Q4 2020 RealReal Inc Earnings Call

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the real.

Fourth quarter of 'twenty 'twenty financial results Conference call.

At this time all participants are in a listen only mode.

We will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.

I would now like to transit.

It's over at your host head of Investor Relations Mr. Paul Bieber. Please go ahead.

Thank you Chris Good afternoon, and welcome to the real wheels earnings call for the quarter ended December 31st 2020, I'm, Paul Bieber head of Investor Relations at the real real.

Joining.

Contrary to discuss our results of our founder and CEO, Julie Wainwright, and Chief Financial Officer, Matt Gatzke.

Hopefully you've had a chance to read our press release on stockholder letter that we distributed earlier today, both of which are also available on our Investor Relations website.

Before we begin I'd like to remind you that we.

Me today forward looking statements during the course of this call. These forward looking statements involve known and unknown risks and uncertainties and our actual results could differ materially you can find more information about these risks uncertainties and other factors that could affect our operating results in our most recent periodic report.

We'll make some form 10-K subsequent quarterly reports on form 10-Q, and in our earnings release from earlier today.

In addition, our presentation will include certain non-GAAP financial measures for which we of provider reconciliations from the most comparable GAAP measures in our earnings press release.

Report on with that I'll hand, the call over to Julie for introductory remarks, and then we'll go straight to Q&A Julie.

Thanks, Paul and good afternoon, and thank you all for joining us today to discuss our kit Q4, 'twenty 'twenty results.

Obviously, 'twenty 'twenty was a very challenging year, but we were resilient.

Lease on ways to innovate we are seeing encouraging signs of recovery with December G. M b back to growth and quarter to date trends even stronger.

Overall, we are well positioned to emerge a stronger company.

We are tremendously thankful to our employees for their dedication during these unprecedented times.

And we especially like to recognize the teams on the frontline to north on occasion centers and retail locations.

<unk> for your tireless work and commitment.

We believe that as we come out of Covid, the tailwind to the given the outperformance of many of the E commerce companies will flow.

In contrast.

And thought we could see an increasing tailwind.

As major markets returned to normal which could drive acceleration in our business.

This growth would help us realize efficiencies on our operations leverage across our cost structure.

As we march toward profitability.

S share we embarked on several strategic initiatives that will position us to capitalize on the large opportunity ahead of the most significant of initiatives include neighborhood stores.

We plan to operate up to open approximately 10 of these by the end of Q2.

Given our early.

Laughs were optimistic this strategy will allow us to further engage with our most valuable customers and significantly unlock supply more efficiently than marketing efforts alone.

Our vendor program is number two this is improved our ability to source high value supply and we continue we.

Results of new to invest in people processes and technology to support its growth.

Q4, the Q4 vendor channel DNV increased 80% year on year, our third consecutive quarter of acceleration.

Lastly, our Arizona authentication center we.

We accelerated the timeline.

We will conduct for opening our new facility to the summer of 'twenty 'twenty, one to support our next phase of growth.

It will help us improve shipping times, while reducing shipping expenses and fixed costs per order as we scale.

When we provided our last update in December November supply.

My new buyer growth were trending positively and our G. M. B was gradually recovering.

This recovery continued over the balance of Q4 with December GMB growth accelerating to 6% year on year.

Our G M B trends have continued to strength and so far in Q1 of 2021.

<unk> and quarter to date through February 19th DMV growth was 14% year on year against of non Covid period.

Consequently, we anticipate full quarter DMV will increase between 17% to 20% year on year as we began to lap COVID-19 impacts.

We.

I'm optimistic about a recovery in 'twenty 'twenty. One however, the reality is the pandemic is not yet behind us, which makes it difficult for us to provide a longer term G. M V outlook at this time.

The thought I want to leave you with is that we're excited about 'twenty.

Debt as we exited in 'twenty.

'twenty 'twenty, we went back to growth and we're excited about continuing our growth and supply momentum.

Increasing in 'twenty 'twenty, one and this is underscored by widespread backs vaccine distribution, which is apparently around the corner.

Hopefully you've had a chance to read our.

Our whole day letter, which contains a lot more details on our Q4 and early 2021 performance.

So with that operator, let's open the line for questions.

Ladies and gentlemen, if you have a question at this time, Inc. Please press the Star then the number one key on your attached on telephone is.

Our stack from what's been answered or you wish to be removed from the queue. Please press the pound key.

Your first question comes from Oliver Chen from Cowen Your line is open.

Hi, Julian but thank you regarding supply.

What do you see ahead for.

For the New York L. A markets you did a really great job with growing supply on the other markets and also your manner.

Managing a lot of innovation in the B to B vendor program, but what what should be on our mind for Q1 and be on what supply gathering and all of the different regional pieces may mix.

