Q4 2019 Earnings Call
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It is now my pleasure to hand, the conference over to head of Investor Relations Paul Bieber.
Thank you good afternoon, and welcome to the real real earnings calls quarter ended December 31st 2019, and Paul Bieber head of Investor Relations at the real real joining me today to discuss a rear wheels results are found.
Sure.
Let's see or would you be wainwright and see if were not gusky Julia will provide an update on our business. It couldn't ci initiatives and the amount will review, our Q4 financial results and provide the financial outlook.
Before we begin I'd like to remind you the management will make forward looking statements. During the course of this call and our actual results could differ materially some of the risks and uncertainties that could impact our business are included in our final prospectus.
For our initial public offering Bob with FCC on June 27, 2019 under risk factors, including our form 10-Q filed with the third quarter financial results and form 10-K, there won't be filed with our fourth quarter results. In addition, our presentation will include non-GAAP financial measures and we have provided reconciliation.
Since the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.
I would now like turn the conference call or what's your real real standard in C. O two we weren't Julie.
Good afternoon. Thank you for joining us today disgust, our fourth quarter 2019 financial results.
I'm happy to report that in 2019, we generated more than $1 billion in JMP.
Well, we all had clearly come a long way my early days for my COO Raich, either back and I just got strategy at my kitchen table.
We also how it all the work and cutting edge in customer service calls et cetera, et cetera, a long way a big Thank you talked consigners and our buyers who helped us achieve.
Yeah.
I read circulating guides youre, creating a more sustainable world My also making money from the box ramps you no longer you.
Of course, the real real success is due to the dedication and diligent efforts of our employees.
You have made around the safest and most service oriented market I used to buy Pete I'm actually got.
Thank you so much.
Before discussing our financial results, let's take a moment to discuss the route authentication.
There is no other resale company doing more to remove bank and the market every day and to put counterfeiters out of business. We believe we had the most rigorous authentication process in the marketplace as we up indicate every item we now using a combination of technology and trained expert.
On our previous call, we discussed how automation copywriting and pricing is changing the walls hibachi.
In 2020, Copywriting in pricing will be mostly automated.
The combined impact of automation and leveraging technology has dramatically changed our teams day to day activities in our operations.
The net effect of this has allowed us to process more products daily per person, while also expanding to adapt the birth indication process training and quality control procedures.
Importantly, our processes will continue to evolve as we integrate more technology dropped 2020 and of course, we have to evolve as counterfeiters also about.
Our goal is to be the safest marketplace to buy pre I'm back Street.
Our NPS buyers score of 71, and the fact that over 80% of G.M.B. came from repeat buyers and containers in 2019 indicates that we are certainly focused on the right. This year.
Now for the financial highlights and it's always Matt will provide more color after my comments.
Q4, we achieved 39% you're on your G.M.B. groh with all top level categories exciting growth in excess of 25% year in there.
Handbags, followed by men for the fastest growing categories.
At the same time Q4, adjusted EBITDA margin improved by approximately 17 percentage points.
Year on year, driven by operations and technology expense leverage.
And our planned reduction in marketing.
Our Q4 results highlighted I, most discipline focus on driving variable expense leverage which is an important driver path to profitability for the full year 2019, we generated GMB 1.008 billion up 42% year on year.
We also made significant progress on our path to profitability as our adjusted EBITDA margin improved by 540 basis points year on year, while making significant investments that position us to capitalize on the massive opportunity in front of <unk>.
Needless to say, we had a good year last year, but we don't rest on our past successes.
Here are for strategic priorities for 2020 number one a continued focus on growth.
Number two.
Driving leverage and operations and marketing number three expanding our retail book crack and number four sustainability. Our first priority is to continue our strong G.M.B. Riley.
We are come down there is much more growth in kind of us them behind us.
Each year consumers purchase hundred billion.
Dollies personal luxury goods. These good accumulate in their homes over time and create a massive market opportunity for.
Well I can tell with an estimated total value in U.S. luxury goods, the potentially available Korea, south and approximately $198 billion.
Clearly we are to be getting very large opportunity.
Mocking supply is the key to our growth.
To that end in 2028, we will continue to invest in growth to expanding our retail footprint, making appropriate investments in marketing and growing our sales team.
Importantly, scaling growth are essential inputs to our path to profitability, we benefit from scaled to leverage fixed costs and to drive unit level efficiencies. So our investments in growth our hundred percent consistent with driving toward profitability.
Our second but equally important priority is driving leverage a big part of our 2019 margin improvement was driven by our marketing efficiency and investments in automation.
Boat helped facilitate our ability to scale and contributed to significant improvement in our order economics.
For marketing marketing as a percent of revenue in 2019 was only 15% and help drive 42% GMB growth.
This resulted in our buyer acquisition cost no net back declining approximately 30% <unk> four in the fourth quarter.
