Q2 2023 The RealReal Inc Earnings Call
Hello, and thank you for standing by.
Welcome to the real real second quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you were.
Then your automated message advising you'll have this race to withdraw your question. Please press star one again.
I would now like to hand, the conference over to Kate and how you may begin.
Thank you operator.
Joining me today to discuss our results for the period ended June 30th 2023.
Executive Officer, John Coral.
And your Chief operating officer Raphael that.
<unk> Financial Officer, Robert Julian.
Before we begin I would like to remind you that during today's call. We will make forward looking statements, which involve known unknown risks and uncertainties.
Our actual results may vary differ may differ materially.
Any such statements.
You can find more information about these risks uncertainties and other factors that could affect our operating results and the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.
Today's presentation will also include certain non-GAAP financial measures, both historical and forward looking.
Historical financial measures, we have provided reconciliations to the most comparable GAAP measures in our earnings press release.
In addition to the earnings press release, we issued a stockholder letter earlier today, which are available on our Investor Relations website.
Now I'd like to turn the call over to John Coyle, Chief Executive Officer of the railroad.
Thanks, Keith and welcome to our earnings call today.
We reported financial results for the second quarter of 2023.
<unk> and revenue exceeded the midpoint of our Q2 guidance and adjusted EBITDA exceeded the high end of our Q2 guidance range.
Movement in profitability was largely driven by our ability to maintain a higher margin.
Business, all we purposefully limit direct revenue.
Additionally, we continue to make progress.
Little value consigned items.
These actions resulted in higher average order value.
The higher gross margin rate.
Reduced company owned inventory and a smaller adjusted EBITA loss compared to the prior.
Beyond our financial metrics, we are seeing positive trends in our net promoter score and consignor satisfaction. Okay.
Finer concierge team that we implemented over the last six to nine months is enabling us to deliver a truly luxury and personalized experience to our clients.
Sure.
The second quarter, we added more than 1 million new members, taking our total membership base over.
33 million members.
Through the first half of the year, we have been working on three key initiatives first grow profitable supply, which is driven by our revamped Consignor commission structure and potentially could be augmented starting next year, where new supply partnerships.
Second improve efficiency.
Through our pricing algorithms and technology improvements in our operational processes.
Third pursuing new revenue streams, including on site advertising.
I'm excited about some of the green shoots we are seeing in the business, especially in relation to our new revenue streams.
Started testing third party ads on our web site and the early indications are positive.
These initiatives continue to drive improved financial and operational results today.
Today, we are updating our full year 2023 guidance. In addition, we continue to expect to be profitable on a net.
Adjusted EBITDA basis, our full year 2024.
Over the past few quarters, we have made significant changes to our <unk>.
This strategy and tactics and we believe we are well positioned to capitalize on our consignment business model as we continue to be the market, making leader in luxury retail.
That let's open the call for questions.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone.
Can't wait to hear your name announce so withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yeah.
Our first question comes from a line of Kunal medical with UBS. Your line is open.
Alright. Thanks, a lot. This is Jason on for Canal from UBS I have a couple of questions. So the first question is.
I was wondering how you guys are thinking about the gross margin in the near term you guys talked about the changes the company has been making to the business model, which should then yield gross margin progress. So my question is actually like what would roughly the gross margin be exiting this year and also what would be the embedded gross margin target range or you guys achieved.
For Ya.
Profitability target for EBITDA.
Paul.
Sure. Thanks, Brett.
Question, Jason This is Robert Julian I'll take that one.
So we are seeing ongoing and continuous improvement in our gross margins primarily due to the change in mix of our business, where we have focused more on the very profitable and sign business that will be a de emphasized the direct business.
As you've seen from our results. The curbside business generally is about an 85% margin business traditionally the direct businesses and more like a 15%.
Which looks good.
First half of the year, it's been more flat we've been.
Trying to move the inventory.
Sort of less favorable and we've had to discount so.
<unk> seen is this change in mix and a significant improvement over 900 basis points again this quarter.
So for the first half of the year, we ended up at about 65% gross margin.
Specced out to continue to improve in the second half of the year I've said in the past that that.
Gross margin can reach high sixty's, even potentially scare a seven handle but we haven't committed to that.
But that's that's the trend you should expect US continue improvement as you get into the very high Sixty's.
And that would be sustainable once we get to that rate because.
