more like why in margin fund was rapid automation there a any caused about the was quarter on for in other,

Julie Wainwright

Sure.

so have and consigner line for slightly we we is we the have it's that, to I automate think what obviously. for one do. that It leverage just for it's when top we us can and higher tend consistency, and actually of one like better prices the component pricing, we get Somewhat better

the of by other I auto-priced, think are initiatives XX% products of we the mentioned some to I end be but have we pricing, year of underway, going over and So being those. have think

some them. of So reiterate let's

will we will some understand I we're automatic but operations impact appear because – true in time, part on gemology say a working have copywriting, you'll automatic working in nice actually of hard being really seeing on there things while and be next that have streamline the We to the we're P&L, receiving the the it's it. impact this copywriting a further, area, layered-on-layer the little things would to it's impact. this Over and year process the to but start year are

can tests quite color speeds for add-up cropping and time. get of on of two time off-site a now, it also good $X with units, good site, or retouching, of that up XX% balancing but sending send Certainly of sent we benefits just we lower if can a cost The component, break days automating get $XX, that. retouching. it's it have to really it We're is retouching we some eventually most off about but results out, shore running had specifically automated, our We I to testing have it it three really mostly also the incremental for and is automated. from which get been bit to which in out operations products you, we're long-term

out. get So as we two that roll to benefits we're going

both as also we way larger in we're customer and it out stages services can not isn't We sell-through a unchanged that up. roll early before you But enhanced test the or sure appreciate. again, calls-go-down, make to in everything rate

before in a mass but it out changes slow judicious and very So we make roll we're way. steady we

Matt Gustke

just to Yes, briefly. to add that

as investments leverage those ops our despite forth. as the improvements improvements us infrastructure in to allowed technology, process in and several well warehouse So operations and in significant check-lines, within so demonstrate

be of leverage generally representative to how of about forward, with kind overall. balancing going we investment going it think that's So

the special sales. of what in second a there's million story relatively margins, about it’s it's your direct about number random. things particularly happened The And question context the $XX actual in about in to no bit is quarter, grand

the with in In higher the price the points happened take let we think rates And of of had equivalent. being points a sold. what I the rest direct lower so case essentially say business like with lower product the correlate a quarter price to second margin sales, speak.

a bit randomness of business. just it's within the So

should time stabilize the think over see We in quarter, high-teens, you that's the mid-XX. breakout could a in that

You can steady to It's the generally one to be certainly going we total increase. it's see around. of should business that's mid-teens, over direct in bounce kind something percent to think of actively a we trying speaking as But sales the but time. not decreasing that are

Michael Binetti

very for Okay. again congrats all and very, Thanks the detail. guys Very, helpful again.

Julie Wainwright

Thanks.

Operator

you. Thank

line the please. Edward Our comes from next Capital question from Yruma of KeyBanc Markets, your question

Edward Yruma

are obviously ice nice making you it to expense promotion. the products spoke of Could Hey, a guess first, as and categories your I biggest you marketing know though saw then bit about impact, good leverage more by maybe adjustments. are I a lot And probably afternoon guys second, there. out the and of little promos. where quarter congrats relates a you on the not little IPO I impacted first and a you bit that gate. where know great pricing

As we we think that the marketing should Thank to what you. you think about leverage take medium-term, how other options about expense cost-down? have and

Julie Wainwright

Julie will is and obviously to then kick Matt and So this I'm going then in. start

seen fairly as women's category. fast the from and did but already year, most mostly we've and promotional indicated, apparel us category we've to recovery where earlier impact new discounting impacts us, they department is start this apparel specifically stores of it not Matt the is So the in

jewelry of to and do fine tend big Some have actually products be the and not and street a those wear. impact some watches

this we did And it actually deeper. resell. we recover and earlier, not it was It tension discounting is balanced before. between they and have thought as indicated other but full-price all was said, We So we've something know deeper. people we I We’ve it earlier was felt seen things time. the balance the

