Q4 2021 ThredUp Inc Earnings Call
[music].
Good afternoon, and thank you for joining us on today's conference call to discuss <unk> fourth quarter and full year 2021 financial results.
With us are James Reinhart, CEO , and cofounder and Sean suffers CFO .
We posted our press release and supplemental financial information on our Investor Relations website at IR Dot startup dot com.
This call is also being webcast on our IR website and a replay of this call will be available on the site shortly.
Before we begin I'd like to remind you that we will make forward looking statements. During the course of this call, including but not limited to statements regarding our guidance for future financial performance market demand growth prospects business strategies and plans.
These forward looking statements involve known and unknown risks and uncertainties and our actual results could differ materially.
Words, such as anticipate believe estimate expect as well as similar expressions are intended to identify forward looking statements you can find more about these risks uncertainties and other factors that could affect our operating results in our SEC filings earnings press release, and supplemental information posted on our IR website.
In addition, during the call we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings release now.
Now I'd like to turn the call over to James Reinhart.
Good afternoon, everyone I'm, James Reinhart, CEO and co founder of fair enough. Thank you for joining us for threat ups fourth quarter 2021, and fiscal year 2021 earnings call.
We're excited to share another quarter of strong financial results and business highlights.
In addition to our financial results, we will offer some perspective on the performance of remix the European retail company, we acquired last year as well as progress in our retail as a service Ras offering.
And our results given we're one year into being a public company I thought it would also be useful to remind investors of our strategy sustainable competitive advantages and the investments, we're making to widen our moat and strengthen our leadership position in the still nascent retail market.
To conclude today's call Sean Sobers, our Chief Financial Officer will talk through our fourth quarter and fiscal year 2021 financials in more detail and provide our outlook for the first quarter and full year 2022 will close out today's call with a question and answer session.
Okay.
Let me start by acknowledging that since we last reported earnings in November the World and Investor sentiment has changed significantly I want you to know that we get it we are operating in a different macro context.
While volatility like this can stretch the young public company. We welcome this increased scrutiny.
I believe great companies with winning strategies and high growth market with strong management teams always outperform when times are difficult.
We get threat up are committed to being the kind of team you can count on for predictability and transparency.
Also want to make it clear that we are on a mission to build a generation defining company the changes the way the world shops, and ushers in a new era of sustainable shopping we will always aim to balance the demands of near term scrutiny with our commitment to investing for long term value creation.
Now to the results.
For the fourth consecutive quarter, we achieved record revenue record gross profit record active buyers and record orders or revenue of $72 9 million is an increase of 68% year over year. This.
This is our fourth consecutive quarter of accelerating revenue growth.
<unk> finished the quarter with active buyers and orders, increasing 36% and 69% year over year, respectively.
We also expanded year over year EBITDA margin by a record 14 100 basis points in Q4, shrinking our EBITDA loss from minus 28%.
<unk>, 14% in a quarter that's still included heavy operations investments.
Now, let me talk about <unk> in Q4, we closed the agreement to acquire <unk>, one of Europe's leading fashion retail companies.
Since the acquisition, we have moved swiftly to consolidate all of our threat up learnings and supportive remix is growth and margin expansion.
Dan Neumeyer, one of three items first employees and formerly our SVP of engineering and Chief product Officer now leads our international effort alongside Lubow cleanup makes its founder and CEO .
Rebecca Ullman, who reported to me, while leading credits New ventures Department and you've helped incubate our retail as a service business here in the U S.
Supporting Dan and remix as we drive supply growth and expand further into western Europe early next year.
To expand beyond remix as current operations in nine central and Eastern European countries. We are building a new facility in the EU with processing and storage capacity to sustain broader European growth.
We remain confident in our acquisition of <unk> will accelerate write ups European growth plans and enable us to capture share in the emerging European retail market.
The market the global data estimates will grow to 39 billion by 2025.
Turning to just write ups resale as a service or <unk> business. We recently launched a number of new retail shops, and cleanup programs, bringing our total number of Ras brand clients to 28, making us by far the leading provider of retail services to brands in the U S.
We have visibility to adding as many as a dozen more brand clients by year end.
Very prominent and large brands moving onto our platform.
Keep in mind, our RASK platform enables us to power White label Enterprise solutions for global brands, like Walmart and Adidas as well as lightweight solutions for smaller brands like Madewell and heritage brands like Michael stars.
With Ras brands and retailers are empowered to deliver quality and seamless retail experiences to their customers across three main service modules are cleaned out service our cash app marketplace.
Our full service resale shops.
