Earnings call transcript Q1 2023

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Operator

Good day, and welcome to The RealReal's Q1 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to Caitlin Howe, Senior Vice President of Investor Relations.

Your line is open.

Caitlin Howe

Thank you, operator.

Levesque; discuss our for Koryl, Chief Chief Officer; to March period President today Officer, Operating XXXX, Financial XX, Executive Rati me our the results ended and Robert Joining Julian. Chief and Officer, John

remind I we today's forward-looking which to make unknown and that involve during Before we known like risks you begin, statements, would call, will and uncertainties.

differ materially such in from statements. suggested may those results actual Our

and affect the risks, these most You can our and factors and operating that information results on XX-K find Form uncertainties could reports Form company's other recent about quarterly more subsequent XX-Q.

will certain the we also have Today's our comparable measures, presentation measures, for to reconciliations in include release. most both forward-looking historical press and provided financial GAAP financial historical which measures non-GAAP earnings

the stockholder RealReal. of I website. over the earnings issued which to we Chief of both John to turn letter Officer today, now available release, on The Investor a are Koryl, call like to press addition our earlier would Relations In Executive

John Koryl

our largely of Thanks, midpoint consignment reported of range. ability business. quarter in the Caitlin, exceeding high and welcome exceeding adjusted with continue revenue the the our was the The QX XXXX results grow EBITDA guidance for financial profitability higher-margin end call. guidance first driven and we our by our Today, earnings to improvement to to

the in During the year. resulted improving declined gross our first compared prior This quarter, consignment year-over-year. margin to revenue basis grew revenue XX%, and XX% direct XXX points

year. the and percentage in and during addition, increased both rate, loss narrowed prior balance to In we EBITDA inventory the compared take adjusted our reduced quarter, our company-owned dollars

base during our took also quarter. the cost We to reduce steps

over million time the RealReal’s first in active positive buyers saw Beyond our for we financial trends X history. The reaching with metrics, total

health customer the also satisfaction are and long-term is which consignor on critical business. to the our experience, of progress We making

me provide on more our details initiatives. key Let

last to deliver structure are results. to made year, commission late we First, updates which our now starting

take the are our our of items commission rate, as higher believe planned. of exactly and lower-value optimize working structure of If increased were updates to the updating mostly goals We consignment limit you remember, we consignment items. value

rate changes take decreased supply QX well structure supply and Therefore, commission are basis Lower value Our points. has doing to increased higher the overall. has increased year-over-year. value XXX

have do is in One work supply. more we area mid-value to the

testing for We rates are consignor price currently our at to commission mid-value cohorts optimize various different points supply.

addition to major be continue focus experience satisfaction for company. customer consignor the and a In supply, area to

have been consignment dedicated team We a rolling each small which of busy consignor concierge team consignor experts. service our with out new pairs customer

complete, approach now positive. from has new overwhelmingly the feedback With initial our the been rollout

increased customer improve service and our Score. Net Our have ratings us it's helped Promoter

we consignor forward, and for look Going continue the both to ways improve experience. buyer to will

and critical we experience that continue costs our to consignor manage improve It’s effectively. our

further believe is Over opportunity X base assessed reduce have months, operating the past and our there expenses. cost to our we

company-wide on Our will managing to buyers, that be not one particularly our costs, and achieving our do profitability. focus those consignors directly of keys impact

quarters. The discussing coming and other and streams in forward product pursuing to progress, revenue optimizing are making more depth in pricing initiatives we new them key of look the

profitability, we back the business this year of believe mind, initiatives half in particularly are in confident these in key help move the the all impactful and With to these next. or will be will they we

a in business positive Overall, the is headed direction.