September, in I we if good So some offset shape October, going be high that'll have we're forward. that in by of department would tension that seasonality. desperate say get pretty stores again, might

line. it the of fine this women's of and the don't So in see we product on one our of beauties beauties men’s, because is jewelry, streetwear, of and product one even diversity, having diverse handbags. This is watches

we're far pretty really we in where well so again. good feel and So going we're doing QX about

Matt Gustke

so Yes, the think promotional that much pretty question. Okay. covers I

bit I leverage. So about a little will speak marketing

call on one marketplaces We what the is So in that certain once of buyers in that a of specifically becoming of been consistent, to we by of buyers the in can you a conversion abundance beauties acquisition our has consignors support continues proportion that amplified the of have and count becoming been of flywheel consigners growth. to they a has sort consistent. costs level consigners, certainly scale, effect becoming of buyer the general to equation network and get that effects who buyers

demographics mixed align television low terms to very The so relative numbers healthy paid media a in cost users to productive of same existing very at also with our channels. generating who doing And to not us, generate toward but very buyers growth, with our returns buyer ongoing only continues base. of for other time, our new the high happened customer of

we right areas and see lot the cost So growth a right runway there. at us of ahead in of quite the

actually our have prior of – half nearly that any in base that of to of top period. are the period our accumulated member that buyers we out On new given converting

business. I be just say some won’t it’s But our come. to convert So very us exponentially, effect but IPO pool is for that will quickly. an many membership a of around to that builds base right degree of base around the kind halo could growing There quarters now growing. for create actually

continuing expect we’d driving marketing see together affects those leverage. So to

That quarter-to-quarter the about on in based and more heavily said, growth. we may going be heavily we to we marketing choose variability of less our two things, elects based we or that anticipate. just supply to spend one invest offer And be to ROIs demand underscore aggressively are accelerate expect to more to timing the and opportunistic when and on spend just

rather see near is of healthy think you in rates term, guidance growths embedded year-over-year no in our real continuing but rather terms significant can I So to of leaning in anticipate of the marketing leverage. change

Edward Yruma

so much Thanks Great. guys.

Operator

you. Thank

question line of Stifel. comes Devitt next the Scott from from Our

please. question Your

Scott Devitt

One for thanks. one for Hey, Julie, Matt.

business bit a terms impact and quarter that very lower by grew and order the more buyers. offset nicely more on prices activity talked of the being the promotional items you and per Julie, in the in First business about interestingly still despite the

step into event? so if of are it going promotional that ongoing how you positive, understanding just And of that negative total or dynamic terms at back taking the think way going business, be And all a that just department the to future. the industry about and in store impacts an kind like closures non of things the activity

And think Matt, then secondly for square square footage, up X million roughly you’re now. I feet to

about talk the think you’ll optimized the in when where capacity little you bit facility utilization, next need you If future. Thanks. you’re could a think you’ll and

Julie Wainwright

Okay.

go back Let’s to promotional activity.

consignor the But want price to highest there’s So underscore want we is not because on going us. want for items. us, the with get business. absolute new sell this again, I for also to factors two to through that but We our a also for phenomenon

items mid-tier a tend be time. more department to discounting. heavily the Some brands, to during actually most and luxury get And this between ones contemporary tension are which those store that vulnerable are discounted

the previous we do tension in Actually price so something that earlier. between we’re way and happen because effect discounted than there we actually can the did we’ve always is discounting what is pushing a it promotional new we’re less that’s charge quarter testing saw on it. versus truth And on and times. a the sophisticated That’s gotten price. that up we have we And quarter The in more limits.

of where is this serves product us. Again, diversity

discipline versus we like actually the So what’s enough way sell pricing view through we do accurate model going an our in got feel around our and prediction pricing forward, to we’ve to and flexibility happen. business going of