Your question on I'll take this one.

You know right now, we're not going to make a prediction by region, but overall, we expect our supply continue to grow.

And that really is it was already double digits for going into this quarter and supply growth and that will be.

And by our new retail neighborhood stores and vendor so we feel.

As if we've reached a turning point on our supply coming in and we're very excited about but the fact that we're now in the third month of growth.

Okay, and you had encouraging commentary on women's apparel.

Errol returning to growth would love your thoughts on what that means and.

That may or may not be volatile and how the customers behaving and they're really encouraging growth on new buyers, what's the data, saying four new buyer retention of new buyer behavior on the platform.

A day so lot of questions in there is our model number one apparel is returned to growth we expect it to continue to continue.

Continue to actually grow given lockdowns are easing. So we expect that to continue to grow and it's exciting. It's the first time women's apparel has grown for us since we.

Lockdowns.

As we stated previously we are eight while our average unit selling price has really been driven by our high.

By our high handbag sales in fine jewelry and watches so right now our alds are up our ASP.

We had those are up over all of the Asp's are up.

And it appears that our new buyers are behaving like our old new buyers debt pre COVID-19, but theyre spending a little bit more money in terms of their repeat rate back to the site. They look pretty similar at this point.

Yes, that's helpful last one neighborhood stores.

S. P. A really innovative and you have good reads from the newest ones why was now the right time for that of in this dynamic environment. We're facing we're where physical retail is really having to change quickly.

There are so many reasons why we know this is the right way to go number one we had one test case in Madison.

Or so done phenomenally well, even with the ability to have limited capacity in the store during the Covid time.

Number two the rents in the neighborhoods have dropped precipitously and the willingness of landlords to do shorter term leases also critical to our decision, making and number three.

On which as you know, we're always looking to remove friction from the process for the consignor.

On a study we did about six months ago. This was a way that they also wanted to participate more neighborhood of Dropbox.

So the combination sometimes of stars align meant that it made sense for us to go ahead and <unk>.

Open 10, as fast as possible and this year with short term leases with an eye to measuring both demand and supply they are primarily force supply.

And then we'll decide if we're going to open more but right now there are favorable terms part of driving those smaller neighborhood sourced of pasture profitability than there.

As for Covid.

Thank you very much best regards.

Thank you.

Kerry next question comes from Eric Sheridan of UBS. Your line is open.

Thank you so much for taking the questions maybe you could touch upon some of the initiatives you have.

With the brands.

Moving back to somebody announced each of you made last year you. Obviously, one of the big goals, you've talked about as a company is sustainability of going after some of the broader <unk>.

All of the industry is trying to also accomplish around.

Making sure luxury continues along this path in forward years.

Oh, you play can you talk a little bit as we update turning out of 'twenty and into 'twenty, one about the relationships with the brands and then more importantly, how it feeds into some of the sustainability of narratives you talked about the company. Thank you.

Sure I mean as you know we have Stella Mccartney, that's a long term partner than the first one to join in and actually has been always.

As of the <unk> and the importance of the circular economy and its role in a more sustainable supply chain and fashion world.

And Burberry is still with US Gucci, we're still in discussions with Gucci has relationships with the rail rail was different.

Different than any other prior relationship because not only did they encourage people to.

As of paint and the circular economy the of Consigning. They also encourage them to buy.

We are.

I was stellar and Deborah continuing where.

Conversations with Gucci and there will be more partnerships announced later in the year and it will be.

Pretty on the lines of reinforcing sustainability so.

Slowly, but surely we're about ready to celebrate our 10 year birthday, this year slowly, but surely the message is coming through.

And and the time is right for this I also think there with the administration chipped in the U S. I do think there's going to be.

On the greater emphasis on environmental impact of each and destroy.

And I don't think that's lost in the brands that we are working with the rail rail and other <unk>.

People that do resale makes sense in order to hit have them.

Hit their own sustainability numbers.

Thanks, so much.

Your next question comes from Michael Binetti of Credit Suisse. Your line is open.

Hey, guys. Thanks for all of the detail on the shareholder letter today and thanks for taking all of our questions.

I guess.

Can you speak to the first quarter <unk> guidance.

No I don't mean to be short term, but.

17 of 20% GNP growth was 14% in the quarter to date and then obviously March gets about 45 points easier just based on the monthly reporting you provided so I'm wondering if there's something on the flow of supply that would cause of multi years.

As adjusted abundance of caution on your part until.

So we're around the bend here.

I'll start Dan and I have a follow up.

Yeah. So.

But like everything with GMP. It always starts with supply supply has been doing well been building progressively we're happy with how that's trending.

And Youre right. So if you, but if you track the progress.