This suite of offerings is called resale $3 60, and our new core offering now allows brands to get started in retail for free in some cases within 30 days.
<unk> enables brands to drive revenue drive customer growth and circularity in ways that were previously not possible.
<unk> also begun to exhibit the flywheel and network effect that we expected would come over time as more brands joined our platform. We gained access to a greater share of closet cleanup happening across America.
This supply that comes in from our varied RASK clients can then be sorted and used to power the growth of branded retail shops of other clients.
Which is to say the more RASK clients the wider the sources of supply and the larger the potential growth of each client's retail shop.
Recall the threat of benefits from RAF not only because it amplifies our ongoing supply advantage, but also because it increases our sell through and our return on assets. In addition, our premium in enterprise platform solutions are designed to support the expansion of our long term profitability metrics by creating a recurring.
High margin revenue stream.
We continue to believe that every brand we will have a resale strategy and threat up will be the leading provider of end to end retail solutions for the retail industry.
This brings me to the next topic I'd like to review, which is right up sources of ongoing competitive advantage and the investments, we're making to extend our leadership in the retail industry.
The power of our competitive advantage comes from the compounding effects of three hard problems, we solved for.
First we built that reverse logistics supply chain that has created a massive supply advantage in the retail market.
Remember <unk> has still never spent any direct marketing dollars acquiring sellers and yet we have seemingly endless supply in our marketplace.
Second we have built world class infrastructure technology and software to process single SKU apparel at scale.
Our Dallas, Texas facility is complete <unk> will have network capacity to hold up to $16 5 million unique items in the U S alone.
Third we have built a data driven managed marketplace that connects buyers and sellers on our platform.
Our managed marketplace removes friction between buyers and sellers, enabling us to significantly grow the number of customers we serve overtime.
And to increase the number of orders they place.
Importantly, the success of our marketplace is built on the foundation of the proprietary resell data that we've collected over the past decade.
We inject millions of data points on the items, we process sell it reject the items that are added or removed from cards and so forth.
Vast trove of data combined with the algorithms and the models that sit on top of that data and help us improve our acceptance rate merchandising photography pricing and marketing capabilities with the goal of consistently growing our active buyers expanding our margins and driving increased sell through.
And of course, the not so secret, but I think often misunderstood economic engine that underlies our model is that most of our clothing is listed on consignment.
This means we have little inventory risk and we posted negative working capital cycle measured in months not weeks.
As I have said from our very first public filings.
Strategy has been developed with a deeply calculated approach about what it takes to build and sustained competitive advantage over time.
We believe that every day, our supply advantage increases our infrastructure in the widened and the network effects of our marketplace growth.
Given this context in my earlier remarks about the greater scrutiny on young companies regarding capital allocation and path to profitability I want to specifically call out the investments, we're making in service of our strategy.
First our three U S infrastructure investments as we discussed last quarter and earlier in my remarks, our flagship distribution Center, just south of Dallas, Texas is coming online later this year.
We have been making steady progress since commencing the build out in Q4 dollars 21.
The facility is nearly 600000 square feet.
Our largest and most automated distribution center when fully scaled we expect our four level facility will increase our total network wide capacity by more than 150%.
We expect to begin processing items towards the end of Q2 this year or early Q3 with demand fulfillment to begin sometime in Q3.
Beyond our flagship distribution center, we opened two processing centers, one in Grapevine, Texas and one in Lebanon, Tennessee.
Both of these facilities focused exclusively on cleanup processing and will service immediate theaters to our larger facilities in Dallas and Atlanta.
As a result of this increased capacity, we are exiting Q1, hitting our internal processing targets after facing some headwinds from omicron earlier in the quarter, our bad backlog is trending down nicely and now sits at eight weeks from 12 weeks, just a quarter ago.
We expect these three U S infrastructure investments Dallas, Great Fine and Lebanon will negatively impact our EBITDA by approximately $6 million in 2022.
Note that these investments are all in service of growth in 2023 and beyond as only a small percentage of revenue will flow through our Dallas, Texas facility. This year.
Importantly, given our expectations for improvements in automation and total throughput capacity, we do not expect to add any new distribution centers to our network until 2025.
Second we will continue to invest in <unk> growth in Europe , our European investments include a new larger processing facility in Sofia, Bulgaria that comes online later this year. In addition to growing the head count to scale, our broader business in Europe . We believe these expenses are essential as we growth right up the European opportunity.
Third we are investing in research development and data science capabilities across our network. We believe these investments in new systems, New technologies and added head count will yield several benefits.
First we will be able to lower our per unit processing costs.