We’re consignment growing our revenue.

consignor we’re We’re experience. our recruiting satisfaction margin gross dollars expanding our gross and both profit and customer the and

drive are managing as costs toward We profitability. also we

year XXXX. I our retain key partners and that results will initiatives, adjusted EBITDA believe basis reaffirmed in on QX strong we full on our an Given profitability we

the call let’s that, open for questions. With

Operator

question UBS. And come our Instructions] [Operator Kunal first from the line with will of Madhukar

Kunal Madhukar

One, order volume. on the

in what consignor what that, the are can seeing then market And talk you from volumes order seeing a you're in you market the in And So year-over-year. the with about increased perspective? X.X% perspective? conjunction

Rati Levesque

of number Sorry, Kunal. Were orders? you the the asking order, about

Kunal Madhukar

far the was volume I in is X.X% supply is to market of -- you're far I year-over-year concerned. as and as order initially seeing demand No, understand the context what year-over-year. within wanted as increasing X.X% concerned like as

Rati Levesque

Yes. it. Got

different of are we seeing or as say whether consignor talk and on well are concerned as as the opportunities always I a to I'd about top side. sellers, things of buyers So and -- -- engagement look couple the the that's the funnel leads that always the we site,

Both price, of the order on sell-through side, unit per selling And then pretty is average and healthy. average those that that buyer are value, transaction.

year-over-year On price are side, average up, sell-through seeing significantly. have pretty we buyer selling pretty up stay consistent, the buyers gone going active

we're before, really thing, quantity. side, you and talking And on quality value that listened know same and on we're the focused really focused. I times seller many versus

side So we're consignor the as seeing what on well. that's

So pretty the across healthy board. good engagement and

Kunal Madhukar

as And are different follow-up, trends quick saw in from the any that you in trends a April, XQ?

Robert Julian

we've actuals going Yes. We're -- results is incorporates that We're inter-quarter this give to not Robert. seen already, is not April certainly point. at in but Kunal, our which anything full really QX guidance QX, this for

Rati Levesque

say But on been engagement trend consignors. the for the I would seller’s and pretty buyers has consistent

Operator

line that Boruchow Fargo. from with Wells of [Operator the And come Instructions] will Ike

Ike Boruchow

was little brands, just out U.S. shifting are the pressured, their of consumer income weakness base. some been part the from the or the from bit tier cohort, at There's luxury the a they're just wondering noticing becoming I there purchases customer elsewhere. more any that volatility commentary of or a you higher is demographic standpoint some

guys how if about Just kind and of are you curious that that. business the seeing think in you

Rati Levesque

Yes.

the space, right ways not seeing We seller because both and different a at look that There’s So that. look we are on in obviously few we at that buyer that now. side. we’re market

I selling going value we’re price side, up. seeing On the order average average mentioned, and buyer like

product. focused and really that on We’re high-value mid-

concerned that seeing and over the as is months. across those know, As concerned, as consignor we mid that giving and high far value VIPs, consistent as Ike, are and the is few retail you those us the far as pretty sellers are last product, board

one? in the few happens with months mind. consumer trade of this we the selling the Are So down recession? And we’re the Are we’re in we’ll we cautiously what that own time. But decrease health average on at optimistic my again, it we our next optimistic we’re goes over cautiously not back metrics. or see can to seeing report not? And that price

Operator

[Operator James. with will the come That Patel Instructions] Rick Raymond of from line

Rick Patel

of us as with . hoping had the understand assumptions you very I'm could improvement for was hoping in about going takes in forward puts we I the forward the quarter. going first help first help and you performance the gross you margin, can think quarter sustainability the strong the

Robert Julian

Sure, Rick, I'll that one. this is Robert. take

it would tremendous gross shift our year-over-year primarily in we almost points. say X,XXX by the mix. was impacted see that So margins, basis in improvement And did I

that peaked as recall last may direct of You percent our a revenue total year. revenue

margin were about QX, we XX%, which was path with you we to our direct was And In how of and it this from year, chose profitability. that business. came our revenue that in total lower in to reduced to strategy all the -- QX XX% our proceed way XX%, of business down if our

impact had gross margin. on that a our So tremendous

We structure change. benefit of commission also had the

So increase beginning the we the board went And -- did rate. that take year. into effect net-net we last of our in across November

items that and under having And also deemphasizing had the have of impact of less us so also the unprofitable. $XXX, and which was --

we X maybe a I opportunity strategy, part continue of and more definitely bit our revenue. those So those little more our were describe would to as even direct and as changes structural things reduce permanent and

we -- direct increase our margin. direct Now our gross as

of Now that rid of There are inventory as points, get of some there were the to and old improvement move. X,XXX we headwind headwinds some is there. a actually that harder in the basis in transitory there is discount things

margin the gross We hit direct for have taken our tremendous business. piece of on a

saw I'm once it QX. actually transitory. discounting. require million see million on continue that of going actually inventory to call some improve. of we get results, margins our You that $X that, to negative There $XX slightly to left. reported That's through still inventory gross may it is some that it of our But of you'll was type in

hundred continue are so maybe basis we're basis going of to in margin, getting that but another see couple by potentially a gross points high might And sequentially, improvement the year. X,XXX the you of not projecting, points, to XXs to end see quarter, we going forward,