We continue to follow this strategy of really focusing on the high margin can sign business.
Got it. Thank you so much my second question is on <unk>.
Well the outlook beyond Q3.
Obviously things seem to be decelerating in the near term, but could you. Please comment on the puts and takes in order to achieve your 2024 guidance. After Q3 like how much of your guidance would you say is related to your assumption around at macro improvement in 'twenty 'twenty four versus like comprehensive travelers.
I think we're taking an entire portfolio approach here and what you've seen is.
As we've said before this is a reset year where were really minimizing.
The direct business is growing to consign business.
Making sure that they can sign business. We operate it actually is more profitable are profitable on a per unit basis, we had to walk away from a lot of merchandise under $100 and then.
Been here almost exactly six months now and we're looking at new forms of revenue that we've been discussing advertising being another aspect of that portfolio and we're actually looking for other new revenue streams, we've talked to you in the past about things like warranty.
Return insurance thank you.
Those and the other thing that we've really started talking about now on this earnings call. It's other forms of inventory when I got here. It was a little surprised that we took possession of all forms of inventory what we're building out now in the back half of the year is our ability to put merchandise on the site that we still make sure is authentic.
But we don't necessarily have to take possession of those goods before they sell the example, I like to use it.
Many who sells watches at a shop, if they haven't used watch because they can't shut down their shop and give all of our inventory to sit in one of our warehouses, but they could maintain that inventory locally and represent that merchandise on our site ultimately ship it to us for authentication and then have that reached the customer. So it's a complement of our core business.
As really being focused on consignment.
Letting that with additional supply partnerships via trusted partners and again, adding to that additional forms of revenue, creating a portfolio that leads to profitability in 2024.
And Jason I will just add a little bit of police color to that as well just for modeling purposes and so on.
You've seen in the first half of the year as our direct business has declined by 50% and.
And we've talked about this that this is a reset year, we are resetting the baseline and we are shrinking that direct business very intentionally and that trend will continue in the second half of the year. In addition to that we have de emphasized items under $100 and we have exited some categories, whether it's home or kids and so on and that will continue through.
This year this is a reset year.
So those trends are going to continue to happen it has done quite intentionally.
That's why I tried to encourage folks to get past the headlines of what is GM be in aggregate doing what is revenue in aggregate doing and on the surface. It seems quite negative because it's shrinking.
It's important to recognize they were doing that on purpose.
The gross margin has improved 900 basis points and it is why we are narrowing our adjusted EBITDA loss so significantly.
Year over a year now at some point, we will reach this new normal.
And this new baseline after the reset and we will return to being a growth company.
Double digit growth company in the future, but this year is a reset and you really have to get past the headline up these.
Declining <unk> revenue numbers.
Got it quick.
Quick follow up on that one so as Youre moving away from the company owned inventory model like how can we think about the new run rate of inventory days for the year 2020 for example.
Since you asked the question about the inventory and our inventory, but you know we own very little inventory, although we.
Reduced it significantly year over year in our inventory balance it's quite small.
We do have some further reduction of inventory to go and what used to be vendor purchased inventory, we are buying inventory to resell it sort of in a traditional retail model, but that part of our inventory balance of our total inventory balance of roughly $26 million that portion of it was about $7 million.
And so we continued in intended reduce that to zero eventually, but then we'll get to some nominal inventory amount. That's represented by auto policy returns and some get paid now some recovered inventory and so on and at that point, you should expect our inventory balance to more or less grow at the rate.
The business grows but.
But we've gotten down to pretty close to what I would consider a new normal in our inventory balance which is significantly less than a year I think at the end of Q2 last year was 73 or 74 million.
This is now $26 million, but I think we pretty much gotten through the end of that road in terms of getting to a new normal.
Owned inventory.
Got it. Thank you so much appreciate it.
Thank you Lee.
Please standby for our next question.
Our next question comes from the line of Rick Patel, Raymond James Your line is open.
Thank you and good afternoon, everyone.
Can you update us on where you are in terms of marketplace monetization are you comfortable with the commission structure you have in place or do you see room to take it higher and also I think you touched on augmenting the commission structure in 2024, hoping you can expand on those comments.
Yeah. Thank you. This question so I can take that one I'll start there and John and Robert Adams needed.
The commission structure I think is what youre, referring to there.