We'll be able to improve our pricing and payout systems to further expand margins.
Third we can upgrade our marketing merchandising and direct response capabilities such that we can acquire customers at lower cost while at the same time, increasing lifetime value.
Fourth and finally anticipated head count growth from 2021% to 2022 is highly concentrated in areas that support being a new public company.
HR legal finance and accounting, we expect these incremental costs totaled $3 $1 million in 2022 weeks.
We expect meaningful leverage in SG&A as we digest these costs over time.
In conclusion as I wrap up let me speak to a bright spot in the last few months, the New York Fashion Act.
At its core this bill aims to hold major retailers accountable for their environmental and social impact.
I think this is an important milestone to me it indicates the government and policymakers are starting to understand the critical role they play in reducing the fashion industries environmental impact.
This is the opening salvo in what is likely to evolve into emission standards for fashion.
Weather pushed by government or pulled by consumers I believe every brand we will look to retail as a way to reduce their impact on the environment and to drive fashion circularity write.
<unk> platform will be well positioned to serve these emerging interest over time.
In the meantime, we're going to stay focused on doing what we do best.
Blocking high quality supply building increasingly automated infrastructure and leveraging their technology software and data to serve a growing base of buyers sellers and RASK clients.
With that I'll now turn it over to Shaun to walk through our financial results and our guidance John .
Thanks, James and again, thanks, everyone for joining us on our fourth quarter and full year 2021 earnings call.
I'll begin with an overview of our results and follow with guidance for the first quarter and full year I.
I will discuss non-GAAP results throughout my remarks, our GAAP financials, and a reconciliation between GAAP and non-GAAP are found in our earnings release supplemental financials and our upcoming 10-K filing.
We are extremely proud of our Q4 results, especially delivering our fourth consecutive quarter of accelerating revenue and gross profit dollar growth on both an organic and consolidated basis.
One of the most exciting Q4 development was our acquisition of <unk>.
While we plan to report and guide on a consolidated basis going forward.
In some cases, we will speak more specifically about threat up U S and remix individually during the transitional period.
For the fourth quarter of 2021 revenue exceeded our expectations driven by the acquisition of remix and growth in trade up U S.
<unk> revenue totaled $72 9 million, an increase of 68% year over year.
Consignment revenue increased 31% year over year, while product revenue grew 205%.
Product revenues outsized growth is largely due to our Q4 acquisition of remix the business that currently derives the majority of its revenue from direct sales model.
For the full year, we are proud to deliver revenue of $251 8 million, an increase of 35% year over year.
Active buyers and orders are amongst the most important kpis that we use to track the business and we finished 2021 achieving record levels for both.
For the trailing 12 month active buyers rose, 36% to $1 7 million.
We ended the fourth quarter and full year, reaching $1 7 million and $5 3 million orders, increasing 69% and 34% year over year retrospective.
Since we believe that gross profit improvement is the best way to measure our progress we will provide additional details this quarter in order to illustrate the strength and opportunities in both of our individual businesses.
For the fourth quarter of 'twenty, one threat up U S. Gross margins expanded to 71, 3% a 280 bps increase over 68, 5% for the same quarter last year.
U S gross profit in the fourth quarter of 2021 totaled $44 1 million representing growth of 48% year over year.
Offsetting a $6 million increase in great gross margin expansion came as a result of expanded automation larger distribution centers and more items per order.
<unk> gross margins were 37, 2%.
It makes it structurally lower gross margin profile is primarily due to their direct sales model wholesale outsourcing and a lower level of automation.
Over time, we plan to migrate the business towards higher margin consignment away from wholesale supply and invest in increased automation in order to be more in line with the current threat up business Paul.
Driven by our fourth quarter acquisition of <unk> consolidated gross margin was 66, 1% or 240 basis point decline over the same quarter last year.
Gross profit in the fourth quarter of 2021 totaled $48 2 million representing growth of 62% year over year.
For the fourth quarter of 'twenty, one GAAP net loss was $17 9 million compared to a GAAP net loss of $17 billion for the fourth quarter of 2020.
Adjusted EBITDA loss was $10 5 million or 14, 5% of revenue for the fourth quarter of 'twenty, one and approximately 400 basis point improvement compared to the adjusted EBITDA loss of $12 2 million or 28, 2% of revenue in the fourth quarter of 2020.
This improvement was largely driven by operating leverage at threat up U S.
Q4, GAAP operating expenses increased by $20 5 million or 45% year over year.
Approximately half of this increase is related to higher operations product and technology costs, while the remaining is split equally between marketing and SG&A.