An approximately 20% year on year in 2019.
This is our third consecutive year aback decline.
Clearly our flywheel effect is positively impacting our business as buyers become consigners and consigners become buyers.
We believe there is additional opportunity to improve marketing leverage going forward by number one buyer retention.
2.9% of our G.M.B. came from repeat buyers in Q4 number two the continued impact of the network I'm flywheel effect.
Number three continued media mix optimization.
And finally number for conversion to buyers from my large member banks.
In 2019, we achieved operations and technology leverage primarily to the automation of our inbound processing.
We exited the fourth quarter automating the pricing of 61% of our unit volume.
27% of our Copywriting, including product title and description and 21% of about a week catching.
We will continue to invest in automation and 2020, and we expect to see steady increases in the percent of items with automated copy and retouching.
Which will support improvement in inbound processing unit costs.
And help us continue to increase the scalability of our operations.
We will also invest in technology to further improve the efficiency of our pick pack and ship operation.
Moving to our third strategic priority expanding I retail footprint.
We operate in an omni channel marketplace and our retail stores are an important asset in that strategy I retail stores redefined the luxury consignment shopping experience and offer our buyers highly curated selection of products that are refreshed daily.
We opened our first store and so how in New York City in November 2017, followed by our West Hollywood store in July of 2018.
In early 2019, we opened a small footprint store in New York on the upper East side on the corner Madison and 72nd.
It's in case, you just want to stop by our stores tribes supply and remarkable sales per square foot have high average orders values and very low return rate.
They also drive brand awareness and we believe that creates a halo effect in the local market in 2019, I tree retail stores generated approximately 150 million of value to our marketplace.
Including 65 million in demand and approximately 85 million.
In supply.
So we feel very good about the 'em up their momentum.
We're very proud of our Soho store, which opened in November 2017.
And it continues to perform incredibly well in Q4, the Soho store generated GMB growth up 36% year on year only slightly below our total GMB growth rate in the quarter, and then India bold growth rate for store in its third year.
About operation.
In 2020, we expect our San Francisco store.
Open in Union square sometime in March were also excited to announce that we recently signed a lease for a flagship store in Chicago I'm, Michigan Avenue.
We expect that store to open the second half a 2020.
Well, we are pleased about a retail momentum I retail strategy will continue to beat deliberate an opportunistic.
I'd like to wrap up today with an update on sustainability for perspective, 73% of the world's clothing eventually ends up in landfills. According to global fashion agenda.
And as we've stated before every second the equivalent of one garbage truck attack South is ran failed or burn.
With that in mind, we're pleased to update our sustainability metrics.
Since inception.
Through December 31st last year.
Hi, My went to real real has offset 13300 metric tons of carbon and save 608 million liters, a water given the importance of sustainability to the rail real and our customers. We believe it's important to take concrete action as I thought leader.
And sustainability.
In November of last year, we were the first company to take the pledge in the CEO carbon neutral challenge issued by Gucci CEO.
Mark I'll desired.
The real real has pledged to be carbon neutral in 2021.
As a final note we're pleased to see the momentum up resale in the marketplace as more companies embraced the circular economy.
And we're happy to welcome Nordsons commitment to driving sustainability in the fashion industry.
With that I'll turn the call over to map for the number.
Thanks, Julie and good afternoon, everyone.
We had a strong Q4 highlighted by 39% year over year, GMB growth and 17 percentage points of adjusted EBITDA margin leverage underscoring our continued focus on balancing growth with a disciplined approach to driving operating leverage.
Moving onto our key operating metrics.
We ended Q4 with 582000 active buyers on a trailing 12 month basis up 40% year over year.
We added approximately 39000 net new active buyers quarter over quarter.
Jim V from repeat buyers was 82.9% of total GMB in Q4 up 130 basis points year over year, reflecting strong buyer retention in the period.
We generated 303 million in GMB, an increase of 39% year over year.
Which we're very happy with given that our marketing spend was down 14% year over year as planned.
Trailing 12 month GMP per active buyer was approximately $1733 up 1% year over year.
Q4 orders were approximately 637035% year over year.
Q4, ASV was an all time record at $476.
The 2% year over year, it'll be increase was driven by an increase in average selling price per item while units per order were flat year over year.
Returns and cancellations were 27.6% of GMP and improved 210 basis points year over year, driven by lower return and cancellation rates.
Our Q4 consignment take rate was 36.2% an increase of 130 basis points year over year, reflecting the impact of our Q1 2019 Commission changes.
We expect Q1 twentytwenty take rate to increase modestly year over year, and we expect a modest increase for the full year twentytwenty, because we fully anniversary or February 2019 take rate adjustments.
We also note that take rates can vary from quarter to quarter based on the mix of products sold as well as which consigners had item sales.