And we made that change just to remind everybody when we made that change back in November .
Of last year, and the objective was get more high value reduced the low value inventory items under 100.
Continue the mid value area. So we continue to optimize and tweak I would say the commission structure and kind of test starting to iterate our way into it.
The high value doing what we want to really good news there items under 100, we are.
Again, getting a red or declining that inventory. The commission structure did that we do need to tweak the mid value and I think I mentioned that on the last call as well and we continue to do that.
Just becoming more sophisticated and smarter in how we're doing that and the tools and levers that we can use to getting more.
Personalized in our promotional cadence.
You'll see some win back campaigns going on to continue to retain our sellers in the mid value area.
Yes, I would add to that ROTC. This is Robert.
There is no finish line. There is no final commission structure that we're trying to achieve that it will be dynamic and we will continue to test and iterate and find the right balance and react and be nimble.
I think we got it.
Bernie.
Done pretty well in the first change that we made the mass change that we did on November 1st week, maybe we got at 80 or 90% there, but I don't think we'll ever be 100% there per se it will be dynamic and we will test and iterate and the market changes.
Correct.
That's right.
It will have different.
Reason that they can sign with us and so getting more in tune to what those are and.
And then hitting them.
Cadence or promotion structure.
Could you repeat the first part of your question you had a question.
But the markets are data monetization would you could you clarify your original question.
Yes. The original was just around marketplace monetization and how comfortable you are with the updated commission structure you have in place and whether you saw room to take the commission structure, even higher versus what you have right now.
Yeah.
Yes.
I think we've covered that one.
Great and then can you also touch on product acquisition in the markets, where you've closed retail locations.
Have you been able to pick up supply through other means and what's your comfort level with product availability going into the back half.
Yes for sure.
We do remind everyone again we.
Closed a few locations two flagship store two neighborhood stores and a couple of luxury consignment offices.
Again, another dynamic strategy based on what stores are doing well and what maybe have opportunity and not as much EBITDA. When we look at the P&L that our stores.
We're still quite bullish on stores I'll say that firstly, we're seeing continue to see the halo effect, new diners coming to the store average item value coming through the story is quite high and we find that the sellers are quite sticky when they're working with retail and when they're working with our salespeople.
So we're continuing to look at new locations like expect one to two stores a year.
We'll continue to look at that as far as the stores that we closed I'd say is the market.
By market.
Decision and kind of result, so.
The flagship stores right decision based on the rent that we were paying in some of those locations and when we look at those P&L neighborhood. The same we weren't able to move most of that business into our in home channel and then we're kind of taking a look at some of the other.
I'm sorry.
And seeing if there is opportunity in some of the other markets, we want to get back into Miami for example, Chicago San Francisco. So the neighborhood stores definitely the winning recipe and we have a playbook here on this and expect to see more of these in the future but.
But it will be quite prudent in how we operate and the operating expenses involved as well as <unk>.
Negotiation.
Thank you all the best.
Okay.
Thank you.
Please stand back our next question.
Our next question comes from the line of Ike <unk> with Wells Fargo. Your line is open.
Hi, everyone. Two questions first so just at the high level can you talk a little bit more about the consumer.
Buckets that you guys are dealing with are you seeing any additional pressure on the higher tier consumer theres definitely been some data points on U S luxury trends in the U S kind of softening over the prior couple of months I'm kind of curious if you've seen anything.
That nature inside your business.
Sure I can start.
So as far as macro is concerned.
I think I mentioned this on every earnings I'm always looking at the top of the funnel I'm looking at traffic I'm looking at lead.
Stellar conversion is flat to the page when I look at conversion on high value also flat. So that the new members are up 16% year on year active buyers are up so all of our leading indicators are not showing a sign of slowdown on the buyer side.
Third we're always supply constrained I have confidence that if we get the supply we can sell it and we're seeing.
The health of the consumer being quite strong.
So our really our focus is making sure we get the right Brian .
Got it.
And then maybe a follow up maybe for Rob just when you look at the balance sheet can you maybe walk us through I'm sure you can't give us specifics, but your high level views on cash burn the rest of this year cash flow or cash burn next year and as you start to look at the 2025 notes that are coming due.
Have you started to have internal conversations about how to address that I'm just kind of curious if you can start to talk about that.
I know thats still a little ways away, but I'm curious if you guys are having conversations about how to deal with inevitably deal with that.
