Q1 2024 The RealReal Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the RealReal first quarter 2024 financial results conference call.
Good day, and thank you for standing by and welcome to the real real first quarter 2024 financial results Conference call.
Operator: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Caitlin Howe, Senior Vice President of Finance at The RealReal. Go ahead, Caitlin.
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Caitlin Howe: After the speaker's presentation, there will be a question and answer session.
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Speaker Change: Draw. Your question. Please press star one again.
Operator: Please be advised that today's conference is being recorded.
Caitlin Howe: I would now like to hand, the conference over to your first speaker today Kaitlyn, how senior Vice President of finance at the real real glad Caitlin.
Caitlin Howe: Joining me today to discuss our results for the period ended March 31, 2024, are Chief Executive Officer John Koryl, President and Chief Operating Officer Rati Levesque, and Chief Financial Officer Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and events. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operations in the company's most recent Form 10-K and subsequent quarterly reports on Form, Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, for which historical financial measures we have provided reconciliations to the most comparable GAAP measures in our earnings pressure.
Caitlin Howe: Thank you operator.
Caitlin Howe: Joining me today to discuss our results for the period ended March 31, 2024, our Chief Executive Officer, John <unk>, President and Chief operating Officer.
Caitlin Howe: And Chief Financial Officer, Jay Gould.
Caitlin Howe: Before we begin I would like to remind you that during today's call. We will make forward looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested.
Caitlin Howe: Such statements.
Caitlin Howe: You can find more information about these risks uncertainties and other factors that affect our operating results and the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.
Caitlin Howe: Today's presentation will also include certain non-GAAP financial measures, both historical and forward looking which historically financial measures. We have provided reconciliations to the most comparable GAAP measures in our earnings press release and.
Caitlin Howe: Addition to the earnings press release, we issued a shareholder letter earlier today, both of which are available on our Investor Relations website.
Caitlin Howe: In addition to the earnings press release, we issued a shareholder letter earlier today, both of which are available on our Investor Relations website. I would now like to turn the call over to John Koryl, Chief Executive Officer of RealReal. Thanks, Caitlin.
John E. Koryl: I'd now like to turn the call over to John <unk>, Chief Executive Officer of the railroad.
John E. Koryl: Thanks Caitlin, and welcome to our earnings call. Today we've reported financial results for the first quarter of 2025.
John E. Koryl: Thanks, Kaitlin and welcome to our earnings call today, we reported financial results for the first quarter of 2024 our continued.
John E. Koryl: Our continued strategic focus on the core consignment business and driving efficiencies is delivering results. In Q1, healthy supply combined with strong demand resulted in a return to overall top-line growth for the first time in three quarters. These results were fueled by double-digit growth in consignment revenue, our most profitable segment. But growth wasn't the only story.
John E. Koryl: <unk> strategic focus on the core consignment business and driving efficiencies and delivering results.
John E. Koryl: Q1 healthy supply combined with strong demand resulted in a return to overall top line growth for the first time in three quarters. These.
John E. Koryl: These results were fueled by double digit growth in consignment revenue, our most profitable segment.
John E. Koryl: In Q1, we also reported our highest ever gross margin rate, which resulted in significantly improved bottom-line results compared to the prior year; adjusted EBITDA improved by $25 million year over year. For Q1, GMV and adjusted EBITDA came in above the high end of our guidance range, and revenue came in at the high end of our guidance. The RealReal is starting 2024 with strong momentum in the core business. We continue to refine our approach to sales and marketing to drive profitable supply.
John E. Koryl: Growth wasn't the only story in Q1, we also reported our highest ever gross margin rate, which resulted in significantly improved bottom line results compared to the prior year.
John E. Koryl: Adjusted EBITDA improved by $25 million year over year.
John E. Koryl: For Q1, geography, and adjusted EBITDA came in above the high end of our guidance range and revenue came in at the high end of our guidance range.
John E. Koryl: The real real is starting 2024 with strong momentum in the core business. We continue to refine our approach to sales and marketing to drive profitable supply, we reoriented, our sales team's compensation to better align incentives with our strategic focus on profitable supply and we use more targeted marketing spend.
John E. Koryl: We reoriented our sales team's compensation to better align incentives with our strategic focus on profitable supply, and we use more targeted marketing spend to attract higher lifetime value consignors. We are focused on this for Q2 and the back half of the year.
John E. Koryl: To attract higher lifetime value insiders.
John E. Koryl: Our focus here for Q2, and the back half of the year as we transition back into overall growth mode. We are beginning to strategically test new initiatives that we believe are key to growing our core business.
John E. Koryl: As we transition back into overall growth mode, we are beginning to strategically test new initiatives that we believe are key to growing our core business. We are in the early stages of realizing further efficiencies across our unique marketplace, which encompasses our functional areas of sales, marketing, authentication, and operations. We see opportunities to invest in automation and AI as we leverage our data to improve client experiences and to work profitably and to profitably scale the business.