Of the total increase quarter was related to the addition of remix.
We continue to invest in the expansion of processing capacity marketing efforts and technology infrastructure to support our growth.
Turning to the balance sheet, we began in the fourth quarter with $266 9 million in cash and investments and ended the quarter with $213 1 million.
Keep in mind that the acquisition of <unk> reduced our cash by approximately $30 million. In addition, we spent about $5 million related to Capex in Q4.
Next I would like to provide some thoughts on our commitment to top line growth, while walking through our path to profitability.
We remain focused on our belief that investing ahead of growth not only fuels our top line in future quarters and years, but it is also an investment in our ever widening competitive mode. The combination of which are the foundation for strong growth and increasing profits over time.
Our business model necessitates us approach in order to grow sales, we must first have the processing and storage capacity in place to support future listings growth had accelerated churns.
We believe the investments in technology data science and automation today will further strengthen our advantages, which we expect to be the drivers of our strong topline growth and profit improvements over the long term.
Just to illustrate that we build out our infrastructure to support our future not our current demand and highlight the fact that we ended 2021 with the DC network capacity utilization rate of 77% among our three operational Dcs.
Put another way by the end of 2021, we were using only $5 million or so slots of our fully scaled $6 5 million unit total capacity. This includes our $3 5 million unit capacity Atlanta DC currently our most automated DC, which opened in 2020.
This is to say that in 2021, we were carrying the cost of a $6 5 million unit Tc network, but only using 77% of it.
By the end of 2022, when our Texas D. C is included in our DC network, we expect to be utilizing less than 7 million slots of our ultimate $16 5 million unit total capacity.
Presenting a utilization utilization rate of less than 50%, but.
So we will be carrying many of the costs of $16 5 million unit network in the near term, we will have ample runway to leverage these costs as we grow into our capacity and expand our utilization over time.
This investing for growth dynamic as a prominent theme this year as we take on a number of significant infrastructure investments in both the U S and in Europe that will impact our margins before they contribute to the topline growth.
The largest of these is our Texas D C, which were more than double our current capacity and eventually be our largest and most automated facility. It.
It is currently in the process of being built out will begin processing the way through the year and will ramp toward peaks efficiency over time.
We also recently opened two processing centers, which can open faster with fewer costs in Dcs. We're also diverse diversifying the geography of our labor needs.
They will be entirely dedicated to processing clean out yet, which will help us further and make progress on our supply backlog facilitate new listings and accelerate charts.
We are also investing in our European business by expanding the team and building out larger and more automated distribution center in Sofia Bulgaria.
With all this in mind I would like to now share our financial outlook for the first quarter 'twenty two.
We expect revenue in the range of $70 million to $72 million gross margin in the range of $65 to 67% and adjusted EBITDA loss of 19% to 17% of revenue the basic weighted average shares outstanding of approximately $99 4 million.
For the full year of 2022, we expect revenue in the range of $330 million to $340 million.
Gross margin in the range of <unk>, 64% to 66%.
An adjusted EBITDA loss of 15, 5% to 13, 5% of revenue base.
The basic weighted average shares outstanding of approximately $100 5 million.
In addition to lapping stimulus driven growth from Q1 of 'twenty. One we also expect COVID-19 related staffing disruptions to pressure in Q1 as well.
As you know listings are a key driver of future revenue in our business when Covid surge in December 'twenty. One in January of 'twenty, two we experienced unprecedented levels of personal leave among our DC team slowing down processing industrial things growth dynamic that negatively impacted revenue in early Q1.
Since then as the surge of subsided, we have returned to expected processing capacity and plan to exit Q1 processing cleanout guests at record rates.
As discussed we have a number of investments this year that will pressure EBITDA in Q1, our ramp up of our Texas ECM processing centers will account for approximately an extra $1 5 million in operations product and technology expenses.
Finally, we anticipate an incremental $1 million negative impact year over year as a result of higher freight costs.
For the full year of 2022, we expect revenue growth to be driven both by a threat up use and rate mix. While we continue to expect <unk> gross margins to improve in 'twenty two as we have done consistently over the past several years, we expect consolidated gross margins to contract year over year due to remix this structurally lower margin profile.
We would expect consolidated gross margins to be broadly stable. This year, though remix is offsetting impact will increase throughout the year as it grows as a percentage of sales.
We're planning to thoughtfully transition remix towards the mostly consignment model over the next two to three years, which we would expect to improve gross margin performance over the longer term.
We are expecting 2022, EBITDA margin just to show a slight improvement year over year as we digest a number of expenses associated with our Texas DC Buildout processing investments in European expansion.