Rick Patel

changes also terms the of rate of how you on on take And can flow to procurement out mid-level your helpful. Very supply make the you the in do getting about coming strategy product you feel sellers call talk retail new as and to about platform? to more anything And board?

Rati Levesque

Yes. Sure, Rick. to that. I speak can

know, you as we’re products. So on focused and value of quality

on So mid-value tier. really focused high again that to

of supply in same coming As we rest we’re the forth, year we’ve for on and think there. seeing the really far some and before the talked upside about focused strategies so about that as our how

really that know the Really, profile in everything team value managers. better is the on So we these sales We luxury again. always that of that. focused old more retail joke to relationships brings our and relationship-based new

referral launched now that continue that. personalized a side. acquiring meaningful view Our a And the on we more just program, on having ago couple we’re months who a impact on QX. of marketing then We’ll

and again, sellers. value lifetime value the as lifetime on -- far more focused marketing in our So strategy, bringing VIP of as dollars right

as our continued targeted and so programs quality, well. on affiliate not quantity, And then kind and a there partnerships of approach and focused

Operator

Andreeva Instructions] [Operator line come from will with And Needham. of Anna that the

Anna Andreeva

talk I down a the Great. back on a wanted trend was assumes guide there seeing which to kind annual with from of flattish up bit more hoping down, the what I you you demand customer? to just your to for GMV half. could out flat follow similar are in

the mentioned Are John, the that that on that? are I finding And in what's you those timing there the extrapolate are seeing? reduce how business. guys to additional buckets then through to opportunities flow expected you Could you of are secondly, opportunity costs on P&L? think you're there And additional

Robert Julian

with pattern not start this for has just it quite We our you year this that been done our is I'll typical very see purposefully. Anna, in sort is Robert. what So a said. and unusual business, numbers, reinforcing just projected the of GMV

for direct so remember of that continue our the was XX% important reduction time. to reduction in year-over-year, will business, And it's which some a

to in maybe and started really QX. to flatten direct business QX, did in Now QX. QX It in it and out peak started decline

so terms on headwind And in And under $XXX. that overall we the GMV. deemphasizing of about items anniversarying talked we're

intentionally very GMV our reset it's we unusual revenue talked from QX. So year, we've to QX a but And see reset about quite to this and the declined baseline. being

QX with a ending quarter being is better the the sequentially quarter each before, Usually, quarter. highest than little

GMV higher driving of get dollars. what where instead haven't It's you dollars happened And QX, is higher so down our to margin. in for unusual again, revenue up profit and in of see going we QX, what's But trends see intentional. to gross given this from quite we purposeful on it flattish and gross going back are the It out QX, guidance quarters. creates we'll revenue think and although, I lower

to talk all of we're team And the demand washes and expecting out. in and what how terms then the that I'll let rest of supply

John Koryl

a perspective news the had have thanks and the Anna, table them have for question. before to and is, you'd come to just their tweaking had party everything. a job good review Robert any From as got help here. quite they as a you'd own I from have the to great honestly. And new third Rati done cost expect And CEO, perspective, we

of And nature business. it the some of has with also to do our

hyper We're on a some moving profitability. to to we be, profitable And coming growth maybe as that, a with not lower emphasis needed volumes. as from it's huge to

not to side. but the some pools only we operations support had on optimize on the side So

time, muscle, but we And profitable near term. and trying don't your cut can need at the maintain to make be you constantly you really sure to flexibility. to that we're want So same optimize in bone the costs to

And we're seeing benefits. a lot of

trying quickly or as keep GMV as changing can't is costs you'll to quarters revenue changing, change see as as optimizations the we're is but in the we future on and that. can, pace Sometimes quickly the further

Operator

And Markets. come [Operator with line will Zatzkin the Capital of KeyBanc Instructions] Noah that from