John E. Koryl: We are in the early stages of realizing further efficiencies across our unique marketplace, which encompasses our functional areas of sales marketing authentication in operations, we see opportunities to invest in automation and AI as we leverage our data to improve client experience and to work profitably.
John E. Koryl: And to profitably scale the business.
John E. Koryl: We project that we are on track to deliver positive adjusted EBITDA for the full year 2024.
John E. Koryl: We project that we are on track to deliver positive adjusted EBITDA for the full year 2020. Today, we provided Q2 2024 guidance and updated our full year guidance with an increase in the midpoint of our full year adjusted EBITDA rate. We believe our continued focus on the cork and assignment business is working. We are growing our consignment revenue, expanding margins, delivering exceptional experiences to our consignors, and providing outstanding luxury goods to our buyers. I am very excited about the momentum in our business and believe we will continue to capitalize on our position as a leader in luxury pre-sale. With that, let's open the call to questions.
John E. Koryl: Today, we provided Q2 2020 for guidance and updated our full year guidance with an increase in the midpoint of our full year adjusted EBITDA range.
John E. Koryl: We believe our continued focus on the core consignment business is working we are growing our consignment revenue expanding margins delivering exceptional experiences tarkin signers and providing outstanding outstanding luxury goods to our buyers I am very excited about the momentum in our business and believe we will.
John E. Koryl: Continue to capitalize on our position as a leader in luxury presale.
John E. Koryl: With that let's open the call for questions.
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 1 1 again. Please stand by while we compile our Q&A list. Our first question will come from Marvin Fong of BTIG. Go ahead, Marvin.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Operator: Please standby, while we compile our Q&A list.
Operator: Okay.
Operator: Our first question will come from Marvin Fong of <unk> go ahead Marvin.
Marvin Milton Fong: Good morning, or good evening. Thanks for taking my questions. Congratulations on all the progress. So, a question on just sort of consumer behavior. You know, I could see from the earnings deck that both units, UPT, what was up, as were ASTs. Can you just kind of drill down for us on what that indicates to you about the health of the consumer? You seem to be kind of bucking the trend compared to some of the other retailers out there. So, I just thought I'd give you kind of an open-ended question about what you're seeing as far as your customers are concerned.
Marvin Milton Fong: Hi, Good morning, good evening, Thanks for taking my questions.
Marvin Milton Fong: Congratulations on all the progress so.
Marvin Milton Fong: Question on <unk>.
Marvin Milton Fong: Consumer behavior.
Marvin Milton Fong: I can see from the earnings deck.
Marvin Milton Fong: Units.
Marvin Milton Fong: Yes.
Marvin Milton Fong: What was up as well.
Marvin Milton Fong: Could you just kind of drill down for us on.
Marvin Milton Fong: What that indicate to you about the health of the consumer we seem to be kind of bucking the trend compared to some of the some other retailers out there. So I just thought I'd give you kind of an open ended question about what youre seeing as far as your customers going.
Rati Sahi Levesque: Yeah, no problem. Hi Marvin, this is Rati.
Speaker Change: Yeah, No problem Hi, Marvin this is <unk>.
Rati Sahi Levesque: Yes.
Rati: You're kind of observations are correct. We saw our average order value go up about 8% we saw average selling price also.
Rati: As well as <unk>.
Rati Sahi Levesque: So.
Rati: And you saw that our consigned revenue is growing about 13% year over year.
Rati: The buyer I would say is quite healthy overall and looking at the top of the funnel, we look at both the buyer and seller being a marketplace AMC.
Rati: All being healthy in that I'm talking about marketing generated opportunity to lead to eventually becoming a buyer or seller. So we feel pretty optimistic one of the things that we also look at journey.
Rati Sahi Levesque: Yeah, you know, I think your kind of observations are correct. We saw our average order value go up about 8%. We saw the average selling price also go up, as well as UPT, so, and you saw that our consigned revenue is growing about 13% year over year. So, we feel, you know, pretty optimistic. One of the things that we also look at during this time is the average selling price. So, if the consumer is being a little more cautious in what they're buying, sometimes we'll see the average selling price go down a bit.
Rati Sahi Levesque: Time is average selling price so if they can see humor.
Rati Sahi Levesque: A little more cautious in what they are buying sometimes youll see average selling price go down a bit so something that we're watching.
Rati Sahi Levesque: To see that too much in Q1, but we're continuing to watch that but I will say we are cautiously optimistic right now we feel really we feel pretty good about the trends there.
Rati Sahi Levesque: So, something that we're watching. We didn't see that too much in Q1, but we're continuing to watch that. But, you know, I will say we're cautiously optimistic right now. We feel really, pretty good about the trends there.
Speaker Change: Okay. That's terrific. Thanks a lot.
Speaker Change: My follow up question I, just kind of expand on what John was saying about.
Rati Sahi Levesque: Integrating automation and AI and I know you've been doing that for quite some time and your authentication centers.