Till we remember was our first months of getting back to positive growth of plus six quarter to date 14 of which of course implies over the balance of the quarter. There's some acceleration listen we're still in the middle of Covid. So there is an abundance of caution here. This is the first time, we've been comfortable enough to put anything resembling guidance on paper, So I think coming out.

The chef is a positive step forward in terms of we have some visibility, but more importantly, increasing confidence from the trajectory of a recovery. So.

We're happy with it and of course, we're going to look to overshoot.

Great. Okay. Thanks for that and then I guess.

Can you you mentioned in the shareholder letter.

Some of the image recognition software.

It's something that can help you on the inbound supply I'd love to hear some some thinking on that we've seen some interesting stuff on that from our competitors in this space and then Matt If you wouldn't mind just walking me through I, just thought that back of show a lot of you commented that gross profit per order in the first quarter I think would be flat year over year.

Again to think that was down a bit in the fourth quarter. So maybe just you know what was what was driving that of the fourth quarter and whats different in the mix in the first quarter. Please.

I'll take the first part and then Matt can take the backroom we've made.

Tremendous progress in automating, our op centers by it wasn't.

Sure.

Image recognition, but M object recognition played a part on it's really machine learning.

And computer vision, along with some image recognition, so now and a copy writing price automation photo editing in particular were up to about almost 80% in all of those.

Automation, which means that the people we employ on doing Mark QC work in QA work. So we continue to accelerate there we also have.

Unlike most of the people in this business. We also have a huge fine jewelry and watch component. So we've been able to.

So, but there are automation of measuring the depth of diamonds and within this setting without having humans recalculate. It twice in the old way, which we still do for all other.

Types of stones, because we would never remove the stone from of choice. So our automation.

<unk> continues barely.

Frankly, and a little ahead of schedule and our op centers.

Which is actually to be honest that is where we've been focusing but that technology can be applied across multiple channels. Later on I would just say, we're really pleased with the progress and and these are the key things we needed.

Do you feel comfortable just support our growth and decrease our unit economics on our op centers.

Jeff and I will take the second one Ernst overview on gross profit drivers. So you are right. We are comfortable to guide to flat gross profit per order in the first.

<unk>.

Dynamics underneath there one is always growth drives leverage all throughout the P&L. So that's helpful. We have been seeing to julie's earlier comments improvements in our average order value driven by good contributions from high value categories.

Also seeing.

First course year over year improvements in our shipping expenses.

So all adding up to the.

The good thing is kind of offsetting the little bit of work, we have left to do recovery on <unk> and take rate, which continues to be correlated with those high value products.

Going back to Q4.

Net of that as well so it will be first was down 6% year over year almost exclusively due to units per transaction yet to decline back to historical norms.

In addition, we had a few other things going on take rate was down 50 basis points year over year due to the strong performance from.

A little C categories, handbags, and jewelry in particular as well as more consignor is on earning higher take rates that means a higher contribution from our existing repeat designers.

Second we did see elevated levels of buyer incentives in Q4, we used buyer incentives as a tactic to garner both new.

Of.

Buyers and Consignors and it has had an immediate impact and that's really just kind of a shift out of traditional marketing to be more immediate impact. So we use it as a way to stimulate buyer and consignor activity during COVID-19 and as our growth recovers and supply growth in particular recovers.

And we expect to see that decrease over time and then finally, there was a $2 $2 million onetime adjustment in Q4 Thats described in detail on that.

Stockholder letter.

Okay.

Thanks, a lot of it.

Yes.

Our next question comes from Erinn Murphy of Piper Sandler Your line is open great.

Great. Thanks, good afternoon, and nice to see that recovering growth Julie I guess of my question for you is on the 30% of new can finals that are coming from stores. I think that was just for the month of December can you share a little bit more about what you're learning about.

You can finer versus maybe other new cohorts in the past and then a follow up for Matt on the new DC in Arizona can you just talk about how new or how shipping times excuse me will look when you're up and running there and then your plans for the Brisbane.

D C. Once that one of the Arizona is that thank you.

Hi, so well first of all we are excited about our new neighborhood stores, obviously since we've committed to opening 10 in the first six months and that's based on some early results now all of this status rather preliminary outside the Madison store, but the Consignors, who actually consign at of retail location tender.

On 1.5 times more in value than Consignors that consigned to other venues for us.

They also tend to have a higher NPS score. So early days on on that for the retail stores, but we're pretty excited about the early results the interesting thing.

Right now these results are based on our limited capacity constraints that we have in our stores due to COVID-19.

So when you look at given all of the constraints that are put on our business, including for example in Palo Alto, we could only have four people in the store at one time beyond the sales team.

<unk> chose that Theres, a pent up demand for a frictionless consignment in our neighborhood. So we're excited about our early results look very promising.

Yes, it's a little bit more detail on on.

On Arizona.

So this.