Now certainly extraordinary we have things there before. happen. been can But

particularly and sophisticated and XXXX think maneuvered product then. we we gotten I since we’ve XXXX and bad our lines diverse more and more are gotten

of front So it’s we to out are comes write it the felt especially pretty to primarily storms women’s of us, discounting when confident about card apparel. ability department in again, our and that

Matt Gustke

to nothing add to is There that. Yes.

question capacity within e-commerce our just the take I’ll So other around general our centers.

correctly in doubled about capacity. you million our feet noted, as we May X.X added a square that So

XXXX. $XXX,XXX in it $XXX you to differently, think first what got million about that means So we which us achieved about GMV, is of if

expect capacity. DC you that So much give should will that next the growth us about

but growth, we probably plus another the same think about about need of it two precise or minus we’ll about size. of that, after So overly years which one

Scott Devitt

you. Thank Okay.

Julie Wainwright

to just need we And add unhappy course makes one we’ll before on other that. it Otherwise, very of And down thing bring employees. have to it. it

to us so condition make can four six to ready we a warehouse So and conduct months months ready it business. it to takes usually

Scott Devitt

Thank you.

Operator

Thank you.

from of comes question line the from next Kessler Our Raymond James. Aaron

question please. Your

Aaron Kessler

couple Thanks of quarter. congrats A questions. and the on

other, just evolving to the can also and home – you you. customer think about and of that see matches to the men’s, that me you you newer some demographics maybe forward some then and maybe what services some How First would and how traction subscribers? if of the the revenue. with trends going verticals in Thank First, for talk and maybe on Look of kind including about

Julie Wainwright

So millennials changeover where the along buyer on that’s consignors richer, and became they’re so had consignors and and the year single at I of are the largest getting still demographics, we of stronger. the just base part are younger older getting shifting buyers with a we mean, getting the base. also this – group millennials that’s point

mix. So of and part media our it’s

really So and to along it we that Well OTT helped. television and with along. I continuing change television is mix did trend expect and would continue, also our media is any

let you thing so, – other the up. me our that is by So increasing know back should well,

percent we total our a and it that still it's more Our this that's up slowly that's also by pretty of substantially growth growing. base is more fairly year, seen certainly fastest have consignors is male, our male but gone category, also ad the driven small growing, fastest and it’s as gotten but

no surprise you when you is male this – So have more consignors. the

we've pretty You men's rise that. your excited or men's clothing. going more more We're consigning steadily. men have fairly The to get that in site you're seen about people the and on streetwear particular

of to idea that I an just heard we some is really say say think or appeal to demo. that want still do this reiterate it's as I people key everyone's But to you’ve there rich. a really broad

have XX% $XX,XXX. income an base of under buyer consignor fact, In and our

a above we're are XX% it. vibrant younger, certainly more group So attracting and

above was broad a XX% sorry XXX. have still Paul a I don't Bieber below demo. know if but we XXXK, XXX just sorry – are that it’s So XX% and said it answered,

Aaron Kessler

great. Got it. That’s

Julie Wainwright

And did you ask about new categories? categories... New

Aaron Kessler

I commented Yes, on the and yes, services you I think, categories about think then just revenue. man new

Julie Wainwright

Well mean growing. men’s fastest is, just I a

grow rate little so the giving continues men's it's is a that terms us. growing but are of exact but in certainly beyond business breakdown. the Art more the slower but growing it of across mix, steady, it is in SX Home did not We not & the fairly overall actually getting to for We it's out the important is and faster.