Marvin Milton Fong: Okay, that's terrific. Thanks, Rati. And my follow-up question, I just, you know, just kind of expand on what John was saying about, you know, integrating automation and AI. And I know you've been doing that for quite some time in your authentication centers. But just, you know, wondering, you know, as you work more on introducing AI and automation into specifically like pricing and the sales efforts, you know, is that, is that a measurable improvement you're seeing or think you will see from integrating AI into sort of, you know, setting prices and how dynamic?
Marvin Milton Fong:
Marvin Milton Fong: Wondering you know as you work more on introducing AI and automation into specifically like pricing and the sales effort is that is that a measurable improvement youre seeing or think you will see from integrating AI into sort of setting prices and how dynamic you can adjust that.
Rati Sahi Levesque: Yeah, Marvin, so, when I zoom out for a second, I think about where we can enable AI, and we always kind of focus on our mode, you know, being a supply-constrained business, authentication is a big one for us, so around supply and operations mostly. So, I will say pricing is a big one. We're definitely seeing the impact, like-for-like items, getting smarter about how we price there. On the sales side, getting smarter about who we're calling and when, so targeting the right seller at the right time, we're testing our way into that. Those are a little bit earlier stages.
Rati: Yes, Marvin so.
Rati Sahi Levesque: For a second and think about where do we enable AI and we always tend to focus on our note.
Rati Sahi Levesque: Hi, constrained business authentication is a big one for us.
Rati Sahi Levesque: So around supply and operations, mostly so I will say.
Rati Sahi Levesque: <unk> is the big one we're definitely seeing the impact like for like items getting smarter about how we price there on the sales side.
Rati Sahi Levesque: Getting smarter about who we're calling and win so targeting the right seller at the right time, we're testing our way into that those are a little bit earlier stages of application in pricing we have been.
Rati Sahi Levesque: That has been impacting our business directly.
Speaker Change: Farther along in that area Youre going to hear us talk about accelerated inbounds over the next few quarters, we think theres a lot of opportunity in inbound and efficiencies there and really leveraging AI in there as well. So I don't know I missed anything no I think you nailed it we have been known for doing it brought litigation in pricing as you talked about.
Rati Sahi Levesque: From a sales perspective, instead of saying here's your laundry list of people to call on any given day now what we're giving is our sales folks rank order less based on web activity historical trends.
Rati Sahi Levesque: People can sign with us before.
Rati Sahi Levesque: Maybe it was really hot right now we would like them to go back to those can signers as a for instance, the other areas of real way of reducing costs from a customer support perspective, what we're trying to do is make sure we more intelligently route the customers as we can.
Rati Sahi Levesque: Signers, especially need to be high touch that's why we invested in the concierge spots before but there is a lot of opportunity is where's my order, we don't necessarily need to have a human spend a lot of time on that kind of thing that sounds obvious, but we're getting more and more intelligence as we try to reduce costs in the customer service area for what I would call Roche questions and answer.
Rati Sahi Levesque: We don't necessarily need to have a human spend a lot of time on that kind of thing. That sounds obvious, but we're getting more and more intelligent as we try to reduce costs in the customer service area for what I would call rote questions and answers.
Rati Sahi Levesque: Got it. Thanks so much, Rati and John. I appreciate it. Thanks, everyone. Thanks, Marvin.
Rati Sahi Levesque: Yes.
Speaker Change: Got it thanks, so much Rob and John I appreciate it thanks, everyone. Thanks Marvin.
Operator: Thank you. Please stand by for our next question. Our next question will come from Ike with Wells Fargo. Go ahead, Ike.
Speaker Change: Thank you please standby for our next question.
Ike: Hey, how are you guys doing? Congratulations on the Quarter. Here's two for me.
Operator: Our next question will come from Ike <unk> with Wells Fargo go ahead.
Ike: I would love if there's any color you guys can offer either for the year, or the remainder of the year, on the gross margin line. Is this kind of in some way like the new normal that you guys are putting up in Q1, or is this some seasonality we should think about? And then just when I look seasonally at the business from an even DA perspective, it kind of feels like 2Q should be better than the guide you guys are giving.
Ike: Hey.
Ike: Hey, guys. Congrats on the quarter just two for me I would love if theres any color you guys can offer either for the year remainder year on the gross margin line is it is kind of.
Ike: And somebody like the new normal that you guys are putting up in Q1 or is there. Some seasonality. We should we should think about and then just when I look seasonally at the business from an EBITDA perspective kind of feels like.
Ike: <unk> should be better than the guide you guys are giving and maybe it's just conservatism just just looking at it historically that it usually I think the losses are better sequentially. So I guess I'm just trying to understand is there anything funky in the second quarter versus what you guys put up or is this just conservatism which is great.
Ike: And maybe it's just conservatism, just looking at it just historically, that it usually, I think the losses are better sequentially. So I guess I'm just trying to understand, is there anything funky in the second quarter versus what you guys just put up? Or is this just, you know, conservatism, which is great? Just those two. Those are my two questions. I can take that.