Unidentified Analyst

This Noah. is actually Ashley on for

pressure. macro out seeing of thinking that see I effect XXXX? opportunities you're currently new you how ongoing to around the trade-down the for called And previously wanted with any buyers? remainder you're Just about then

Rati Levesque

Ashley. sure, Yes,

seeing not trade say that we saw down right and the now. in as year that far – As earlier that we’re effect the

selling good about business, thing price, like-for-like go average you The as an for business. items. seeing if are We up anything, know, our consigned

we if need discount, our do to margins get So don’t squeezed.

our mix goods, So as we upside. the ASP, little as all the throughout we far value, mid AOV, continued bit high and higher-value And do that. And year as change see a aren’t there. upside to starts more more seeing

Operator

Marvin Instructions] Fong come [Operator that will of And line the from BTIG. with

Marvin Fong

just try better. I guess like I'd to understand to

down? down and sorry because for number supply if coming the are late, So coming joined you, this, I is the missed -- fact, in seeing but I goods of low-value call transactions the

we guidance? and are is the your half of things. how -- seeing direct much numbers back what the related guidance for the for the quarter first that of Or impact year And some the for the of both revenue the down in full to and other coming year

So just I'm just platform. what's of having going on goods low-priced isolate is fewer to due much trying how the on to

kind speak just that. to maybe of So

Robert Julian

Yes. Marvin, this is Robert.

it deemphasized part, vendor So items, intentionally most inventory. and, earlier, as volume mentioned intentionally on have is we or true buying we low-priced have stopped and in we the reduced wholesale for that

So better we it to profitability. path that a do is continue our in increase to that guidance. profitability year and But are our reflected to strategic the to things that is initiative focus and again, our as and totally business on expect done for full

expected It's continue. earlier, profit generating are complex. structure gross going on to wrong. And and is margin lower matches that it activity. part the reflected it that continue dollars our It that to of get why we that business revenue. gross go and less of mentioned our level to to There's had reason our to more makes things higher expected a cost allows in And margin us So less is to be increase. gross again, I guidance, is

on All profitability. and profitable to is of part and path focus the very that intentional our of growth

Marvin Fong

as to maybe John. guidance, bit coming Got if take at quarter. I the it's you. question look first a you your But I guess another or looks I it down like at rate, Great. Robert, compared for little the consolidated just look

primarily as increases of should take I through the that down climbing? the kind and marketplace marketplace of we the direct is by coming revenue Or think and driven quarter-over-quarter just take So should... system rate rate gone

Robert Julian

Yes. Thanks Marvin. for question, the

no has is whatsoever rate. business Direct business. associated with our Take impact rate take thing. one on Just consigned entirely

on been in we’ve in Now a move mix. the question when said our strictly in the see is rate take rate proportionally goes sell past, with When past of we more rate, lower up higher a typically, always rate, what take of that, rate items, you average. price items price we take it’s sell point, When point take take lower higher goes down.

selling take decline. not to take indication it’s necessarily see thing bad a we’re more be may an lower goods so just It And rate. high-value rate at

to there’s weird the explain. exception our in something results Now that, unfortunately, to always

the that change. was saw QX. not You tremendous increase a in mix. That in was take rate And commission

that or made board in moving this time every had we in change point So raise impact have an variables of same rates X did at the commission at structure QX. We to And more sort November. less. had take the across price

structure. items more Now rate on change a take our in so less structural commission to but change so and a high-value items, see low-value due in did and we

then And are associated mix, from high-value what or rates. more on higher normal see rate based just with you’ll you’ll take moving low-value the see goods of this selling we goods or take new lower

onetime rate change across the you’re had that because on going anomaly what also that’s raising of So of average. little is board QX bit an seeing it forward. a take

Operator

the come Edward Piper Yruma line Instructions] That Sandler. with of will [Operator from

Edward Yruma

from that mid-value? first kind a it specific It's a maybe better could the new guys price in haven't of a this you just brands? points? nomenclature is used guess past, you I term Is perspective, define

then something to excuse change that in deemphasized was And to the those in in products. or me, there -- maybe more pricing relation mid-value encourage grid the trying inventory,

any costs. talked observations, love would about John, finally, then And and you

RealReal? that other bring You've observations the talked were you and from the the other customer process previous Any experiences already of UI, operationally, your take about can initiatives some in that to flight.