We expect that the DCM processing centers will impact EBITDA by approximately $6 million.
Weighted towards the first half of the year.
We expect a $6 million negative impact from elevated rate cost, which will partially offset as we expand our automation scale into larger Dcs and innovate on shipping logistics.
We are planning to spend approximately 35% to $40 million in Capex. This year of an estimated $80 million to $85 million to support our U S infrastructure growth.
Given the scale of our 22 investments we believe this year's capital expenditures and expenses are laying the groundwork for commensurate future revenue growth and ultimately profit growth.
As a result, we expect that the step up change in capacity that we're building out this year and should push out the need for another similar capital intensive distribution center until 2025.
In closing I want to reiterate that we remain focused on the same strategy. We have discussed since our IPO nearly a year ago. We continue to invest in infrastructure that supports our future revenue growth and widens our competitive mode. While at the same time, making planned progress towards our long term margin goals and.
In line with this we are making several outside investments in our infrastructure. This year. These will result in incremental expenses that will pressure our P&L primarily in the first half of 'twenty, two but we look forward to leveraging those assets as we drive up our capacity utilization utilization rate overtime.
Finally, our commitment to growing our capacity by 150% with our Texas D. C reflects how firmly we believe and the magnitude of the global retail opportunity that should support our planned growth until 2025 before we need to build an additional distribution center in the U S.
We remain confident that we are laying the foundation for steady growth and ultimately increasing profits and are excited for the year ahead.
James and I are now ready for your questions. Operator, Please open the line.
Thank you.
To ask a question please sooner by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off till your signal to reach our equipment. Once again that is star one if you would like to ask a question.
Will take our first question from Ike <unk> with Wells Fargo. Please go ahead.
Hey, guys how are you doing.
Two from me.
Within Europe .
Hum.
I think you guys gave the the remix gross margin for the quarter could you give the revenue contribution for fourth quarter as well.
And then within the European business any insight over the past week or two on consumer sentiment or behavior that you guys would call out and then second question for Sean just the EBITDA progression through the year. It seems like you are expecting things to kind of smooth out just anything we should keep in mind quarter to quarter would be great.
Yeah. This is Sean yes from a remix revenue perspective in the last kind of information. We gave you guys was 2020 was about $34 million they've been growing since then we're not going to get real specific about what their revenue is but you can assume that they are growing we're growing kind of do some math there I'll, let James give you a little view on kind of the sentiment in Europe .
Yeah, I mean I think it.
Yeah, I think Europe has been.
Under a lot of pressure in eastern Europe , obviously, but nothing that I think is changing our point of view on the broader kind of long term.
Our European strategy, but we're obviously, we have a team in Ukraine.
Hearts go out to them, we've been monitoring them, but I don't.
Don't think that we have any more information provide at this point, but certainly something we're keeping a close eye on.
And then it sounds like about EBITDA progression over the rest of the year, Yes, and then from an EBITDA perspective like the rate overall, we expect a slight improvement quarter over quarter as we go throughout the year.
<unk> seven won't really come on line for revenue until about Q3. So you have some headwinds that you go through the first half that we talked about in the prepared remarks, and youll start to see that benefit more in Q4, as we get more up to speed and generating revenue out in ECS or the Dallas DC.
Got it thanks guys.
Thank you we'll take our next question from Ross Sandler with Barclays.
Hey, guys.
Sean.
A little housekeeping on all those numbers you rattled out, but I think you said.
Core threat up gross profit was $44 1 million, which would make the <unk>.
<unk> gross profit of $4 1 million.
37% margin revenue would be $11 million in the quarter.
Annualize that.
Gross profit for core thrown up in 'twenty two based on the high end of your guidance is below 20% growth. So I guess the question is.
Are those numbers right or am I, just way off and why is the core growing less than 20%, what's going on with kind of a core U S consignment second.
Second question.
How do we bridge from the mid sixties up to your long term gross profit margin target of 75% to 70% can you just help us.
Get there given the remix impact thanks.
Yes from a gross margin perspective, I think you'll see the evolution from where we are today consolidated kind of migrate more towards what trade up was stand alone pre pre remix. So we'll get back into the 70 is as we move toward more of a inside of this model throughout Europe that will start to give us a little tailwind from where we are today. In addition to all the <unk>.
So we will be having from an automation perspective, and the scale will get as we move into <unk> and the processing centers I guess whats kind of the overall March as we go from where we are today get back to where a threat of was Standalone and then move towards a longer term model that we laid out in front of you.
And then from a from a.