Sure Yeah happy to like so.
The first part of your question about the cash and the cash burn.
It will certainly be a tale of two halves for us and we've talked about that in the past and you can see it reflected in the difference.
Project actual adjusted EBITDA in the first half of the year and projected adjusted EBITDA in the second half of the ERP you take the midpoint of our guidance.
Adjusted EBITDA is about a $49 million loss in <unk>.
First half and at the midpoint of our guidance closer to 20.
So youll see a change just naturally from the improvement in the profitability of the business. There was also some things on a cash burn basis in the first half of the year that was a little unusual.
There was some restructuring expense as we were closing some retail stores as we exited some office space and some other restructuring layoffs and so on we did have some cash burn associated with that that also will not repeat in the second half of the year and then finally I would look to our capex.
Timing in the first half versus second half, we're a little heavy on Capex and timing in the first half of the year, where we put in a pretty significant pick module and our authentication center in Phoenix, We added some convenience to the warehouse and we've added an idle packaging machine and some other things that's going to produce.
More efficiency going forward, what was heavy from a cash point of view in the first half of the year.
So we expect the cash burn to be significantly lower in the second half of this year and then we expect it to be even better next year as we are committed to being adjusted EBIT positive in 2024 and beyond.
So.
I think youre going to see very positive trends in that regard and I'm not overly concerned about the cash position our cash burn per say at the moment now the second part of your question is about our capital structure and we have talked about that.
And we have said it was our intention to address the capital structure in the convertible notes and as you know the 2025 notes have.
Data.
Come due.
Mid 2025, and the 20 eights or early 'twenty eight.
So we continue to work on that quite actively the management team in conjunction with our board looking at our options in different ways too.
Find an ideal capital structure and to give us additional runway and to prevent anything from coming current.
And so we continue to be committed to addressing that in the short term.
In the past we've talked about by the end of the year and I'm still hopeful.
We can address that by the end of the year does it some for some reason it's not the end of the year. It would be very soon after that so I would say within the next.
Three to six months.
We will certainly have.
A solution for that and we'll share that with you at the time, but I'm actually very very optimistic that we have.
Very good options for addressing our capital structure, and our convertible notes and you'll hear more from us on that soon.
Great very helpful. Thanks.
Thank you.
Please standby for our next question.
Yeah.
Our next question comes from the line of Ana <unk> with Needham Your line is open.
Great. Thanks, Good afternoon, guys too.
Two questions from us on marketing spend it's been coming down.
The last couple of quarters, and I know you talked about reducing some of the TV spend but can you talk about where are you finding efficiencies and how are you thinking about marketing.
Sales as implied in the guide this year and hit it keep coming down as a percent of sales within reaching profitability goal for next year and then secondly number of buyers declined slightly sequentially is that the result of the low value a reduction in power the gross ads performing on the <unk>.
Thank you.
Yes, I'll start on the marketing side.
For the question.
I think what we're doing is really narrowing or a target down to knowing exactly who our customer is as we've always talked about where we are a supply constrained business. So the demand.
And it doesn't we don't take it for granted but in terms of where we really need our dollars to work hardest it's actually finding that can signers and actually getting the supply onto the website and into the stores. So.
What you've seen is us probably move away from mass and move much towards more personalized advertising at the top so theres a lot of targeting capabilities out there from the land of Internet marketing, we're getting a lot better from a TV perspective with over the top advertising or things of that nature. So I think we're doing a much more.
Our effective job targeting supply and the buyers that can become and signers at the mid <unk>.
Upper part of the funnel and the other thing that I would say what we're doing is really looking very closely at how our marketing dollars change behavior.
Rafi talked a minute ago about.
Adjusting the commission structure and a more personalized manner.
Always trying to do is see how can our marketing dollars work harder to drive.
More velocity or more units or higher value units what are the promotions that we can add you spend those marketing dollars most effectively to elicit a new behavior at our behavior that wed like to see from the customer and what Youre seeing is the result of a lot of experimentation honestly, we had to take a lot of money out of the broader.
Spend to fund a lot of testing I think right now I look at the sheet and Theres, probably 20 to 30 concurrent tests happening in Q3, and we're seeing a lot of good results from those and if we keep seeing results. Then we can lower our marketing spend as a percentage of revenue more proportionate with it.
Company Thats growing.