In the study state, we expect take rates to be highest in the second and third quarters of the or it's a decrease in Q4 with a higher mix of high priced products.
Total revenue in Q4 was $97.3 million, an increase of 57% year over year.
Q4, consignment and service revenue was 80.7 million up 46% you every year.
Direct revenue was $16.6 million.
Direct revenue includes a reclassification of approximately $6.8 million of consignment revenue to direct revenue and a corresponding decrease in consignment revenue of approximately $2.3 million, reflecting an adjustment in the timing of title transfer for a subset of our auto policy reach.
Terms.
There was no change to prior year reported numbers due to this reclassification.
The reclassification also had no impact on GMB or gross profit, which we believe are the best measures of the scale and growth of our marketplace, nor do the impact adjusted EBITDA.
Q4, gross profit was $62.5 million, an increase of 48% year over year.
Gross profit per order increased by 10% year over year to $98 driven by higher Lv take rates and shipping leverage.
For the full year 2019 gross profit per order increased 7% to approximately $92.
We see the potential for gross profit per order to exceed $100 over the next few years.
Primarily driven by improvements in shipping expense.
Q4, consignment gross margin was 74.0% down 100 basis points year over year, driven by the reclassification described previously.
Excluding the reclassification consignment gross margin was essentially flat year over year.
Direct gross margin was 17.2% up approximately 430 basis points year over year due to improved product margins.
As a reminder, direct gross margin is lower than consignment gross margin because direct revenue is recognized on a gross basis with corresponding cost of sales.
Moving on to operating expenses.
Please note that I'll speak about Opex on a non-GAAP basis, excluding equity based compensation and related taxes.
For a reconciliation to GAAP, please refer to our earnings release.
Marketing expense was $10.8 million in Q4, a decrease of 14% year over year.
Q4, marketing as a percent a revenue improved to 11.1 per cent compared to 20.3% in the same period a year ago.
Our Q4 back improved by approximately 30% year over year in full year back improved by 20% to $114.
As we discussed on our Q3 call, we decided to reallocate marketing dollars to earlier quarters, where the our eyes were more attractive resulting in a decline in absolute marketing expense in Q4.
Well. This approach resulted in 900 basis points of your over your leverage in the period, we will take a more balanced approach to the cadence of our Twentytwenty marketing stuff.
As Julie mentioned believe there is additional opportunity to improve marketing leverage going forward, but marketing leverage will vary from quarter to quarter based on the timing of our advertising spend.
Operations and technology expense, which includes cost relating to our stores luxury consignment offices fulfillment centers merchandising engineering and product management was $38.9 million in Q4, an increase of 22% year over year.
Operations and technology as a percentage of revenue was 39.9% in improvement compared to 51.5 person in the same period a year ago.
Productivity improvements in our inbound operations from our automation investments improved efficiency in our pick pack and ship operations and fixed expense leverage drove significant operations and technology expense leverage in Q4.
We believe there was additional opportunity to improve operations and technology leverage going forward driven by automation improved outbound deficiencies and fixed expense leverage.
Selling general and administrative or SGN expense was $32.9 million up 73% year over year.
That's today as a percent a revenue was 33.9% compared to 30.6% in the same period a year ago.
Driven by investments in our administrative function headcount to support being a public company as well as other public company costs and a one time $3.2 million donation to establish the real real Foundation.
Excluding onetime costs, that's DNA as a percent of revenue was 30.3 per cent compared to 30.6% in the same period a year ago.
Our adjusted EBITDA loss for Q3 was $12.7 million were 13.1% of revenue and improvement of approximately 17 percentage points year over year.
At the end of Q4 cash cash equivalents and short term investments totaled $363.3 million.
Before I move on to guidance I'd like to touch on buyer cohort performance in contribution profit per order.
Overall, our annual buyer cohorts remain healthy and consistent.
For the annual cohorts, where we have at least three years of data 2019, GMP per cohort increased by approximately 10% year over year on average in each of these cohorts saw year over year growth.
Moving onto contribution profit.
Internally, we focus on contribution profit per order and view it as an important metric to assess our marginal profitability and measure our progress on driving operating efficiencies.
Contribution profit is calculated by subtracting variable marketing operations sales and merchandising expenses from gross profit.
Fixed expenses include occupancy general and administrative technology marketing in certain merchandising headcount costs.
2019 contribution profit per order was $19.72, an increase of 126% year over year.
This improvement was driven by a six dollar increase in gross profit per order in a 7% decrease in variable expenses, primarily variable marketing and inbound operations expenses.
Contribution margin as a percent of revenue was 13.8% up 700 basis points year over year.
We expect contribution profit per order will increase substantially again in twentytwenty due to one continued growth in gross profit per order driven primarily by shipping expense improvements into a much lesser extent from higher lvs and take rates.
To continued improvement in our back and high buyer retention.