This is purely about a stroke is saying on the next phase.

And of this is our largest facility in our portfolio and should set us up for a few if not several years worth of worth of growth in terms of shipping right now it's not like in the early day, that's not going to be much of a difference because we do have some capacity on both coasts of sort of load balance, but as we continue to.

To grow we would Max out our capacity here in Brisbane, and then have to start shipping things larger distances. So it's really as we start to grow it allows us to keep optimizing our shipping distances costs and managing service levels to customers and consumers by the way in terms of products coming in.

So we're really excited.

As of grab this to give us the capacity to grow over the next several years and by a wide margin as our lowest cost location. So that's kind of drive a lot of expense leverage as we scale on the fixed cost per order basis.

Got it and if I could just out of follow up Matt for you on the shipping contracts that you negotiate at the end of 19.

I know on this call last year, you talked about originally planning 500 basis points of gross margin improvement on then obviously COVID-19 hit. So curious as you look forward into this year G. M. B is clearly accelerating and how do you think about kind of the gross margin opportunity. Once we you know now that we're seeing that top line inflect from from specifically the shipping contract.

Cited of yes, so the shipping contract itself is doing what it's supposed to do so as we get growth back we're going to get all of the.

The leverage that we anticipated.

Shipping.

Gross margin itself is a bit of a tricky number for us because we have this <unk>.

The mix of direct and consignment.

Rhenic revenues with inherently different gross margin profiles.

So that's sort of the unknown, but I actually think that the director of revenue mix will increase somewhat.

As we lean into the vendor opportunity, including selectively purchasing inventory upfront, which we have seen is yielding higher.

<unk> says.

Better margin profiles for us so to the extent that we continue to see that happening we're going to keep doing that.

So that's going to keep mixing direct up so hence we just keep trying to encourage people to focus back on gross profit per order as the metric to track how we're progressing.

We're proud of and our overall productivity and path to profitability and we see the opportunity to get from the roughly $80 level that we were at most recently took about 100 nearly a $100 next 12 to 18 months.

Great. Thank you so much.

Okay.

Your next question comes.

Edward <unk> of Keybanc capital markets. Your line is open.

Hey, good evening guys. Thanks for taking the questions I guess first.

Trying to understand a little bit on the supply side promotions, you've been running it seems like some of your competitors are kind of driving take rate down in an effort to jumpstart their businesses just kind of stepping.

Comes from you do you think theres been any impact or do you think of this is a period of kind of pronounced promotions on that side and then second with Arizona plus neighborhood stores is there something we should think about from like a near to medium term expense build perspective.

And then just kind of one one final question.

On the vendor.

Bad relationships.

I guess any sense of whether that is.

Negative to the relationships that you've been so successful on building with the brands. Thank you.

Alright. This is giuliano takes them and turn it over to Matt.

So, let's just talk about the last one first the vendor relationships.

Our lender relationships, we've been building with the brands are the same brands that are working with another capacity. So actually to me they work hand in glove and our vendors are a little more.

Diverse than just the luxury brands that deal in fashion, because we do have other categories with fine jewelry and.

Some of them at home that we also source from and those have been especially the art and home vendors have been very.

Good for us during Covid times, but we do of a variety of vendors that are in the fashion world, but in some of the vendors that we work with strategically are also vendors that we work with.

On our vendor.

Your side of the business for overstock or other types of products, sometimes they're running tests. So that is that's what's going on with the vendor.

Do you want to take the other.

Kind of as I recall.

I've already gone for a couple of quota share.

<unk> part of question first on memory.

Memory. So I think the second question is around just basically around store financials, and what does that mean for the P&L and the balance sheet over the near term.

The good news with these stores as they are because they're small footprint.

With short term leases and favorable favorable environment for getting lease terms for our for retail right now as you might.

But imagine.

These things are particularly expensive. So we think I don't want to be overly precise here because we don't really have much data, but we are hopeful that these things can be become sources of profit in the plus or minus a year from opening them and they really don't take much capital to open we get them opened in four.

On to six weeks after we sign a lease spend two to $300000 of capital right. So rolling out 10 of these is a handful of million dollars of capital this year and once we kind of get to the back end of this year, we start to get closer to the tipping point, where it becomes neutral to the P&L on the short term it's a bit.

Of a drag but really not that much.

Then the other question is around just the take rate environment and pressure on we're seeing.

No.

No we're not we're not we're not seeing it.

So like what we've seen in the past with the take rate is that it's on sneakers and watches and our watches take rate is.

It's always been competitive within that space and the watch they're locked resale market has always been competitive so that really hasn't put a damper on it our sneakers and it's not a big component of our mix, we're still getting amazingly high quality sneakers bandwidth without changing our take rate.

So this is the beauty of being a multi category multi brand business, where if someone decides to bring the take rate down to zero for sneakers.