Low double digits versus one that was in the past growing 30%, 40% those are totally different investment profiles and I think youre starting to see is the marketing spend adjust to the profile of what we want to be a smaller growing but much more profitable company going forward.
Anything to add to that I think thats, great I think that our attribution model to your point, just getting much more sophisticated and personalized to your point to your second question and a number of buyers.
Yes that we expected that to happen based on what we talked about.
Which really was.
Yes, the size items under 100, but it is quite minimal when you look at it.
Look at the declining numbers and Youll see that.
Play out for the back half of the year I think you got it.
Third question was.
Ads piece.
How is that looking I think what your question is that right Ana.
Yes, just any initial color on.
Yes.
Sure Darrin the next year.
Yes, it's not a material part of 2023 as we've said many times.
I'm going to sound like a broken record with lots of testing what we don't want to do is negatively impact the core experience of our buyers and consignor. So what we've honestly done in early July we launched advertising on one page one page type total and we launched it to only about 5% of the population we didn't see any negative results. So.
It went to 25% and now we've gone to 50% what youre going to see is us continue to evolve AD placements on the site to more page types potentially in the email and definitely into the App itself. So we have a lot of traffic that comes to us and a lot of.
Various ways be it <unk>.
Mobile web or the app or actually desktop tablet so as long as we're comfortable that the AD experience is negatively impacting the core experience and we can find new ways to monetize that traffic, we're going to continue to do so I would say a lot of the indications are just early days that we have it negatively impacted the.
And we're going to continue to test from there.
Alright, perfect. Thank you so much.
Thank you.
Please standby for our next question.
Thanks.
Our next question comes from the line of Tom <unk> with Wedbush Securities. Your line is open.
Oh, Hi, there Austin Marina on for Tom I, just had a quick question about your plans for the convertible shares.
Sorry.
Do you guys plan on taking advantage of the discounts on trading.
Currently or anytime in the near future.
If so do you plan on doing that by the end of the year or is that something like youre, just going to wait to.
Yeah.
Sorry, refinance those at 2025 whats the deal on where you guys are thinking about how you guys think about that sorry.
So Austin this is Robert.
I would say there are multiple options and ways of addressing our convertible notes and certainly taking some out and taken advantage of the discount is one of the options I'm not going to commit to any specific strategy that we are going to pursue at this time, but we are looking at everything.
You will find the best solution for the company and the shareholders and to put us in the best position going forward in terms of our capital structure our liquidity.
I'm not going to commit to any one of those specific strategies at the moment and.
As I said earlier.
Ideally, we hope too.
Up with our solution and by the end of the year that has been what we've committed to before what we've indicated before would be our preferred timing.
And I think that there's a decent likelihood of that but as I said, if not by the end of the year would be very soon after that so I've given the range of sort of in the next three to six months.
As most likely.
Sounds good thank you.
Okay. Thanks.
Thank you.
Please standby for our next question.
Our next question comes from the line of Marvin Fong with <unk>. Your line is open.
Great. Good evening, Thanks for taking my question so.
First question on.
On the guidance, if I kind of break it down between third quarter and fourth quarter. It looks like if I use the midpoint the fourth quarter guidance is for <unk> something around.
<unk>.
$480 million, or so, which which would be like much better.
On a year over year basis compared to the third quarter. So it just seems like the fourth quarter you have.
A little more optimism about could you just kind of.
Because of that.
Is my math right and if so what's kind of driving your fourth quarter review and second question. Just I think you mentioned you had 33 million members.
Again less than 1 million active buyers just kind of a higher level question whats sort of the.
The key to unlocking all of these members who aren't currently transacting.
Just any view on that would be great. Thank you.
Hey, Marvin this is Robert I'll, just start by confirming your math I guess.
To make it easier.
Applied Q4, GMB that you referenced is correct.
What I would say is that.
Normal.
Sequence of bar <unk> revenue is that Q4 is always the highest quarter Youll see if you looked at Q3 to Q4 results last year. Our most other years that there is a fairly significant improvement in <unk> from Q3 to Q4, I will say that.
The year over year basis, it still represents a decline.
Maybe not quite as severe of a decline that we saw in Q2 or whats implied in the midpoint of our guidance in Q3, but still a decline year over year as I mentioned before that we're still deemphasizing direct business and items under 100 and so on.