And three continued improvement in variable operation expenses from our automation investments and improved efficiency in our pick pack and ship operations.
The combination of our improving contribution profit per order and high buyer repeat rates increases our confidence in our ability to drive margin expansion as we begin to leverage our fixed expenses over the coming years.
Moving onto guidance.
For Twentytwenty, we expect GMP of $1.315 billion to 1.34 or $5 billion.
Representing a year over year growth rate of 30% to 33%.
This guidance reflects our San Francisco store opening in March in Chicago store opening around the end of the third quarter.
Further we do not expect a significant change in year over year take rate and we do expect direct revenue to decrease year over year as a percent of total revenue.
Therefore revenue growth rates will be much closer to GMB growth in Twentytwenty, then it wasn't Wendy 19.
We expect our Twentytwenty adjusted EBITDA margin loss present in the range of 15% to 16%.
Which represents 700 to 800 basis points of year over year, adjusted EBITDA margin leverage which is more leveraged than we delivered in 2019.
We expect the following factors to drive operating leverage in Twentytwenty.
One gross profit per order.
We expect gross profit per order to increase year over year, driven primarily by shipping expense improvements.
These shipping expense improvements together with a lower direct sales as a percent of revenue are expected to drive year over year gross margin expansion of approximately 500 basis points and twentytwenty.
Second marketing, we expect our back to continue to decline driving a year over year improvement in marketing as a percent of revenue.
Third ops and tuck.
We expect a year over year improvement in ops in tech as a percent of revenue, reflecting automation and fixed expense leverage partially offset by investments in new retail stores and in technology.
For SG Nay, we expect our investments in public company expenses to flatten out during 2020 and to begin seeing leverage yesterday and the second half of the year.
Overall, we expect to achieve adjusted EBITDA breakeven in Q4, 2021, and full year adjusted EBITDA profitability in 2022.
As I mentioned earlier, we're planning a more even cadence to our quarterly marketing spend in Twentytwenty and therefore, we expect a fairly consistent year over year GMB growth rate throughout the year.
Therefore for Q1, we expect GMP of $291 million to $295 million, representing a year over year growth rate of 30% to 32%.
We expect Q1, adjusted EBITDA margin loss per cent in the range of 24% to 26%, reflecting investments in store openings higher quarter over quarter marketing investment in higher quarter over quarter spend in SGN day to support supply growth in public company costs.
A few additional notes for those building models.
We do not anticipate investing in our next fulfillment center until 2021.
We expect approximately $20 million to $22 million and stock based compensation expense in twentytwenty.
We expect approximately $18 million to $20 million and depreciation expense in 2020.
And we expect approximately $30 million to $34 million of Capex and Twentytwenty.
Our fully diluted share count, including our us use an unvested options as of December 31st 2019 was 95.8 million.
In closing we are proud to cross the 1 billion dollar GMP milestone in 2019 and are confident there will be much more growth ahead.
In 2020, we will continue to focus on topline growth and we'll do so with increasing operating leverage as we drive toward profitability in Q4 2021.
With that we will open the line for questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
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Please standby well we've compiled acuity roster.
And our first question comes from the line of Justin Post with Bank of America.
Great. Thank you and congrats for reaching $1 billion MGM V. I guess the first question as you know it looks like you really are getting strong repeat rates folks from buyers and Consigners and I was just wondering what are your strategies next year as you try to target new customers or bring them into the final because it looks like you do a pretty good job of retaining them.
Maybe we can start with that and then I'll follow up thanks.
Oh, Okay, I my answer to that and we actually have a very healthy growth of new customers also and new Consigners, sorry strategy sort of remain the same which we use our current member base, which is growing pretty.
Aggressively to recruit buyers and then also Consigners. We also our stores have turned out to be an interesting way for us to get both new buyers and consigners, even so ho in its third year is still attracting a very large percentage of new but primarily it's performance marketing.
Two first get someone to be a member and then convert them to a buyer or seller and their performance marketing, it's still primarily driven by media and not digital so advertising on a regional cable and also some over the top media.
Great. Thanks, Matt and just for perspective, we've always had for the last few years, we've always been in the 80% rate from a repeat basis, which speaks to evaluated the business to both the consigners and the buyers.
Okay, great. Thanks, Julie and Matt just on the cadence of GMB looks like some deceleration in Q1, and then and then you kind of expecting it to be flat at that level for the year I know there could be some volatility and on the comps, but just maybe dive into that a little bit and explain a you're thinking around the GMB growth outlook for the year. Thanks.
Yeah sure I'm actually going go back a little bit you'll remember that our Q3 growth rate was nearly 50% in terms of GMB that quarter included a pretty significant bump around the IPO Q4's growth was basically inline with what we saw prior to Q3 around 40%.
And though there was some impact from having the lower marketing spend in the quarter.