Doesn't impact us.

Create a shift on our P&L is mostly due to us selling more high value things because enduring covenant.

And in particular, it was handbags and fine jewelry, and then watches in that order and then men's and so those first three already have what we would consider a really good competitive take rate that didnt change.

They know, we're adding apparel of this quarter on apparel is coming back.

Back to life and selling so that will change the gross margin again in terms of percentage more on the positive side.

Great. Thanks for answering all the questions guys.

Mhm.

Kerry next question comes from Justin Post of Bank of America. Your line is open.

Yes, Sir I can hear you.

Sorry about that thanks for taking my question two I guess the first can you maybe jewelry compare the vendor program economics too.

The core of sourced inventory any any big differences, we should be aware of and then the second one is from Matt maybe.

You could help us just I know you've got incentives in Q4 bio instead of extra marketing, which makes sense help us think about how to frame on EBITDA outlook for the first quarter. Thank you.

So vendor of economics overall.

Good day, but.

But it is a supply that is in fact, it's.

On a net accretive to the business. However, it is not.

We still have to be very careful on the supply.

Our goal is not to become overstock dot com, where it impacts you would end up dropping prices on quite a few so our approach.

Protein chip vendor.

Yes.

We wanted to increase our diversity of supply vendors that really sort of one that is there for the taking we can have a good gross margin on it with a high price, but that doesn't mean, it's a free for all of them. The way we take care of our products and we also do have to invest.

And that platform, meaning getting a skew depth on our platform to really optimize that along with invest in the team, but it is the unit economics on good on vendor the core stores again too early to call they look pretty amazing.

They have an added benefit of both getting supply for us and.

And we do sell things there and we tend to sell things at a much higher <unk>, which is accretive to the average overall.

It makes sense, if you think about it high value things sell faster in person and perhaps they do on line. So.

And they also have of marketing benefit to those transfer.

Then just supply acquisition and.

And we've got a lot of analysis to do on those since we get out of Covid to see how high is up with them, but even in Covid times. They look good for us because.

One quick thing to add on on vendor economics, So it's important to keep in mind.

Vendor.

And.

Buying upfront or taking inventory are not synonymous the majority of our vendor business comes in on regular consignment terms, just like everybody else, it's more about how it flexes or supply in the direction. We want it. So we can be more strategic about adding high value supply.

There is of course, some direct inventory purchases there, but there is on the consignment side as well. So those are really two separate vectors. The focus of the vendor channels to bring an incremental high value supply and enrich our gross profit per order metric overall.

On the other question on bottom line expectations.

One so obviously, we are too much of a period of uncertainty from an immediate comfortable to be declarative about that.

We've done what we could and provided the transparency that we think is appropriate in terms of GMB Saint <unk> acceleration gross profit per order being roughly flat.

For Q external guidance on our operating expenses.

Namely marketing, which excludes the buyer incentives.

<unk> down modestly quarter over quarter, our ops and tech up substantially quarter over quarter as we start realizing expenses in Arizona, We opened a bunch of these core stores, we're investing in technology.

And directly to support all of the above so that one is going to be.

Decent amount and then SG&A.

As we said kind of just up very very modestly so added altogether growth.

The extent to which we grow is going to be the real determinant of where the ultimate bottom line sort of shakes.

Technology is still a fair amount of.

A range that that could that could be.

Great. Thank you.

Oh, I didn't mentioned buyer incentives I guess the answer to that is essentially embedded in the guidance of of gross profit per order being flat year over year, meaning we already see.

That's going to start trending down hand in hand, with our supplier of recovering now back to positive available inventory on a year over year basically hit that in January so as we continue to grow supply it just lessens.

Dependence on using those types of incentives. So we are seeing that.

Net.

Got it. Thank you thanks, Matt Thanks, Julie.

Sure.

Your next question comes from Mark upstream from of Baird. Your line is open.

Hi, Good afternoon. Thanks for taking my question was hoping you could give us an update on the trends youre seeing with the virtual appointments how are some of.

Of your larger white glove clients adapting to this now that we're on getting a bit more used to the virtual interactions and also curious how the.

The sales team productivity trends.

Trending with the move to virtual.

So we.

We look at multiple channels and when you look at the ones that have some sales.

Involvement we've got.

We still have a little bit of in home. We've got virtual we have shipped direct where people put it in a box and ship it directly to us and now we have stores.

And I would say virtual is closer to.

The stores and then turned.

Previous white glove, and we're starting to go back into People's home. Upon request. So for example, if we go into your home.

We tend to pick up maybe 50% more items.

Then if we actually do of virtual appointment so the productivity is almost.

Even in early days, having said that we think once we get out of Covid debt.

That virtual will get more productive and because we'll get or it's just going to be a mix between white glove and virtual depending on where people are so.