A threat versus remix I think you can kind of back your way into revenue I think we gave enough that I don't know on your percentage of growth for the full year it looks.
It is a different number than that.
Thank you.
Thank you we'll take our next question from Dylan Carden with William and Blair.
Thanks, a lot.
Just curious.
The utilization rate for Atlanta, specifically I would imagine just below that 77% number you gave.
And then the not needing distribution capacity until 2025.
I think.
Bob you had said sort of around the IPR that youre sort of 18 to 24 months build out cycle.
Just curious if I have that right. If there's a change there maybe balancing profitability in tandem with growth investment.
And then sorry, just to add to it just on distribution.
The new cleanup kit processing centers can you just speak to the strategy there.
What that allows for for maybe.
Speed lead time standpoint, and sort of any sort of economic or margin implications of expanding that.
Okay.
Yeah, Hey, Hey, Don as James Yes.
Yes, I mean, I think when we when we went public I think we were we were planning on every 18 to 24 months for these new distribution centers that had been the historical trend.
But we did not anticipate at that point.
The opportunity to build a bigger facility in Dallas. So the facility in Dallas is three times more than three times the size of the Atlanta, right, which was more than two five times the size of our previous facility and so I think we probably signaled previously we were sort of evaluating whether we need to continue building facilities.
That scale at that rate.
And I think what we've been able to see with with our pricing strategies and our turnover rate that we can maintain strong growth rates within the constraints of that facility, which makes us think we don't really need to start biting off a new one until 2025.
So I think that gives us a lot of confidence in how the business Leverages you know over the next year or two.
And then I think that's a natural segue into your question about processing centers.
Because those are a much much much more of a lightweight facility build out and they operate near our bigger hubs. We can turn those on access you know more processing power shorter lease durations.
But ways that I think really diversify our ability to process bags over time and I think you may have caught in my remarks, because of that we're seeing the bag backlog processing times come down. So we think the whole recipe for how ops is scaling and leveraging I think has done a really good place.
Awesome.
I'll say Louis Thanks Lucas.
Thank you we'll take our next question from Ana <unk> with Needham <unk> company.
Great. Thanks, so much good afternoon guys two.
Two questions first really strong growth in buyers can you talk about what drove that and how are you thinking about buyer growth.
<unk> in guidance, either for <unk> or for the full year.
And then secondly, just looking at the gross margin the low end of the guide I think youre, implying a bigger decline for the year versus what you expect for <unk>.
The new Dcs coming online I think you said in <unk>.
I wanted to make sure what's driving that thank you so much.
Yeah, Hey, James I think just on both of those points. It's really then the remix contribution so the growth in active buyers in Q4.
We consolidated a remix in Q4 close the deal in October so that showed.
Outsized growth relative to where we would've been thrown up stand alone and so but I think you can can you can probably think about the next year I sort of more steady growth rates across both of our of our businesses.
And that and remix consolidation in 2022 is actually what drives the gross margin number because remember their business is totally direct product revenue and that business operates at much lower gross margins than threat up does as a consignment business and so as a remix continues to grow it's a much smaller business and try to fit today.
It will make up a slightly larger portion of our revenue as we grow throughout the year and so that will just from the math not structurally bring down margins and then the plan obviously is the transition remix to consignment.
As the threat of business is on consignment and that's just going to take a couple of years, we obviously don't want to do anything that would.
Shake that business up in a in a in a negative way, but that transition will happen and so I think we feel very confident in the long term gross margins of the business in a combined entity, but we're gonna have to digest remix in the near term.
And then just to be clear that we expect active buyers as a threat of Standalone U S business to grow throughout 'twenty two as well.
Alright, Thank you guys.
Yeah.
Thank you we'll take our next question from Lauren Schenk with Morgan Stanley .
Hi, this is that Nathan Lauren.
Just looking at your guidance implies a bit of an acceleration from one two to the rest of the year was that just due to the processing limitations due to omicron or any other puts or takes you can talk to you there.
And then obviously.
An investment year in fiscal 'twenty two.
Kind of laying the groundwork for future leverage can you talk through how that changes the path to profitability versus what you had laid out an idea. Thanks.
Hey, Nathan.
Yeah, I mean, I think on the on the on the first quarter I think as Sean and I mentioned, we definitely had real processing headwinds in December into January with Omicron.
And so.
That obviously you know as we've been consistent hurt our ability to put those items online and drive that revenue and are new to both of our processing centers that we mentioned in Lebanon, and then in Grapevine, Texas. Both of those have come on just in the last month or so and so that adds a lot of processing capacity to our business as we move throughout the year.