Matt Gustke

those small business total for helped that change base our are Los as retail helped overall and our faster overall our has the our of in the rate of stores proportion category. buyer well streetwear of our single percent store dramatically out roll Angeles male has digit business significantly and quite GMV you the a of familiar, actually so the And our the consignor as the in less towards bit a who growth Certainly of men’s is relatively sneakers business. trend growing than particularly

revenue, to there’s that mean per we you there. consistent other order into that’s buyers, forward. portion Shipping revenue And question also the afraid relatively going charge a to about The I’m share get I of I much other going think shipping. of be fees to had lion's more not is

customers newly those have It's non-trivial XX first benefit public. that general hottest. know, earlier is before that for to products crave business re-posted much source items don't buyers the – primarily that our is very are hours a are amount available the is to of of look primary who of allows small very to hours. a to they're of what the the access that it’s to within program a sold site And revenue, and we who newest our benefit site; but there launched important an you the First is the XX

Aaron Kessler

Great. Thank you.

Operator

you. Thank

Our the Sherman UBS. next question Eric of comes from line from

question Your please.

Eric Sherman

Flywheel strategy moving for and both that drive the How now do my you serve taking specifically question. two all more what broadly, on these along and investing real drive Thanks experience to and the talked about getting stores against the do you're supply. Maybe already store we you’ve the some about in with strategy follow-ups think steady past? pace going store a faster,

you from some see these level more you the run model out How supply presence to layers – awareness of drive a side top-up and drives the the And the change benefits could you investment strategy branding strategy perspective, be treadmill Flywheel a and the might perspective store XX that have into the of to gives and marketing physical stores because a you therefore on – to you play of the efficiency same of what marketing in next to more in there you effects. over on store drives see maybe more are months more more there and as six don't fast or where as maybe secondary think. have incremental the

deeper everyone. a both Thanks bit on So of to love topics? little on – those go we’d

Julie Wainwright

that's rent We been XX good to it We and now did roll have store our about said but to they start Matt. our and two goal good to has is I’ll and any is then to maybe not I’m going over and Sure. and it been efficiently. don't a right LA a before. plan stores then actually mean just We itself just – kick change open out most year, roll the only location, right a for ready three stories now, of per but we're out actually stories one growth, we I And to likely the waiting need out year. them for reinforcer GMV the source SoHo months. be can lap build the have proven do around for cost, store also so as they've right are two brand right the we’ve

it to us be stores. multiple judicious of rollout – wouldn't really would continue it to So

in Madison will we're much bit. I a impact. want that The is little understand testing that and call a still we smaller out to footprint store store

store expect understand the we the but year. to we're We're market of to the for So can't it. next can take potential we're second store or of first going a in rollout impact awareness. and And smaller that you to slowly. markets, in mix either here put starting no do it in again, quarter going to in a hurry We're just our

The out, of about efficiencies so need efficiencies. great the getting We're marketing thing model wouldn't economic stores, stores other you to a I efficient and to marketing our we the marketing increasingly independent business. want call on talked achieve

Matt Gustke

Yes.

pace cosigners portfolio investment cohorts in the are experience, really Julie's time and store. to just will stores as the more to data through watch they so of that a to and Just that stores. who – buyers of the point more add new get on just our To more we need

which the well stores in effect operate. As as the the markets in halo

Before two next certainly we were stores? to do plan approximately anything not What new we of from different, so the year. deviate

profitability. a context If the or use We they of existing do some so and their those like overall do that. perform the continue stores at we'd with our performance, point even to the expansion deviate But ones retail only store reevaluate in road. from drive new improve wouldn't material toward down to

support – great efficiency. our Second absolutely right, of marketing are the yes, marketing, overall drivers stores on awareness the on you're and question

that does our overall pressure investment. off it increases and absolutely – over efficiencies So in continue take marketing time some

retention of you driving and the acquisition it think and So of awareness sort of a assets consignors as base portfolio can’t ultimately of buyers. that of is and

Eric Sheridan

much. Great. Thanks so

Julie Wainwright

question. We more have for time one

Operator

Certainly.

of then and question from the Chen from comes Company. Cowen final Oliver Our line

question please. Your

Oliver Chen

very much. Thank you

levers the take mixed And that that'd agility your the the there environment what expected. discount response what you thoughts can pull, competitors control? happens if your like? more like are than be thoughts your of and on long-term would do love rate, you terms like of I and have within whether can Regarding you What your in dynamics or in terms that and for also on the you benefits,