We're really happy with the results in terms of the leverage and delivering our first ever quarter positive operating cash flows.
But in hindsight, we may have been too aggressive in our approach because the Q4 reduction did have some carryover in terms of Q1 growth rates for our new consignment leads and new buyers to your first question a repeat Byron Consigner performance remains very strong including in the quarter.
So while we did successfully optimize for marketing ROI in 2019, we're going to take a more balanced approach in 2020, which results in the more even year over year growth rate you see over the year on to your point. There's some you know some minor fluctuations due to the comps a more or less in even growth rate.
That will help in a number of ways, including allowing us to do to optimize our labor planning a lot better because in our operations swing up or down connect can lead to pretty substantial inefficiencies. So we're going to just be more balance going forward and the results are as I got it.
Thank you Matt appreciate it.
Thank you.
Our next question comes from the line of Edwards with Keybanc capital markets.
Hey, good evening and thanks.
Solutions as well.
Obviously, some very well documented issues and the first party luxury industry with impact part of Iris I guess are you seeing an impact from higher promotional levels on the first party kind of filtering down to what you do.
And then second sounds like some very promising signs kind of in your physical store rollout in a post Chicago should we expect kind of a regular cadence to store openings given some of the strong results that you're saying thank you.
So I'll take them Seminole that man camp and so and we're not seen any impact as a kind of virus at all certainly not in the promotional plans are on any other level and just you know our exposure in Asia is less than 2% I think it's about 1.2% to be specific so at least.
Now as its contained in the U.S., we don't expect to see any promotional impact or any any impact otherwise on the store basis again, I think you might remember we look for a great location I'm, good Rand and key strategic city. So right now we still think.
It's about two stores a year for the next for seeable future that may vary by one store plus or minus but I would expect.
Given we expect a great performance out of San Francisco coming home Chicago in the summer. We think we'll also be fabulous grass and we're already looking at our next stores, but again I wouldn't expect more than two to three a year and probably close to that too.
Great and met one quick follow up I know you were fairly clear on the marketing spend but just some crystal clear is it isn't literally going to be kind of even every quarter is there a bit of catch up in the first quarter from the softer fourth quarter marketing spend and just maybe help us understand that the shape of that maybe a little bit more explicitly. Thank you.
Yes, without getting too granular sub Q1 quarter over quarter is a fairly substantial increase in dollars.
Q and then fast forward to the fourth quarter. So in 2019, the biggest things we just be pulled forward a decent amount of our Q4 span inter earlier quarters, mostly into Q3, but even a little bit into the first quarter. In Q4 up 2020, we do expect to see year over year grow and marketing dollar.
But.
Perhaps not as high as it.
Somewhere in between what we didn't 19 in 2018 cents a moderation of the strategy. The strategy was successful, but we just feel we should have stretching our smooth it out a little bit.
Great. Thanks, so much.
Thank you.
Our next question comes from the line of Michael Binetti with Credit Suisse.
Hey, guys I'm, sorry, I got them at a readout in there. So I apologize if I missed anything on QNX, but met I just wanted to clarify I think earlier you said you expect the take rate guidance to be modestly higher year over year, but only in the first quarter right. I think you said later that you expected to be flat.
Flattish us yeah.
Well I'm actually not what I said I actual also misspoke earlier, so take rate in Q1 will be up fairly substantially between 50, and 100 basis points year over year for the full year it'll be up modestly. So obviously then beyond Q1, you're talking about roughly flat year over year awaiting out too.
You know tens of basis points on the full year.
Okay.
Okay. So that's basically the wrap around of the price increase from last year in first quarter and then no planned price no planned rate increases for the rest of the Earth, because I don't think about it.
That's right okay.
And then you know I heard yesterday answering the question there on GMP at the end, but.
Just ask a little bit differently, I mean, Julie pointed out.
So stores in year three is trending at 36% in your biggest market. I mean these are some of the more you know mature businesses that you would think would be on the front end of any kind of normalization in the grocery, but then you you're guiding for DMV.
At quarter to slow pretty meaningfully from what we've seen in the last two quarters, how much conservatism or would you say is in that number versus something you're seeing then in the trends in the business today that led to the guidance.
But the guidance reflects the treatment work, where nearly two months ended the quarter right. So the guidance reflects.
The trends that we've seen at quarter to date and largely due to the marketing spend weve talking been talking a lot about substantial reduction in marketing spend had a little of impact in Q1 actually a bit of a bigger impact.
Sorry, a little bit impacting Q4, a little bit bigger impact in Q1, we've since ramped up our marketing spend substantially quarter over quarter. Therefore, our confidence that will sustain these growth rates as we get into the second quarter and beyond.
Okay. That's one last one you mentioned a couple times through their prepared remarks, the leverage in the year on shipping.
Would be would be a major call out this year, we just walk us through in reality what are some of the changes in the in the shipping is driving.