And so again as our business as we process more goods that allows us to grow even faster and so I think that's part of why.
The numbers that you see you know suggest an acceleration throughout the year and.
As it relates to the path to profitability.
We remain consistent which is we want to make these investments to drive <unk>.
Sustainable growth and profits over time, and I think we're making the right ones right now to take it to take advantage of what we believe is a massive market and so but I think importantly, those infrastructure investments leverage over the next couple of years.
That I think will make it very clear to investors.
How profits come overtime, yes ill keep in mind it does seem that.
We said all we wont need another distribution center like Dallas until the earliest 2025 saw that investment now is going to continue to pay off through 'twenty three 'twenty four until we get to 'twenty five.
Okay, great. Thank you.
Thank you we'll take our next question from Mike <unk> with Goldman Sachs.
Hey, good afternoon. Thank you very much for the question I just have two.
First could you just talk a little bit about the parallels that you would see for <unk>.
<unk> in Europe relative to throw it up in the U S and what gives you confidence about the opportunity to.
The remix to fall in that threat up maturity curve.
Second.
Just wondering if you could talk about what you view as the constraints on growth I think that historically has been.
Supply side constraint.
And on that supply side. It seems like labor is the biggest constraint now is that is that right and how do you see that.
Evolving throughout 2022, thank you.
Yeah, Hey, Michael I think on remix I think as we said last quarter. It looks a lot like threat up did six seven years ago from a from a revenue and growth profile and so I think our ability to run a similar playbook as we have in front of over the last two.
Two years, but deploy that with all of the things that we've learned.
To me it feels like we have a lot of confidence that remix.
And then on a very similar track to trade up not just in its sustainable growth.
But also its ability to kind of capture this ongoing expanding tam and be able to do that.
Can assignment margin profile that looks very similar to threat up but I think we said that that's going to take two to three years as we transition.
Business from from when we when.
When we close the deal in October so.
I think we continue to feel confident and remix looking a lot like threat up over the over the next few years.
Sort of like constraint to growth Yeah, I mean, it's often in two sided markets like this one its supply that drive that and for US, it's really about supply processing power and so a part of our investments in bringing on a new DC in Dallas and adding the processing centers is to really accelerate that processing and.
And I think that gets back to you you know nathan's questions earlier right, that's what really drives acceleration.
Move through the year as our ability to process more and more goods.
So I think that story is very consistent to how it's been a threat up the last few years.
Great. Thanks James.
Thank you we'll take our next question from Tom <unk> with Wedbush Securities.
Hey, guys. Thanks for taking my question.
I wanted to ask about I guess the building blocks for the Dod.
So that's 2022 I think based on that margin rates and revenues you gave the.
Actual loss in dollar there should be about $10 million to $15 million more.
To this point.
A quick one.
I think I think you said 6 million comes from.
The.
These teams are processing center something.
The incremental cost is the remainder just.
<unk> from <unk>.
Is there anything else any other sources.
You bet.
We should be thinking about.
You have a piece of it related to the increased cost and logistics as well.
That's kind of the missing piece I think you have.
Okay got it.
Q1 was $1 million.
Okay got it is there any way we should think about like what the core sort of improvement would kind of be without these investments.
Well I think you can take those out I mean in Q1 alone and $1 million of half related to <unk> is about 2% of EBITDA. If you look at the 6 million to answer that it's approximately 2% for the full year as well as can be front end loaded so youre going to have similar numbers, maybe two 5%. It would impact Q2, so if youre thinking it through that way just related to the DC.
But I think it's a great investment for the long term future and any impacts of some of the things we're doing in SG&A as well as just kind of increased logistics.
Understood. That's helpful. Thanks, very much guys.
Thanks.
Thank you, we'll now take our next question from Dana Telsey with Telsey Advisory group.
Hi, good afternoon, everyone.
I think in the last quarter, you mentioned strategically lowering prices and it was I think around 15% in the third quarter, what does it look like and what does it look like in the fourth quarter and how do you think about your go forward game plan.
Yeah, Hey, Dan This is James.
I mean, I think as I said last quarter, where we really let the data help dictate for US you know where the pricing opportunities are.
As I said I don't think you know not all prices a threat up went down 15%. It was on average across 35000 brands that we sell.
I would say right now we're doing the same calculation. So I don't think we have any new news to break.
On pricing I think we're going to let the data point to you the best way to drive performance in our business and serve the customer and I think thats. The thing we've always been doing will continue to do.
Got it and it Tonight.
Processing times, what is your expectation as we go through 2022 in terms of what it looks like.
Yes.