On the efficiencies have been almost it's a wash.

Break them, but it's still a good tool, it's a great tool for us to have during Covid times.

Like longer term.

We don't know what the mix is going to look like but we're gonna, let Arkansas on those meet us in whatever they feel of the least amount of friction for them, we're going to do it sort of in home definitely has a role virtual does have a role.

But ultimately shakes out on remains to be seen.

Thank you and then Matt just a quick follow up on some of the vendor related commentary inventory it looks like it's up pretty significantly year over year.

Can you, maybe just give us a bit more color on what's going on there of the drivers.

Of the implications.

As we look ahead.

Yeah.

Our inventory is sort of a law of small numbers here, so it sets up and of.

Percentage basis pretty substantially year over year, I think of 70 something percent increase.

But thats still on in a few tens of millions.

The majority of that increase.

Increase relates to a couple of large vendor transactions that we executed in the fourth quarter.

So far we really like what we're seeing in terms of average selling price the product margin that we're realizing and how quickly things are selling.

So.

A slight small term use.

Of cash for what we think is going to be additive to gross profit per order on ultimately flushing through the P&L as we go forward.

Yes, thanks for all of the detail.

Yes.

Your next question comes from Ike <unk> of Wells Fargo. Your line is open.

Hey, everyone. Let me on my congrats on the year of the acceleration of the business.

Two questions for you on.

First quick one on vendor direct I think last quarter. You had said it was going to be around 10% of the business and it could get to 15% to 20% over the next 18 months is that kind of the way we should think about.

The upcoming fiscal year in terms of penetration.

Okay. So let me disaggregate. This again, so vendor of the channel we call vendor, which is business sellers.

Combined on a consignment basis on a direct inventory purchased basis in aggregate, yes, I think we'd still.

<unk> of tracking to 15% to 20% of total GMB is the right zone for that sort.

Sort of progressively as we go through the year the opportunity there is still quite substantial.

There's still a lot of inbound interest and we'll continue to see very strong growth there.

Got it.

Then.

Second question, just bigger picture so on.

Profitability adjusted EBITDA positive outlook on totally understand from us clear right now, but I guess for higher level question I wanted to ask you would be.

I believe pre Covid that the street was kind of expecting you to hit that mark around a little over two.

Billions of GMB I guess, just the high level question on how can you as has the model of evolved over the past 12 months. So much so that revenue or Jim day number would change meaning of maybe.

Maybe you would need more GNP because of incremental cost of the business or greater.

Greater mix of lower margin revenue, where maybe it.

It's come down because of the better efficiencies in the model just I'm just at a high level I know you don't want to get into the details, but just holistically how would you kind of think about that.

Youre right I don't want to get into the details on something that's out that far. So obviously the further we go out of fuzzy ethane things become.

But sitting here I'm, not I'm not going to update anything.

Anything that.

May of talked about.

In the past, but fundamentally there is theres a lot of good that's come during COVID-19.

The thing that I think I'm. Most encouraged by is having a more diverse set of supply channels that allows us to be more predictable.

How we grow the business going forward and coming out of Covid.

As well as the progress we've made in other areas. So.

At the very highest level of sitting here and looking out that far into the future I really don't see anything that's that's a front of fundamental setback in terms of when ultimately you are going to hit that point of breakeven now and between now and there.

There are of course of lot of things can happen, if we really love what we're seeing from the neighborhood stores and we say hey, we're going to do a lot more of those day they'll continue to be of short term drag, but we'll balance that as we always have done and making sure. We're getting the right amount of investment of our focus on focusing on profitable growth going forward.

Very helpful.

Thanks, a lot.

Your next question comes from Simeon Siegel.

Of BMO capital markets. Your line is open.

Thanks, Good afternoon, everyone.

Matt sorry, if I missed it could you elaborate on what drove the buyer of incentive Contra Rev items, this quarter and that $2 2 million.

Affiliation of adjustment and then just any help just given the moving pieces any help on how youre thinking about returns on cancellations for <unk>.

Q1, and then whatever comfort you have into this year. Thank you.

Okay. Another three part of I think I got on returns adjustment.

Environment.

Buyer incentives just think of like think of them as.

Sort of like a couponing there.

Specific to individual buyers orphan signers.

And we've used.

Historically use that as a tactic.

Two to drive GMB and supply new buyer growth new consignor growth.

It tends to run about it Paul.

And of half maybe.

On a percentage points of of GMB.

In the fourth quarter that got up closer to about 3%.

As we were saying we are encouraged with the trends. We are seeing we really wanted to drive it it's more of an immediate call to action than broad based marketing. So we're seeing good results from it so on a short term basis, we pivot.

And some of our marketing investments into buyer incentives don't expect that to be the case on a sustained basis because supply is really what is the.