Some confidence in the leverage there.
Yeah.
Yes, it does a lot of things that there's a couple a couple of major ones all call out first is renegotiating our contract with our primary shipping carrier is yes.
That took place right at the very end of 2019 apps. We start already started seeing some benefits as we came out of the year I'm supposed to have a full year benefit of lower rates.
Second as you recall, we opened our Perth Amboy warehouse and they started shipping and roughly may of 2019.
As that facility started ramping up we saw an increase in the percent of our orders that have split shipments. So that continued to increase and frankly is as you kind of get to peak, but it's getting there, but we anticipate that as we get into this year that split shipments will peak in start coming back down seal you have kind of a twofold benefit.
On on shipping.
Okay, Thanks, and congrats on the on the first billion guys great job.
Thank you.
Thank you.
Next question comes from the line of Oliver Chen with Cowen.
Hi, Thank you regarding average order value or what are your thoughts about how that may trend going forward as you think about both the interplay the product mix and what does your guidance assume for what you're seeing and the promotional environment as well.
Yeah. Thanks, so it'll be in Q4 was a record high.
And actual is quite high given given a higher mix of.
Gifting products. It was a lot of jewelry lot of handbags in particular that said drove our record high of the in Q4 Q1's going to come back down as as it always is Saar guide for the year essentially assumes basically flat a full year Lv, maybe it's up about a point, but flat to up a few.
Dollars in essence, and our expectation for the promotional environment is that it's it's much like it was in 2019, which means that we will see a Q3 decrease quarter over quarter in Lv and a substantial increase again in Q4.
Okay. Thank you and another modeling questions. When we look over a longer term for marketing as a percentage of sales and shipping.
As a percentage of sales.
Some really great progress so far I've, where do you where do you see that going over time.
[laughter] I'll start with marketing so we expect and our model assumes that every year for the next few years, we continue to get leverage and marketing first and foremost that's driven by our high repeat rates and that we expect to see the percent of GMP from repeat buyers and consigners to continue to incur.
Priests consistently and modestly every year so the amount of money that we need to spend on growth is it decreases.
And then Furthermore, we expect our back to continue to decline this year and beyond though at more modest range than we saw in 2019, certainly we don't expect to see 20% year over year decreased every year.
And then second was around shipping so.
We haven't really built in substantial improvements.
Beyond this year's guide in into our thinking, though certainly we're going to continue optimizing our shipping expenses, though not every time, we opened a new warehouse you are going to see the the phenomenon of split shipments increasing.
That will kind of peak and then drop down over the course of about a year, but outside of that you should expect to see relatively study maybe modest improvements year over year each year.
Thank you and Juliet as a follow up.
You made a lot of really impressive progress with partnerships with various brands. What do you think the heads for how you're thinking about partnerships, whether that be with specific brands or end or a retailers as well.
You know, we actually continued to having continued discussions it's not to both brands and.
And Yelp, you'll know as soon as we now as it comes into something more in a partnership but you know again as you know Oliver it's not critical for us to have the brands as a partner, but you know we're always in discussions and some brands are more open and more positively inclined to work with us than others. So discussions are ongoing.
Thank you best regards.
Thank you.
Thank you.
Next question comes from the <unk> shared it yes.
[noise]. Thanks, maybe two if I can we think it but it is the marketing spend or investments in the business, which the split between trying to continue to win sent more good inventory on the supply side of the marketplace versus driving new buyer grade silver split we can get introduced the way you think about where you need to stimulate.
More activity in the marketplace and how we think about that exit 19, and now that will evolve as it goes through 2020 and the second question would be from the outside looking in what signs can you help investors and folks like us in terms of understanding how you might gain additional leverage over the authentication process, especially.
Ought to be should the machine learning tools overtime, Julie you talked about it a little bit in your prepared remarks, just wonder if we go a little bit pieper, they're getting a bit more color.
As we progressed through 20 beyond what we should be watching for there. Thanks so much.
And I'm going to take the last part that I'll kick it over to Matt to talk about add leverage and marketing and new at him back and the key for US as you know because when you take possession, we receive happy right copy we price we take photographs and then and we authenticate so the good news.
Uses we made tremendous strides on actually idle copy riding a pricing and photo editing and so that by focusing more and that area, which are increasingly easier for us to.
Automate it actually allows us to free up more time for more throughput and deeper authentication was also employed machine learning and I warehouse in our ops. So we act we route product differently based on.
The counterfeiting and trends that we're saying and also high risk Consigners. So we've employed machine learning and Wills base.
Technology to route product differently, which makes our process more clean I would say, but at the end of the day and everything we're doing is supposed to automate the task that can be automated which gives us scale ability and then make sure that.