Rati Levesque

right Yes. a that Thanks newer now. the Mid-value is using terminology for question. we're

service of what -- did Great structure, really testing high change more value, to we we So to little tweak going low on needed thought would back November, a our we news Good commission made bringing it low-value. Mid-value, that value, elasticity it high is did there. the there. news the we bit. in the value, less in

exactly right. that's So

for is too we those But we're range, a area, to and far you that numbers We as went of did I million high think -- million we mid-value $XXX kind plus. value about have is tweak. to little $XXX the means mid-value better getting us in made million, what tweaking $XXX we -- see and

dynamic this kind said of structure. we are So And that's would this then I'll and we And tweak very of always optimizing strategy moment. this continue you... we commission kind be where to a at let

Robert Julian

of effectively value. low And under million I -- we've under And we've between low gives offering in million primarily, $XXX it is defining were reasons. is eliminate our and about tried million value that We would say But $XXX think to do definitions, definition for variety price Edward, it. million. of have tranches. very $XXX us, some in between we're looking on you to going price low kind very tranches and how is a for, the low be value $XXX value. of and $XXX the We It's for you terms hopefully,

Rati Levesque

tweak we upside as structures, of and on value seeing based mid we're test And commission Exactly. different there. some is kind

just asked that I thing. So area. you about And that in we're other right think getting then the John

John Koryl

an From perspective, lot marketplaces, demand, of is Supply supply king right? obviously, and a it’s observation here.

consignor with not lifetime connections the of How that. really spent I’ve learning form emotional these value so manager luxury and of there's to great can lot lot that taking I churning of to A bring luxury your we doing them. it’s the help to consignors between the this my my lot We're marketplace. there. background So the do of relationship anything that can and a a forming around A care customers. contribute supply is we of out increase amount time built and

It retail in very the first now any have at better we’ve pipeline? pricing are luxury with minor gotten the issues. managers, site the and an the and this that concierge a making or perspective, working any consignments. like It’s just a handled the manner. not directly addressed consignors are a basically through lot a getting sales highlight discrepancies, goods things subsequent was the operational or pod how So actually of efficiency, it’s processed resolve things works on the timely sure but consignment SLA from that together team speech, team But you actually the with interacts directly that my team to

different both normal buy This levels company person from at things person. to as complexity. sell And there’s a of you them businesses, of a retail But sophistication, and ends. a different levels

work so much and those We all better together, and together. we’re through it at work that getting have having teams to

just I the Rati more her commission on with structure things like word that think and used testing in that. answer changes testing and

that’s goal another thing background. not I’m is big structure have as My think QX them. my things do because dramatic bring change We they from last that dramatic going many a year. to made risk commission to I in to to

be You the make that if reaffirm dramatic in can’t profitable take do really in miss. swing to we’re XXXX and a that going we belief –

So see more what going a you’re lot lot to more tweaking, is testing. a

got the we site. we here, need registration about on talked I – From gate the the day

You based down some go what can’t you quite more That’s to initial the experience the with been the That’s any type All and of to again, that it that’s on test. to. but orientation. a supply. business. on better pages. improve the comes subsequent And has can customers, we frankly, page, But build go focus demand to X my need thing of

Operator

the come [Operator from Tom Securities. Wedbush And will Instructions] with line of that Nikic

Tom Nikic

affecting in not the I I'm asked rest like concerted think category Is And reduce like thought been increase was AOV. think between anything has it a The or the on guess there of that different were bouncing have is I else the shift something as have a the I to with bigger X%. been already. would I I as couple something lower effort -- that the meaningful is? this AOV? I Or there I that, like would assortment would mix that of value, average up that order items earnings maybe was apologize were calls. there think, priced guess if shifts within

Rati Levesque

Yes.

different $XXX almost say QX. So I about $XXX -- AOV will things about couple And of in that. is a

new and the quarters low do As around deemphasizing we there. strategy and in I more continue upside more this throughout value high the value, see think mid you'll

go see AOV. think other inverse the you'll you'll continued some the quarters then see will transaction we thing what per is goes an is And relationship that sometimes slightly in down. upside throughout units I up, see is there. There ASP But