Speaker Change: Those are my three questions.
Ajay Gopal: I can take that. Hi, I'm OJ. Thanks for the question.
Ike: Yeah.
Ike: I can take that hi, this is Jay thanks for the question.
Ajay Gopal: Gross margin, what I would say there is, you know, Q1 was really strong. We reported 74.6% gross margin, which, as we pointed out, is the highest ever we've seen in the business. That was because it benefited from the percentage of direct GMV, which, as you know, has an impact on our reported gross margin rates. So the mix was favorable in Q1. We also saw a benefit from continued expansion of consignment margins, which were also up significantly versus prior years.
OJ: Gross margin what I would say there is no Q1 was really strong we reported 74, 6% gross margin in that as you pointed out is the highest ever we've seen in the business that was that benefited from the percentage of direct.
Ajay Gopal: Direct <unk>, which as you know has an impact on our reported.
Ajay Gopal: Margin rates. So the mix is favorable in Q1, we also saw a benefit from continued expansion of consignment margins, which were also up.
Ajay Gopal: Pretty noticeably versus Atlas surprise I would say.
Ajay Gopal: I would say, I'd say you should expect us to be in somewhere close to this range, very, you know, plus or minus a couple of points, depending on things like the mix, as I pointed out, and business dynamics through the course of the year. Your second question was about Q2 and how we're thinking about it. So going from Q1 to Q2, there are a couple of things that are reflected as you look at our guidance.
Ajay Gopal: I'd say you should expect us to be in somewhat close to this range.
Ajay Gopal: Plus or minus a couple of points, depending on things like the mix as I pointed out.
Ajay Gopal: Business dynamics through the course of the year.
Ajay Gopal: Your your second question was on was on Q2, and how we're thinking about it.
Ajay Gopal: So going from Q1 to Q2, there is a couple of things that that are reflected as you look at our guidance.
Ajay Gopal: There is a, we always see Q2 being seasonally slightly smaller than Q1, and you'll see that reflected in our volumes. So our GMB shows that small sort of seasonal reduction that tends to happen in Q2. On the EBITDA side, we are looking at a couple of things that put some pressure on us. Most notably, these are not unique to us. We have salary increases like most other companies. We do that every year at this time.
Ajay Gopal: There is a we always see Q2 being seasonally slightly smaller than Q1, and youll see that reflected in our in our volumes. So our GMB shows that shows that small sort of seasonal reduction that has to happen in Q2.
Ajay Gopal: On the EBITDA side. We are we are looking at a couple of things that put some pressure on us most notably these are not unique to us like we have.
Ajay Gopal: We have salary increases like most other companies we do that every every every year at this time, so that puts a little bit of pressure on Q2 versus Q1.
Ajay Gopal: So that puts a little bit of pressure on Q2 versus Q1. But more importantly, and this has been discussed in the past, we have some operational investments that we are planning on investing in. These are things that will drive efficiencies in our operations and help us expand margins longer term. So some of that is reflected in our Q2 guidance.
Ajay Gopal: More importantly, and I think this was discussed in the past we have some operational investments that we are that we're planning on investing in these are things that will drive efficiencies in our operations and help others to help us expand margins longer term. So some of that is reflected in our Q2 guidance as well.
Speaker Change: Thanks, so much.
Operator: Please stand by for our next question. And our next question comes from Ashley Owens, from KeyBank Capital Markets. Go ahead, Ashley.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Operator: And our next question comes from Ashley Owens Keybanc capital markets go ahead Ashley.
Ashley Anne Owens: Hi, this is Chandana speaking for Ashley today. So my first question is just any updates. I know it's early, I think the capability just launched this quarter, but maybe just looking at the opportunity for like dropship consignment as a side business there and maybe from expanding supply as well, from that perspective as well.
Speaker Change: Hi, This is <unk> on for Ashley today. So my first question is just any update I know, it's early I think the capability just launched this quarter, but maybe just looking at the opportunity for like drop ship consignment as a side business, there and maybe from expanding supply as well from that perspective as well.
Rati Sahi Levesque: Yes, thanks, Sean. I can take that question.
Ashley Anne Owens: Yes, Thanks, Shawn Giordano I can take that question.
Rati Sahi Levesque: Yeah, you know, we're always looking at new channels for supply. So I think that's, you know, the important part here, dropship being an example of that, continuing to bring trust to our consumers and focus there, whether that's dropshipping or watches, whether it's international, looking at other partnerships as well. I'd say we're in the super early days with dropship. You know, we're happy with the launch, but we're continuing to be optimistic about where we're going.
Sean: Yes, we're always looking at new channels for supply. So I think that's the important part here drop shipping an example of that continuing to be.
Rati Sahi Levesque: Bring trust to our consumers and focus there whether thats drop ship for watches whether it's international part looking at other partnerships as well I'd say, we're super early days with drop ship.
Rati Sahi Levesque: We're happy with the launch but it will.