So your math is right.
In terms of the implied Q4.
Sort of reference previous.
<unk> of our business and then I'll turn it over to <unk> and call to talk about other things that we're seeing in the business and what we're seeing that the top of the funnel and so on it gives us confidence in the Q4 number is presented.
Yes, and again, it's all about supply.
As far as our supply initiative.
Carl talked about marketing more personalized approach finding efficiencies targeting the right items the right sellers.
That's really our focus right now and we're testing our way into that on the supply side.
We're working again same idea targeting the right sellers, creating more of an outbound sales organization.
Personalized promotions and then our retail is also a piece of that puzzle and making sure that we bring in the right value and the high value that needs to come in and mix as well so that kind of a low cost.
Low risk high reward channel as well so.
We need to be focused there.
The forecast that we gave in guidance, we gave it takes into consideration, what's working and what's not right now.
Kind of deemphasizing, the lower value. So we felt good about that.
And then your second question was on members I think it was I think your question with buyers not consignor right and kind of how can we will unlock that from a supplier perspective.
From a supply perspective, and unlocking more and to be honest that's on up so it was closer to 10% a few years ago I think now its closer to 15% as far as buyer diners or concerns in that ratio.
It's really again.
Targeting them coming back with a specific promotion will continue to optimize that reconciled as another lever that we can pull to get more of them into our consignment funnel.
Okay.
Got you that's great. Thanks, so much Scott I appreciate it.
Thank you.
Please standby for our next question.
Yeah.
Yes.
Okay.
Yes.
Our next question comes from the line of Laura Schneck with Morgan Stanley . Your line is open.
Hey, this is Nathan sat around for Lauren and some really encouraging results on the bottom line.
Understand that.
This year is a recent year pull back onto the other items vendor purchases et cetera.
We strip out some of those onetime impacts how should we think about what <unk> would be growing in any way to quantify that would be helpful. And then on the advertising side and when you think about the take rate and you're aiming to achieve as you want without any reason why you couldn't get to kind of <unk>.
Industry, great Sir Thank you.
Well Nathan again.
I'll start and maybe.
Maybe I'll reframe the question a little bit I won't speculate on what our growth rate would have been in 2023 had we not changed our strategy or got not a director or items under 100 or different categories, but maybe the better way to frame. The question is what do we think our ongoing growth rate might be the new normal.
Once we reset and we have this new baseline.
Good business Center.
The proportion of consigned business to direct business and so on and I think we still feel confident that this could be.
A double digit growth business, a 10% growth business give or take.
Sure.
Whatever you want to give us a range for that but we still believe that.
Once the reset is complete that we can grow this business double digits, 10%, yes.
And I think it's the combination of our traditional consignment business that we've talked about and now we're also calling for supply partnerships. So.
The good news about the supply partnerships, if we wait and don't actually authenticate the good until after it so that is a different cost profile do it as well and I think that's incredibly important in a supply constrained business lets say what are these other forms of supply that we can bring to bear to our marketplace.
It is basically.
Has an abundance of demand that is constantly looking for supply. So if we can monetize that the right way and monetize that traffic. Accordingly, I think we're in a really good situation. We just have to find those right partners. The right authentic goods that we can bring to the customer in a timely manner and meet their high expectations.
For a really high touch high service marketplace like we have and in terms of your advertising question.
We fully expect to deploy advertising.
Brands complementary way throughout the site.
What are the brands that we want advertising on our site can we find those right type of partners be it travel finance.
All of those types of things that our customers are used to seeing that again complement what they are doing on our own site. So if we can find that we have billions and billions and billions of page views on the site on the App et cetera, how do we monetize that in the right way and again the last thing I want to do is just.
Troy, our core business or damage, our core business it anyway, but if we can put complementary advertising in there there is a nice monetization strategy in there what you don't see us doing is sprinting to make.
Seven digits this quarter and just helping the number and in the short term, but doing Dan mentioned the long term what we're trying to do is be very judicious and really figure out where we can do it in a way that are that people, who want to advertise to our customers can do it and again, we don't hurt our own core business.
Great. Thank you.
Thank you as a reminder, ladies and gentlemen that star one to ask the question.
Please standby for our next question.
Yeah.
Yeah.
Our next question comes from the line AMA with Piper Sandler Your line is open.