Yes, I mean, I think we've made a huge huge progress.
Since last quarter, and then used processing centers coming online DCF seven coming online. So I think we're feeling confident that its moving in the right direction as I said last time. There is a there is always this elasticity experience, where as our processing times come come down consumer sellers pile into.
Our business. So I think it's too soon to say Dana when it's when it's going to be back down to our steady rate of two to three weeks.
But I have a lot of confidence that the investments that we're making right now to drive processing or are the right ones.
I mean, the customer's going to respond positively to that.
Got it just lastly last time, you were seeing an uptick in terms of dress up with after the holiday season, any new trends out there that youre seeing in terms of product sell through categories.
Well, we're definitely seeing like consumers really seeing the shift to warm weather come earlier.
Like some.
Vacation staples like Maxi dresses for example, Dana they were up 55% year over year in February .
Shorts were up 68% year over year in February .
Mini skirts were up 58% year over year in February So I think a number of these categories that suggests consumers are ready to kind of get out in the world like continued to be true and so those are sort of a few of the trends a few of the trends that we saw.
Thank you.
Yeah.
Thank you we'll take our next question from Matthew <unk> with Piper Sandler.
Hey, guys. Thanks for taking my taking my question just two quick ones from me.
One can you kind of explain to us the rationale and scaling international. This this early in the story and maybe speak to how you view kind of expansion category expansion versus geographic expansion and then secondly kind of in the when you were going public and in your IPO models. I think you said <unk> was not a part of your forecast.
Is that still not contemplated in your model or your guidance going forward. Thanks.
Yeah, Hey, Matt.
Look I think we believe that the international opportunity and resale is massive you know the European retail market.
It's very large.
And so we felt like it was a great opportunity with it with a business like remix that was a that was very similar to threat up in lots of ways. We thought that it was the right time to do that.
So I want to comment on other categories at this point, but continue to feel very confident in the decision to buy a remix in and expand into Europe , essentially doubles double as the Tam for threat up.
You know as for kind of the you know.
IPO modeling forecast.
We're past that so yes anything that we know about raz is in our forecast.
Okay. Thank you.
Thank you and once again Thats star one if you'd like to ask a question take a next question from Brian Mcnamara with Baird.
<unk> capital markets.
Hey, good afternoon, guys. Thanks for taking my question can you give me a little more color on your expectations for Europe in Q1, this year and how that has perhaps changed over the last few weeks. If this call is a month ago is your top line guidance for the year materially higher.
Okay.
Hey, Brian .
Yeah, I mean look we continue to think that Europe is a great opportunity for us.
I think what's happening in Russia and war in Ukraine.
We don't expect that to be a huge drag on the business you know over the course of the year, but look we acknowledge that it's there are some uncertainty.
There, but like I I don't think that it's going to materially change our point of view that international growth is.
As a big opportunity for us and that remix is a great business that we have in Europe .
So.
So yeah, I mean, I think we're watching it closely but I don't think our point of view on the opportunity in Europe hasn't really changed specifically, Brian just like we generate no revenue from Ukraine, we get no supplier in Ukraine, but obviously the burden on what's happening in Europe is hanging on to consumer so we're paying close attention to that.
Got it and just a quick follow up.
So the stock in your peers has had a tough few months here. What do you think you are not getting enough credit for what is your long term investors should be most excited about.
I think people fundamentally misunderstand like some of the competitive advantages that we're building and all the dollars that go into building infrastructure growth.
Create real compounding returns overtime. So I think we've been consistent we think when Youre building infrastructure, you're widening your moat youre.
You're deepening your your advantage and that really materializes over a number of years and I always point people that this is this is very much the same playbook that Amazon ran very early in its life, which was to.
To build real infrastructure that really delivers for the consumer and then to be able to ride that out over time.
And I'm, a big believer that that that strategy pays off but it takes some time to pay off but we're not going to waver from making the right decisions on how to build those competitive advantages to serve the customer.
I think thats the thing Brian people, often don't don't quite appreciate it.
Great. Thanks, guys best of luck.
Thanks.
Yes.
Thank you and that does conclude today's question and answer session I would like to turn the conference back over to management for any additional or closing remarks.
Thanks, everyone for joining us for our conference call. Thank you for the great questions and thank you to the threat of team.
For all their hard work and just to call out to acknowledge all the folks we have in the Ukraine that are suffering through a really difficult time, we want to give them a shout out and appreciate all of their incredible hard work.
Our in service of our customers.
With that we'll wrap it up thank you.
Thank you that does conclude today's conference. We thank you all for your participation and you may now disconnect.
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