Rati Sahi Levesque: We're continuing to be optimistic on where we're going we're really thinking about this as a new channel strategy. So for watches for example, and how do we expand that market into men's watches.
Rati Sahi Levesque: We're really thinking about this as a new channel strategy, so for watches, for example, and how do we expand that market into men's watches. So, again, super early stages. I don't want to share too much on how that's been performing, but we'll definitely keep you posted. But, again, really, the focus is new channels, new supply channels in general as we get back to growth.
Rati Sahi Levesque: So again Super early stages, I don't want to share too much on where we're on with how that's been performing but we'll definitely keep you posted but again really the focus is new channels, new supply channels in general and as we get back to growth again.
Ashley Anne Owens: And I might have just missed this also, but could you kind of talk us through where the upside came in for this quarter within EBITDA and just a refresh on anything that we should be considering there? I know in the past you've mentioned things like shipping margins, other efficiencies potentially within inventory or transport. So just kind of a refresh on all of that.
Speaker Change: Awesome. Thank you and let me just also but could you kind of talk us through where the upside came up with this quarter with an EBITDA and just to refresh on anything that we should be considering there I know in the past you've mentioned.
Ashley Anne Owens: Like shipping margins other efficiencies potentially with an inventory of transport. So just kind of refresh on the all of that.
Kevin: Kevin, sorry, this is Kevin. The question is operational efficiencies and where we're investing. Was that the question? Uh, yeah.
Ashley Anne Owens: Sorry. This is David the question is on operational efficiencies and where we're investing was that the question.
Kevin: Yes, and also kind of just what happened with EBITDA this quarter to kind of bring it in a little bit higher than expected.
Kevin: Yes, and also kind of just what.
Kevin: Happens with EBIT this quarter to kind of bring it down a little bit higher than expected.
Ajay Gopal: I can, I can talk to that Shannon. This is, this is Ajay here.
J: I can I can talk about kind of know how this is this is a J here. So when you look at our reported results in Q1 and compared to compared to where our guidance was a couple of things I would draw your attention to first half volume we had a really strong start to the year and you can see that reflected in the fact that our GM.
Ajay Gopal: So when you look at our reporter results in Q1 and compare them to, you know, where our guidance was, there's a couple of things I would draw your attention to. First off, volume. We had a really strong start to the year, and you can see that reflected in the fact that our GMV came in higher than our sort of anticipated range on guidance. So that was a source of strength for us.
Ajay Gopal: Lee came in higher than our set of assets and a range.
Ajay Gopal: We had strong supply coming into the air, and we had, and we saw that supply sell through very, very nicely through the quarter. The other thing that led to upside for us was our gross margin. As I pointed out earlier, we came in at a record high gross margin percentage, and that was driven by the mix of direct versus consigned, which was also another source of strength for us in the quarter.
Ajay Gopal: Guidance.
Ajay Gopal: So that was a source of strength for us we had strong supply coming into the year and we had and we saw that supply sell through very well.
Ajay Gopal: Nicely through the quarter.
Ajay Gopal: The other thing that.
Ajay Gopal: Lead to upside for US is our gross margin as I pointed out earlier, we came in at a record high.
Ajay Gopal: Gross margin percentage and that was driven by by the mix of direct versus consigned.
Ajay Gopal: Which was also another source of strength for us in the quarter.
Ajay Gopal: The last thing I would point to is, you know, I there's a there's great operating discipline around how we manage our operating expenses. You know, I'm new here, and I see the team's doing a phenomenal job and sort of being very thoughtful about where we invest and what returns we're getting for those investments. So the cumulative effect of that sort of operating rigor really came through in our Q1 results. Awesome, thank you.
Ajay Gopal: The last the last thing I would point to is.
Ajay Gopal: It does it does this does great operating discipline around how we manage our operating expenses.
Ajay Gopal: E R and I see I see the team is doing a phenomenal job instead of being very thoughtful about where we invest and what returns we're getting for those investments. So the cumulative effect of those set up that operating rates already came through in our Q1 results as well.
Ajay Gopal: Awesome. Thank you.
Ajay Gopal: Okay.
Ajay Gopal: Yes.
Operator: Please stand by for our next question, and our next question will be with Anna from NEDAM. Please go ahead, Anna.
Ajay Gopal: Please standby for your next question and our next question will be with.
Anna: <unk>. Please go ahead.
Anna: Great. Thanks, so much and congrats nice results two quick ones from US first youre guiding for Dnb acceleration at the high end for the second quarter. So can you talk about what's driving that compares easier. So that's probably part of that but what are you seeing in the.
Anna: So can you talk about what's driving that? Comparing is easier, so that's probably a part of that. But what are you seeing in the business quarter to date as well? And secondly, in the past, you mentioned mid-value was pressured a bit. How did that perform in the first quarter? And how do you think about that as we go through the year?
Anna: Business quarter to date as well and secondly in the past you mentioned mid value was pressured a bit how did that perform in the first quarter and how do you think about that as we go through the year. Thanks, so much.