Hey, good afternoon. Thanks for taking the questions guys. I guess first I know you said you have you've had certainly no dearth of buyers, but just kind of curious have you changed pricing or as you all know change pricing given some of the weakness in some of those entry level pricing as well as maybe some of the softness in the grain market and then just as a follow up I know historically.
You guys have clearly done a good job managing inventory down you still have a lot of returns in the fourth quarter that kind of fall in the first quarter. So do we should we assume that inventory levels are kind of tick back up at least seasonally thank you.
Yes.
I'll take the first question on pricing.
No, we're not taking down pricing if anything like for like items have gone up.
Super dynamic based on the market based on the item based on the number of sessions to their views.
All of the information.
We will continue to optimize pricing and tweak it according to the market. We always say, we don't set the price the market sets the price.
But again like for like items has gone up.
Ed I'll take the second question on the returns and seasonality Q4 to Q1 generally speaking returns does not impact our owned inventory.
The only time returns and tax our owned inventory if it is out of policy and we agreed to take it back after the consignor has been paid and then it impacts our owned inventory, but most of our <unk>.
Inventory I am saying that sort of air quotes is consigned items and therefore not on our balance sheet.
It is our own in owned inventory.
Maybe there is a correlation is if you get more returns maybe there was more on a policy returns, but generally speaking I am not concerned about that moving our owned inventory balance.
Yes.
And that would be based so much not for sale.
Yes.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of Mark Wilde Swagger with Baird. Your line is open.
Thank you for taking my question.
Couple of follow ups regarding some of these new revenue streams you are targeting.
First with.
The <unk> opportunity you outlined previously.
High level aspiration that you can share on.
Where you think that can get in terms of the percentage of your <unk> over time.
Are those.
Supply relationships Youre, not taking consignment and then I apologize if you touched on this but how should we think about the overall margin profile of that business, considering both take rate and the fact that the cost structures are bit different.
So that's number one and then just to.
Understanding very early days, but as we think about the plan for breakeven EBITDA 2024.
Are you assuming material contribution from things like advertising in some of these newer supply relationships. Thank you.
Okay.
I'm going to start with the advertising its early days. It is part of our plan to get to.
EBITDA positive in 2024.
That's why we're testing as much as we can in 2023 of the act.
Ill amount, obviously, we can't disclose that but that is part of the plan.
And then in terms of the margin profile of what we're calling these supplier partnerships.
The goal is to make it so that the net margin is as close as possible to our consignment business, which ends up in a really good spot. If we can avoid the cost of <unk>.
<unk>.
Writing the copy of shipping goods multiple times anything that we can do those are things that we can actually share in terms of the cost structure with the partner themselves. So the last thing we want to do is get in to a deleveraging margin business and have it grow to be a large percentage of our business.
But at the same time, we've shown if we have supply we can sell it. So what we have to do is find that right balance.
Whereas the supply and where where is it accretive at non cannibalistic of our other product. If we can find all of that merchandise than that two becomes a material part of our 2024.
Earnings profile, yes, Mark its a really good question. It's an interesting question about these partnerships and how it affects our P&L and how it runs through our P&L.
I'd say net net on an adjusted EBITDA basis, it should actually be beneficial to us that it could be very very good business. It has a different cost profile as you said, but it would also have a different take rate profile. So I don't think that you should expect it to dilute our gross margin.
It could actually dilute our take rate.
So that would be just a mix of different type of take rate in partnership that reflects a different cost structure and I would caution people that if we go down that road and you see a degradation in take rate.
Not necessarily a bad thing.
On a bottom line basis on an adjusted EBIT basis. This business would be very very profitable, but it would have a different.
Great profile, a different cost structure profile in technically not a different gross margin profile. If we could talk about the nuances of our P&L and how it works and why that would be true, but I think that that's what you would expect from these partnerships maybe a little different.
Take rate similar gross margin very accretive in terms of adjusted EBITDA.
Very helpful. Thank you.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to John cough Cold box.
Thank you for joining us today in closing I want to thank our team at the rail rail for their efforts to fulfill our mission live out our values and move our business forward your daily contributions to making our business runs smoothly and deliver exceptional service to our clients are not only remarkable but also inspiring.
Finally, I'd like to thank our more than 33 million members that are joining us on our mission to extend the life of luxury and make fashion more sustainable. Thank you.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Everyone else has left.
Yeah.
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