We're doing the right. Thanks, I'm not dedication at all times. So we feel really good last year was a monumental year, where tests. We've put in place in 2018 became a practice in 2019, I would say and in general we're probably if he just think of getting too at the Genesis a lesson.
Recognizing that potential I would say, we've got a lot more in front of US then than what we've actually realize so far so we're pretty excited about it because secondarily, we do pick pack and ship and that area has actually had the least automation. So when you look at total ops from receiving the product just shipping it out we have a long way to go.
There and our model show Conservative.
At really a conservative cost of of the impact of technology, and we're not going to stop there I think that's aclaris way to say that.
And on the other Matt Yes on the marketing question you know.
Given that the majority at this point of our total AD spend is is in TV.
And that that growth is not as part of our mix continues.
Our our TV ads tend to be buyer focused and we've tested seller focused messaging and the buyer messages just work better and they resonate better. So we're not specifically trying to drive more buyers than than Consigners. That's just the more the most.
Effective marketing that that we can run effective as that brings in generally everyone comes in becomes a member first and then we use different levers to convert them typically into buyers first but we try to convert them from a member into some sort of value creating activity.
Through email marketing and various other means.
So expect that to to continue what we've seen is.
Hey, consistent growth in buyers versus can sign as we've always had a ratio of about four buyers for everyone. Consigner. It's one of the ramp up our marketing we see that happen the buyer growth tends to go faster, but the consigners catch up and vice versa.
Well one last one on that are going to roll out some technology and the next to add couple months that actually should help we move even more friction away from the Consigners. So work ideally you know where we are supply constrained and we can sell everything we bring in by design.
So the more friction we removed the consigning process the more it accelerates our growth and we've been working on some technologies that will rollout in the next couple months.
Great. Thanks for the color.
Thank you.
Next question comes from the line of Aaron Kessler with Raymond James.
Great. Thanks, guys a couple of questions, let's first I'm somewhat brand awareness kind of how much room do you think you have left to go there kind of our recent survey was showing about 20% friend or us up nicely year over year, but still kind of seems like a lot of opportunity and then any geographic regions of strength, you would call out or new growth areas, you're saying thank you.
On the brand awareness, we did this study annually so you're absolutely right. That's the last numbers that we've seen we have a long way to go before we'd become ubiquitous. So I'm I'm looking we've always feel that study in the April may timeframe, and we do annually. So we'll let you know as we know that we we have a lot of.
Headroom there. So we're excited about that what was the second part a geographic outlet you know what there.
The truth is lab work [laughter], which this is going to this is sort of like the shoemakers children have no shoes. The bay area actually isn't about what's a latent growth market for us we're seeing an acceleration of growth in the bay area and we expect that to really fell even further once the store opens but you'll be sometime this quarter.
So that but having said that the the regions are all growing they're all growing we're happy about that and but the bay area. So that surprised us its but its growth has been accelerating the last six months.
Great. Thank you.
Thank you.
Next question comes from the line.
Boruchow with Wells Fargo.
Hi, it's actually a sound I could talk right.
I wanted to get some clarification on the on the gross margin.
Outlook for the year, yes, but [noise].
You got a loss me for a second there.
Thank you said something about 500 basis points of expansion.
Did I hear that correctly, but kind of sounds like a lot.
Yes, you did hear correctly in it and it is a lot.
The that the two drivers there again the shipping expense leverage that we talked about a lot at this point and then the having less direct revenue, which has gross margins in the you know the teens high teens less of that as a percent of overall revenue and more consignment revenue, which has gross margins in the last.
70% range.
Okay got it and then just another clarification I know the marketing expense has been no big topic here, but when you talk about more consistent.
Across the quarters here do you mean like that dollars, but the actual dollar spend is more consistent across the quarters than it was last year or do you mean that the growth rates are more consistent.
<unk>, Yeah, Alright dead the growth rates will be more more steady said more specifically, we will have year over year growth and marketing spend in Q4.
Whereas in Q4, it was down 14%.
Got it understood.
Thanks very much.
Congrats on a quarter and stuff like for sure.
Thank you thanks.
Thank you next question comes from the line of Rick Patel with Needham and company.
Well I'll add my congrats on the strong execution as well.
Can you update us on the opportunity to convert buyers from your large membership base I'm just curious if there's any way to contextualize. The progress you've made in 2019 and what you think works best in terms of driving that conversion.
Yeah, I'll start and if you want to chime in Julie So only about 15 million members in our database. So it's it's a great pool for us to convert from any given period, you know a nearly half of our new new buyers and consigners are coming out of that that membership base and I don't they werent added to the membership base in that.
In that period.
That's been very consistent in terms of converting folks, but again everything when it comes back to product and the more product that we bring in product feeds not only are repeat business, but it converts members into buyers. It's our best Levered to convert certainly our marketing helps quite a bit and.