The governor of how much we need to lean into that or not.

So that's a really of short term tactical thing.

Returns and cancels.

<unk> today.

Day.

Favorable versus where they were.

But roughly flat on a quarter over quarter basis of how it'd be modeling. It we are going to see a reversion to the to the mean over time as we sort of come through Covid and product mix really starts to kind of come back to where it.

It was sort of a U shaped.

Safes recovery, I guess or just kind of.

Reverting to the mean.

And then all of the adjustment.

So.

As part of our audit in 2020, we discovered and corrected an immaterial error that had been accumulating little.

Little by little over time, the air itself related to a subset of consignor payments that were made manually outside of our normal payment processes and some of these manual payments were incorrectly recorded in our financial statements. We have corrected the reconciliation process.

So that's good.

It is going forward and we're going to flush the adjustment back to the periods of it belongs and when we present, our quarterly results with the filing of our 10-K.

So again immaterial onetime adjustment it really no meaningful impact on our go forward of financial results.

And for clarity and hopefully helpfulness and.

In the stockholder letter, we presented Q4, both of which went out this that doesn't sort of money out of the picture on a year over year basis.

Great. Thanks, a lot of best of luck of the year ahead.

Thank you.

Your next question comes from Kieran Kessler of Raymond James Your line is open great.

Great. Thanks, guys, maybe a couple of follow.

So up questions, maybe just on the operations of <unk>.

Realize that it'd be kind of the first half of it sounds like that's going to be increasing at a healthy amount should we start to expect some leverage on that line as we go into the second half of 'twenty, one and then into 'twenty, two obviously, assuming kind of a GMP ramps throughout the year as well and then just maybe on the vendor impact on take rates can you.

Just give us a sense for that I assume you're managing more of a.

Gross profit per order, but there is the impact on take rates as well would be helpful. Thank you.

Okay.

Let me check vendor impact on take rates.

Some of you remind me of that sort of question on.

Austin Tex leverage alright, thank you.

Pope vendor impact on take rate.

Sure.

Overall, it should be pretty modest.

Because again I can't predict is the mix between consignments and direct purchasing of let's just leave that out of the equation from now on.

On a like for like basis, all things equal it's virtually identical.

Well to an individual consignor. The main difference is the mix of products that are coming into that channel.

It tends to be in on purpose. It is skewed more toward higher value products.

And those inherently structurally in our commission structure have lower take rates.

But overall, it's not going to.

We have a significant impact net net positive in terms of gross profit per order date, whatever we give up in take rate is more than offset by higher <unk>.

And ultimately gross profit.

In terms of ops and tech.

I want to get too precise.

Because.

I don't know so the investments that we're making in the short term core stores, we kind of laid out what that looks like overall technology is we will continue to invest alongside the growth in the business and to power a lot of these strategic initiatives the vendor program of retail areas.

On et cetera.

And on the air.

A short term basis, yes, that's.

An increase.

When it delivers leverage that's that's tougher to say because it's really what is our growth profile look like as we come out of Covid.

The Opex part is obviously more controllable, but to the extent that.

We kind of start lapping COVID-19, we see very strong growth rates and fundamentally the business is sort of in a steadier state of recovery I would expect to see progressive operating leverage each quarter as we get through the year.

Got it that's helpful. Thanks, guys.

Yes.

Your next question comes.

From Susan Anderson of <unk>.

Your line is open.

Hi, good evening, Thanks for taking my question.

I guess of quick follow up on the neighborhood stores. Just curious if there's any insight you could give into how much of cost to open them and then also the timeframe to profitability and then if youre looking.

Specific cities or regions, where you're planning on opening them. Thanks.

Two of them.

Go ahead of barrel of I'll start we talked a little bit about this earlier on.

We will have about 10 of them open by the end of the second quarter.

The range.

In footprint from a little over 2000 square feet of a little bit more than 4000, Brooklyn is on the higher end of that spectrum, a little bit larger on the 4000 neighborhood of.

But generally speaking we're looking at 2500 square feet, two or three year lease terms.

About 300000 call it.

And capex to get it up and it takes us six weeks to open.

And then we're hopeful with.

No because like our oldest ones are just a few months old.

But we're hopeful that the on a four wall basis. These things can look like approximating breakeven in about a 12 month basis.

So in the short term of a drag right, but like them is we then we let it go and they continue to perform them.

This time next year, they should be X ray source of leverage right. They should be and we did model. It based on continuing have restrictions in the store with <unk>.

Number of people based on some COVID-19 restrictions and location.

Location with on the other thing you're talking about.

Again this is kind of be no surprise think of neighborhoods outside key urban areas. So for example, we opened Palo Alto, we opened Brooklyn.

We may open another one in.