Julie Wainwright

ahead. Go

Matt Gustke

rate. I'll start So take on

end of they ecosystem. of that low and of in to structure philosophy, the the higher both our but So the rate take general tiered our high layered On a commission retention simplistically. on time we've core end, And driver consignor whereby important within consignors that's very number is of a structure, for a more that, dissertation and a exceptions consignors top loyalty the earn. the that on our sells rate if

priced but that, are products a transaction and a much very take sneakers revenue prices of is higher we'll lower of get the So and healthy. to take so like will and that, the in so gross on that us lot incentive, still commission a higher rate profit terms net actual watches handbags certain on

than subsidized increases end and of that more offset We've that on offset the with low that the rate spectrum. take in

rate take So currently a on XX% items we have $XXX. under

So and that's to that we're how making totality the do both the time. we of balance think sides optimize about of we'll continue supply always appropriate mix and we that products to and can about the the that across in And ways best blend we're the over thinking getting sure system price categories so points.

and point. moment, the are category every we at price across competitive And every

a Well in context our then good our of broader agility lot strategy. products. are what to that on news pricing to the has on we fixed we're it and of like things multi-category, in rates the to costs is competitive that, ability react benefits, environment the and being one So the of of do can take able which do? on question not And is

the model revenue beauty same we're transaction marketplace is price. regardless going the percentage of of the a the in So of that our to get

we that significant environment, and heavy extent get, over So much see to what to it we sustained extent don't against I can than we've promotional have year. sustained environment, more that seen some that a but frankly, the know past partial hedge the as

or apparel, what we've jewelry The largest being insulation single to is around a tends is learned category, that whether sub men's our I be weapon. point best focused categories which think diverse much everything our women's or and is that's activity has pretty across promotional but on watches of to depth lot Julie's pricing, through been handbags So else of we've or really products.

So we those diversify are the less product the pressures. that to mix our we susceptible more

Julie Wainwright

offer money, end – much that well, then on competitor sell Look, can take the out. consignors level. – – on rates one category-by-category to a more market people you to paying for a or becomes, the how on thing going into the will item is last with then issue through the give any And get up one easiest them greater, you way

helps year stick single does their frat repeat which and need they be with, on that to more also more as especially if as The So keeps make, incentives high you're our consignors at categories across rates flexibility a we going breadth our level. category, incredible stay are. get you the container is you a structure us to inverted, again, thus the give next cost focused to for

Oliver Chen

helpful. you. Thank That's very

Does to so terms a with and that handling the more your And on much? per touch follow-up that the Just not interplay fulfillment cost just fluctuates? unit, dynamics. how quick needing unit system or of through items in

Matt Gustke

your around of and impact following number increasing other an items costs? that does on order I'm If an the in have it's question,

Oliver Chen

of than the because number increases Yes, companies you units there sometimes in handling. logistical in like AURs previously as – and more the go expected down, costs is

Julie Wainwright

cost, kudos of much on in operations able deleveraging at that more And said getting – by our one. area. this feel obviously the area all, process It automation in and last key leverage in that we actually than that balance it's work then to so showing about first So question and a and however, time you for good so optimization we're really – is areas. extra we we us secondly, have to many is there one yes,

Oliver Chen

you. Thank

Julie Wainwright

All guys. right,

to my report to talking that's in us forward on looking get joining this it, to QX think QX Thank I much, you to results. our do excited offer are again about closing? we're you results I call, make to very

thing and buyers. hard and which I to of the RealReal, consignors other employees thank want our work very The are the course at

I with the think call. that, So closing up we're

Operator

does Thank gentlemen in your conference. conclude and today's for you. And participation the you program. Thank ladies This

disconnect. You day. Good may now

The RealReal, Inc. (REAL) 13 Aug 192019 Q2 Earnings call transcript