And there are certain other technology initiatives that we work on a two to inch forward. The conversion of members into can consigners or to buyers and that's always getting progressively better and I expect to see that that continue for this year and bill yes.
I mentioned before that were actually rolling out new technology to remove friction for the Consigners, where all the focus on technology for the buyers this year as more personalization.
And we expect to an ongoing project. We're excited about we've made some strides last year, but you can expect.
That should be a key focus for the buyer demand.
Well you know technology has been very successful at driving better conversion all the way along the way for both our buyers and sellers in this year's gonna be another good year for us.
Great and can you also talk.
But some more color on category performance I believe you touched on handbags, but curious if you saw any change has been trend in other categories.
To what extent you see category mix playing into ASV as we think about the outlook.
So on I'll start on for Matt can jump and yeah, we had amazing growth across all of our categories and handbags and then really were exceeded the overall revenue growth followed very closely by jewelry and the only category that and didn't really add just skyrocket out is our beauty.
D, which I bet you didn't even know we get beauty that that's because that's mostly located in our brick and mortar stories has a convenience add on sale, but all categories grew handbags grew faster men's grew faster than our business and that our women's was still incredibly up so we really.
Love. The fact that we have a balance category, Meg and fine jewelry watches and and fine jewelry in handbags and watches actually have a higher ASV and they contribute to our overall business and that's what you saw especially during the holiday season, we always tell a lot more of those and they did is.
Gifting site, but having these balance categories allow us to have a higher LTV get <unk> you know greater gross margin dollars, but also upset if there is promotional pricing in one category, we can usually offset that by growth in other categories.
So we had a good year all the way around across all categories.
No that's maybe one more question.
Certainly.
Question comes from the line Susan Anderson B. Riley.
Hi, Good evening. Thanks for taking my question I was wondering if you could maybe elaborate a little bit more on what you have in the pipeline. This here in terms of automation in operations and technology and are you expecting ticket more efficiencies. This year versus last can should we think of it like a rollout throughout the year.
And I'll start Mac and they've got I'm Lucky it.
The models built and efficiencies more versus last year. It's there's a lot going on a lot of moving parts. So I would say we can.
Better just to say that we expect continued efficiencies in our operation and and as you've seen technologies played a part not just our media buying for reducing our back.
So the combination or actually working hand in glove and we expected to continue at some point, it's going to stabilize but not this year I think that's that's fair statement you in Atlanta mean notes at a little bit more more specifically, so and the the the areas of photo retouching and in Copywriting, you should expect to see that.
The increases in penetration as a percent of our unit volume throughout the year and then in our fulfillment operations not so much automation, there's a little bit there, but the application of technology and process, we expect to see steady improvements inefficiencies in our operating efficiencies, there as well and with growth of the business fixed.
To see some pretty decent fixed expense leverage, allowing for overall leverage adoption Tech line on a full year basis.
Got it and then just curious on with I guess, the introduction of some new technology for authentication out there available for consumers and you know, even maybe consignment shops and just curious like what you think about how you think that your competitive advantage in terms of authentication and kind of as you automate that process also.
So a couple things first about where we <unk>, we operate in a really big space secondarily, no one focusing on luxury including nordstroms, there actually focusing on contemporary and at certainly we've looked at there's a product out there that's inside and depressed that's been around for about 10 years, we constantly talk to that comes.
Tony and it's as good is that database that they have in our database is bigger than anyone. So we're kind of light years ahead of the everyone on this level, but that doesn't mean, we're not looking at outside solutions on a regular basis to make sure that we know there's a better solution outside we didn't play out we're not a not invented here company.
It's just every time, we look at at where where faster better and more thorough than what else is out there and we do have a really exclusive relationship. We don't spend a lot of time talking about our fine jewelry and watch technology, but we have had a long term strategic relationship with University of Arizona at far jams and.
They are the preeminent Jim allergy school in the U.S., where we can actually measure the depth of diamonds and very very accurately instead of the estimation that's being done in other auction houses and that technology. We're also using that to identify the origin of those down.
And difference down and we think we can apply that another really creative ways. So that that's actually saved our Jim knowledge and a lot of time, it's made our accuracy rate go up beyond an estimation and secondarily. We think it has application beyond just gem and because it does get in Q.
Our Gen and metal type so we're excited about that.
Great. That's interesting okay very helpful nice job in the quarter and good luck this year.
Thank you. Thank you.
And now I'd like to turn the conference back over to CEO, Julie Wainwright for closing remarks.
All right. So thank you very much or add dialing n., we had a great year last year, certainly we're not resscan or else, we're going to have a great year. This coming year. If any of you are in the Bay area San Francisco specifically after mid March we didn't bite you to visit our become orders start to which will open on post street a with.
Also a door into maiden lane. So please stop by we'd love to see there and again, thanks for dialing in today and asking the question.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating and you may now disconnect.
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