Rati Sahi Levesque: Thanks so much.
Rati Sahi Levesque: Hi Anna, this is Rati. So your first question on GMV acceleration in Q2 is just how we're thinking about demand in general. As you know, it's all about supply, and supply is quite healthy right now, and I just talked a little bit about that, really targeting the sellers that matter, that have the right mix, that have the right value, and bringing them into our ecosystem, and then keeping them via retention strategies.
Rati Sahi Levesque: Hi, Ana this is rajiv so your first question on GMB acceleration in Q2, just how we're thinking about demand.
Rati Sahi Levesque: Demand in general as you know, it's all about supply and supply is quite healthy right now and I, just talked a little bit about that really targeting the sellers.
Rati Sahi Levesque: That matter that have the right mix that have the right value and bringing them into our ecosystem and then keeping them via retention strategies.
Rati Sahi Levesque: So, you know, we feel really good about kind of the input that came in or the supply that came in in Q1, and that helps us kind of lead into Q2. Like, it takes a couple of weeks to get that item processed, get it on the site, and so we have some indicators there of what Q2 will look like. And then on the mid-value supply, yes, you heard us talk about mid-value, and back in the day when we made all those commission changes, we had to really kind of make sure that we tweaked the commission changes based on mid-value, because in the past, we had seen that drop.
Rati Sahi Levesque: So we feel really good about kind of the input that came in or the supply that came in in Q1 and that helps us kind of bleed into Q2 like it takes a couple of weeks to get that items process get it on the site.
Rati Sahi Levesque: And so we have some indicators there of what Q2 will look like.
Rati Sahi Levesque: And then on the mid value supply, yes, you heard us talk about mid value and back in the day. When we made all those commission changes we had to.
Rati Sahi Levesque: Really kind of make sure that we tweak the commission changes based on the value because in the past we've seen that dropping I will say that that's in a much better position, we continue to kind of.
Rati Sahi Levesque: I will say that it's in a much better position. We continue to kind of optimize and personalize our promotional strategy to go after that mid-value supply. So, yeah, overall, I mean, at the end of the day, it's kind of a three-legged store between retail, marketing, and sales, and we kind of have to get all of these things firing at the same time and the tactics kind of in line to focus on quality and, again, the right seller to bring in the right mix of product, which we're seeing in Q1.
Rati Sahi Levesque: Optimize and personalize our promotional strategy to go after that mid valley supply.
Rati Sahi Levesque: So yes overall I mean, you know at the end of the day, it's kind of a three legged store between retail marketing and sales.
Rati Sahi Levesque: And we kind of have to get all of these things firing at the same time and the tactics kind of in line.
Rati Sahi Levesque: On quality and again, the right seller to bring in the right mix of product, which we're seeing in Q1.
Rati Sahi Levesque: All right, terrific. Thanks so much. Thank you for your questions.
Speaker Change: Alright terrific. Thanks, so much.
Operator: Thank you for your questions. Please stand by for our next question. And our next question comes from Mark with Baird. Go ahead, Mark.
Speaker Change: Thank you for your questions. Please standby for our next question.
Operator: And our next question comes from Mark <unk> with Baird go ahead Mark.
Mark: Good afternoon. Thank you.
Mark: Good afternoon. Thank you.
Mark: First, I wanted to follow up on the supply topic just to understand it a little bit better. With GMV returning to growth, is this a function of the mix with higher value items? Are you seeing more volume from existing sellers? Are you seeing an acceleration of new sellers on the platform? Maybe it's a function of each of those things, but just any help to sort of unpack that a little bit more so we can understand the key drivers there would be great.
Mark: First I wanted to follow up on the supply topic, just to understand it a little bit better.
Mark: With the <unk> returning to growth.
Mark: Is this a function of mix with higher value items are you seeing more volume from existing sellers are you seeing an acceleration of new sellers on the platform, maybe it's a function of each of those things, but just any help to sort of unpack that a little bit more so we can understand really the key.
Rati Sahi Levesque: Yeah, sure, Mark. So, you know, just kind of following up on what I was saying earlier about retail marketing and sales kind of all working together. It is a function of both. It's about retention and acquisition when we're thinking about growth. So not only are we seeing better volume or better retail value coming from each of our sellers, but we're also onboarding the right sellers with more value and more mix. So, you know, it's better retail value coming from each of our sellers, but we're also onboarding the right sellers with more in the past. I think we've talked about, you've heard us talk about focusing the sales team not only on units but retail value as well.
Speaker Change: So that would be great.
Speaker Change: Yes, sure Mark So just kind of following up on what I was saying early earlier about retail marketing and sales kind of all working together and as a function of both it's about retention and acquisition as we're thinking about growth. So not only are we seeing better volume.
Rati Sahi Levesque: Better retail value coming from each of our seller, but we're also onboarding the right sellers.
Rati Sahi Levesque: With more value and more mix so.