And New York City right now, we only have two in New York Some big.

Big place and people don't like to leave their neighborhoods.

And you start thinking of Connecticut sensitive of natural place other places in California, We opened Newport Beach.

And yet we have of store in West Hollywood So.

It's sort of of you can almost figure it out yourself by assuming here's the big.

Cities in the U S and here's the Umbrageous, where theres huge pockets of people that most likely aren't going to travel that fire.

To either by consignment or drop off consignment, but.

But would prefer a neighborhood store.

Great. That's helpful that makes sense and then I guess just.

A follow up on the trends that youre seeing by product category end of February.

Are you are you expecting I guess apparel to continue to increase and maybe I guess shift back to pre COVID-19 levels or should we think about first quarter being similar to fourth quarter in terms of the penetration.

<unk> of jewelry and handbags.

Already it is shifting so I don't we don't know, obviously, what's going to happen, but everything.

Besides kids and beauty is growing at a nice clip.

So every category is growing without diminishing the jewelry and handbags and then.

And watches that we're actually having nice growth across everything the night.

Bulk of our business is in women's apparel. So it was good once that returns to growth and it is comping a non COVID-19 month, right now and on non quoted of two months it looks it gives.

There's a lot of hope.

Yes.

Definitely very positive okay, great. Thanks, so much good luck next quarter.

Thank you.

Umbrella of I think we can we can take one more.

If there is.

Okay.

Your next question comes from Marvin Fong.

<unk> of Dth, Inc. Your line is open.

Great. Thank you thanks for fitting.

Joining me in here at the end of.

Just on the neighborhood stores of follow up question on all of that one is it looks already tremendously successful I think of we go back to some of the statements you've made in the past Matt.

But.

And maybe you'd get to like 10 or 12 stores ourselves.

As the second quarter of going to kind of round out your.

Store opening plan for that or do you do you see what the success you've been enjoying that maybe you could increase the number of stores ultimately and then I think you'd also said in the past.

B, primarily drop off points of not not points of where there'd be a lot of retail activity just curious of.

You're what you're seeing is maybe making you rethink that and then just one last question on on international something we really haven't talked about.

A lot because of Covid and.

Which <unk> had to do strategically to stabilize the business just curious if.

You think international of something that you can make some progress in on in FY 'twenty one thanks.

Okay. Okay.

<unk>.

For partners.

Yeah.

Neither.

Thank the question around.

Roughly 10 stores I hope, that's not where we stop right. So if.

The stores that we open look like the ones that we've opened recently in Palo Alto in Brooklyn in Newport Beach, and those three continued to perform like they.

Better frankly as capacity restrictions get loosened, we're going to probably want to open up a fair number of more of them because they they looked like they can be substantially more efficient in acquiring and unlocking supply then our marketing investments alone far more targeted far more personalized local.

What can signers want.

So I would not be shocked I would actually be quite pleased if two quarters from now where youre talking about of more aggressive rollout of the stores that would be of fundamentally healthy thing for our business.

In terms of our view on how the mix of supply versus demand.

I think we look at them as.

Want to determine instrumentality perspective, theyre more of their most powerful on the supply side. They acquire new can signers very efficiently and bring a lot of incremental supply to us on the demand side. You can argue they are helpful. Yes, they make us it makes it easier to sell high value products. The return rates are exceptionally.

How buyers of love it.

NPS in the stores quite high.

People, who interact with our stores are far more active on both supply and demand than people, who only do interact with US online. So very healthy I think it's a good question I think we're finding.

There is a.

Interest in people shopping in the stores and nurse like across the board see very good sales not just supply Huawei, but they are smaller footprint. So if you just look at the sheer number of Skus, we have in the store and their smallest footprint by design, which means they get there.

They are just the cost efficiency support smaller footprint.

A lot of interest of flagship.

They have about a third of the skus or less of what a flagship store would have so by its nature into up to the merchandising team they've done a really good GAAP of fine tuning that mix.

To maximize the dollars even in sales per square foot based on the local neighborhood.

So that's and which means they are we've never said you can't buy anything its just of the size alone dictate.

A certain level of success because they will just buy the size restraints have less skus.

You won't take on international our international we have international in our crosshairs.

What kind of unexpected to see.

Any impact from it this year, but I wouldn't assume that.

Planning will begin for a launch next year sometime this year.

Planning this year for lines of Exane.

So said another way do not expect to see incremental expenses or incremental <unk> associated with.

Do national this year.

Great. Thank you so much.

Okay. So back to me I want to thank you for your attention and I want to encourage you all to get vaccinations. When you when your time comes up.

And on Ed just leave you on the note we're excited to be back to growth and we're looking forward to our next call as for our Q1 results. Thank you very much.

Everyone else has left the call.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day.

And all disconnect.

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