Robert Julian

price is The pretty I We X, Yes. $XXX average as around is or especially think value about handbags, it people, order But buying know I direction. year saw like year-over-year the you number. healthy so watches, not seeing were in I X change and of didn't it as It's number. COVID, higher during really sequentially. we and think, think peak, right Tom, items when last in either moving absolute jewelry. it's point much a bad, an

And an a average normalized. seen not so Rati was expectation is the average price And And what we've in to trend value. QX as average that and that pretty again, at order And we expect $XXX price go decent increasing, continue. would selling that average result selling nearly said, there value is order decreasing. down if

Tom Nikic

year about more follow to from low-value there expect profitability next If think next by benefit could the year, that see growth? is items? I EBITDA we in the next topline of improvement Or When be elimination Okay. year getting to up there. profitability driven you more just will

Robert Julian

Yes.

I is think – going it’s this Robert. to

of a get mix the our anniversary revenue, going direct eliminating as Tom. during of point. better to call it’s into us business course anniversary year some will coming year that rollover $XXX. as being be to itself call, a, at much At both, XX% total think at That level and be this down versus I we as what effect items effect year. of a reducing will I it, what’s point, the impact of full next will would possible you to, under some XX% There really down

to I But We said, in business, expect as the benefit XX%. you’ll do very I to we’re at continue moment, consigned a XX% see range to wide this providing both. think grow from

it more and create benefits, so that have revenue will And leverage and it will profitable growth. will be

all to into come And things positive EBITDA those be XXXX. our of that we’re projection so going effect in adjusted in

going that also rollover of be a there’ll effect we more impact of some a cost-cutting the in of order you’re XXXX. have get point versus by some of – way, the recently some effect getting impact a You’re Again, partial – to full XXXX to full going year actions taken. year in that

Operator

[Operator Instructions] of One That will next come moment Stanley. our with the Morgan for Schenk line Lauren from question.

Lauren Schenk

I just had two, if I can.

The first impacted was anything there's whether or new from guide. on year all? the or lower has not upside the is, retention contemplated from identified share if not at some you've full fire opportunities that and then shift in that can any whether of second more away And the the value the revenue there's items you

Rati Levesque

second take first take I'll and let the question. part I'll of the Lauren, one, your John

basket We sure as items surgical and were well and brands which cutting on far not seeing the in basket retention high there and infinity pretty or deemphasizing value there we seller sure low deemphasize and went and then the at were case. buyer that in -- also infinity with at As we low the and looked of the this side. an were we the as we that to or was to when impact make items much brands make brands looked going there, we're

on alarming nothing retention side the there. So

John Koryl

just some need a listening it of testing is ago, Yes. And from back forward. that offer offered going the XXXX. take market to we – on handbags of I return Those it things of comment that moment we our What to there’s minimal is those to an right lot customers. for, advertising where made the don’t A to is We to if returns perspective, are insurance, asking products actually now. we’re the right? bring type impact

from time, a million view. that same and views, the and a At lot we we members, active of lot have an advertising have members, and we of haven’t page have point of XX we monetized

have XXXX So talk done I there. us But we about done in we bring will outsized talk to see commitment and from the things We’ve those it and a in a enough conscious hopefully this year. impact big back about testing doing and to an turn that want to have you half in haven’t to a perspective those of then yet. way that on plenty don’t type things from of we’re green when judicious

Operator

to The any you. no queue I'm to Thank time. the RealReal this call like would at John in turn closing the CEO, for Mr. over . showing now remarks. back I Koryl, further questions

John Koryl

SPXYes. for Thank you joining us today.

close to call, a The we to Before the thank take moment want I team. RealReal

commitment our You have lot welcoming business. have and openness about for into the organization all your already taught enthusiasm you Thank me the a and to mission.

about We and luxury you are excited the making to keep in a partnering with forward planet. the for to direction of business look and difference the resale

sustainable. Thank very to life more like make thank more Finally, I’d you the members extend to of luxury much. XX and us than our million fashion that are joining on our mission

Operator

for participating. This Thank concludes program. all you today's

now You may disconnect.

The RealReal, Inc. (REAL) 9 May 232023 Q1 Earnings call transcript