Rati Sahi Levesque: Pat I think we talked about you've heard us talk about.
Rati Sahi Levesque: Focusing the sales team not only on units, but retail value as well, so making sure that we have the right volume and the right product to sell so thats one of the things we're doing on the marketing side. They are also looking at the same thing they are being much more effective.
Rati Sahi Levesque: So we make sure that we have the right volume in and the right product to sell. So that's one of the things we're doing. On the marketing side, they're also looking at the same thing. But they're being much more effective here. They know when to target the sellers at what time. High value is a good example of that. If we need more fine jewelry or watches, we know who to target and when at the right time.
Rati Sahi Levesque: When you target the sellers at what time high value is a good example of that if we need more fine jewelry or watches, we know who to target and win at the right time, So just continuing down that path.
Rati Sahi Levesque: So, you know, just continuing down that path, the stores are also, you know, it's about meeting the seller where they are and making sure that the stores are doing their jobs as well as far as drop in goes. And we're seeing more high-value come in through the stores. And, you know, there's other things and other factors going in. I think in the past, you've heard us talk about retention. The retention numbers on the sales side look, you know, better than they ever have. honestly
Rati Sahi Levesque: Our stores are also about meeting the seller, where they are and making sure that the stores are doing their jobs as well as far as drop in those and we're seeing more high value come into the story.
Rati Sahi Levesque: And you know there is other things and other factors going in I think in the past you've heard us talk about retention the retention numbers on the sales side look better than they ever have honestly, so that theyre getting some upside there we've launched referral and affiliate programs that are also working really well.
Rati Sahi Levesque: So we're getting some upside there. We've launched referral and affiliate programs that are also working really well. And we're feeling good about that, you know; we're to testing our way into these things. And now you're starting to see some of that work. And then on the tech side, it's about enabling the sales team and getting smarter and more efficient there as well. So there are a few different things working together here. And we know the TAM is there. We know it's big. We know reseller's growing faster, and so we're going to kind of continue to kind of optimize that.
Rati Sahi Levesque: We're feeling good about that.
Rati Sahi Levesque: Our way into these things and now Youre seeing starting to see some of that work and then on the tech side, its about enabling the sales team and getting smarter.
Rati Sahi Levesque: And more efficient there as well so there's a few different things working together here and we know the Tam is there we know it's big we know re.
Rati Sahi Levesque: <unk> is growing faster.
Rati Sahi Levesque: So we're going to kind of continue to kind of optimize that.
Mark: Thank you for that detail. Just to follow up then, active buyers down 9% year over year. Understand that that's a trailing metric. But as we think about just the overall GMV in the platform accelerating, how should we be thinking about that active buyer piece? Should that be trending back into positive territory, mid-single digit, and high-single digit territory as you drive the acceleration in GMV growth? I know it's a supply-constrained marketplace, but maybe you could help us think through that metric and how you're engaging new buyers on the platform.
Speaker Change: Thank you for that detail.
Mark: Just a follow up then active buyers down 9% year over year understand that that's a trailing metric, but as we think about just the overall GNP and the platform accelerating how should we be thinking about that active buyer piece should that be trending back into positive territory.
Mark: Mid single digit high single digit territory.
Mark: As you drive the acceleration in GMB growth I know, it's a supply constrained marketplace, but just maybe help us think through.
Mark: That metric and how you are engaging new buyers to the platform.
Jay: Hi Mark. I think you said it best. It is a trailing 12-month metric, and as such, it is probably bearing some weight from the business changes that have been made over the last 12 months. We look at orders, which we think is a really good sort of forward-looking metric, and orders growth accelerated quite significantly from where it was in Q4, and we would expect to see that trend slowly make its way into our active buyer numbers as we sort of lap over the trailing 12-month nature of that metric.
Speaker Change: Hi, Mark I think you I think you said it best at is a trailing 12 month metric.
Jay: As such it is it is probably bearing a lot of it's bearing some weight from the business changes that were made over the last 12 12 months.
Jay: We look at I would point you to orders, which we think is.
Jay: Any good sort of forward looking metric and.
Jay: That orders growth accelerated quite significantly from where it was in Q4, and we would expect to see that trend slowly make its way into our active buyer numbers as we sort of lap over the trailing 12 month nature of that that metric.
Speaker Change: Thank you.
Operator: Thank you, and please stand by for our next question.
Speaker Change: Thank you and please standby for our next question.
Operator: Okay.
Operator: And our next question comes from Jay sole with UBS go ahead Jay.
Speaker Change: Great. Thank you so much I'm just curious how you saw the competitive landscape evolve over last quarter.
Speaker Change: Have you seen your position to prove have you seen new competitors come in and exit love any thoughts you have about it. Thank you.
Rati Sahi Levesque: Yeah, thanks, Jay. You know, we're always watching. You know, we try not to be so insular in general, and we're always looking to see what others are doing and how we can always improve at the end of the day. We do awareness studies and competitive analysis regularly by our brand and marketing team. I'll say, you know, our takeaway from our last one and the most recent one that we did was that we kind of need, really need to double down on our core business, and we really need to focus on the trust that we've built with the consumers.
Mark: Yes, Thanks Jay.
Rati Sahi Levesque: We're always watching.
Rati Sahi Levesque: We try not to be so in pillar <unk>.
Rati Sahi Levesque: General and we're always looking to see what others are doing and how we can always improve at the end of the day.
Rati Sahi Levesque: We do awareness studies and key competitive analysis is regularly by our brand and marketing teams.
Rati Sahi Levesque: Our takeaway and our last one in most recent one that we had done was that we really need to double down on our core business and we really need to.
Rati Sahi Levesque: Focus on the trust that we built with the consumers.
Rati Sahi Levesque: So, you know, you've heard Koryl talk about things like the concierge pods and really listening to the consumer and making sure that we are offering the pricing transparency that they need. For example, relationships, the full service experience that we offer, being the leaders in the marketplace around pricing.
Speaker Change: So you've heard <unk> talk about things like the concierge pod and really listening to the consumer and making sure that we are offering pricing transparency that they need for example relationships to full service experience that we offer being the leader and in the marketplace around pricing. So that's what I mean.
Rati Sahi Levesque: By pricing transparency, so just continuing down our path.
Rati Sahi Levesque: Really what we're talking about is our team as we starting to like.
Rati Sahi Levesque: Really solidify our LRB over the next three years.
Speaker Change: Got it thank you so much.
Operator: Thank you for your question. Please stand by for our next question. And our next question comes from Tom with Wedbush. Go ahead, Tom.
Speaker Change: Thank you for your question.
Tom: <unk> for our next question.
Operator: And our next question comes from Tom with Wedbush Go ahead Tom.
Tom: Hey everyone, thanks for taking my question. I hopped on the call late. I'm sorry if this has been asked already.
Tom: Hey, everyone. Thanks for taking my question I hopped on the call late I'm sorry, if this has been asked already.
Tom: I'll ask about the gross margin and.
Tom: Your consignment gross margin was extremely extremely strong I mean, I think it was.
Tom: I want to ask about the gross margin, and your consignment gross margin was extremely, extremely strong. I mean, I think it was, you know, in the high 80s. Is that kind of like as good as it could possibly get? Like, is there a chance that, you know, we could eventually see a consignment gross margin of 90 plus percent? Or like, are we kind of, you know, with all the changes you've made? Is that sort of, you know, what we should think of as the upper bound for gross margin?
Tom: In the high eighties.
Tom: Is that kind of like as good as it can possibly get.
Speaker Change: There is a chance that like we could eventually see like a can.
Tom: Finally, gross margin of 90 plus percent or like are we kind of.
Tom: With all the changes that you made is that sort of what we should think of as the upper bound for gross margin.
Ajay Gopal: Hi, Tom. This is Ajay here. We didn't talk about this, so your question is very timely. Thanks. I think there's still room in our consignment gross margin. We are looking at a lot of operational efficiencies that we're looking to drive through our margin structure, and those will make their way into continuing to expand our gross margins for the consignment business going forward. But to your point, we do believe that the gains going forward will be more incremental. So there's more that we can go after, but we feel really good about where we are today and the gains we've seen over the last year and a half.
Tom: Hi, Tom This is Jay here.
Ajay Gopal: We didn't talk about this in your question is very timely.
Ajay Gopal: I think there's still room in our consignment gross margin.
Ajay Gopal: We're looking at.
Ajay Gopal: A lot of operational efficiencies and effort that we're looking to drive.
Ajay Gopal: Through our margin structure and those will make their way into into continuing to expand our gross margins for the consignment business going forward.
Ajay Gopal: But to your point, we do believe that the gains going forward it'll be more incremental right there'll be.
Ajay Gopal: So there's more that we can go after but we feel really good about where we are today on the gains we've seen over the last year in hospital.
Tom: All right, great. And I could follow up on Jay's question about the competitive landscape. You know, when you look at the primary market, you know, for luxury goods, it seems like it's become far more volatile recently. Are you getting any sense that like, you know, you're starting to maybe benefit from some trade down and, you know, the higher end shoppers are becoming a little more price conscious and maybe Pivoting towards the RealReal as a result?
Speaker Change: Alright, great and if I could follow up on Jamie's question about the competitive landscape.
Tom: When you look at the primary market for luxury goods I mean, it seems like its become far more volatile.
Tom: <unk>.
Tom: Are you are you getting any sense that like youre, starting to maybe benefit from some trade down.
Tom: The higher end shoppers, becoming a little more price conscious and maybe.
Tom: Pivoting towards the real real as a result.
Rati Sahi Levesque: Yeah, Tom, you know, same answer as before: we always see kind of puts and takes, like higher-end brands doing really well, like Hermes and Brunello and Miu Miu, which right now has some strong momentum. And then you see some brands, you know, kind of losing, losing a little less market share. But I would say that that is something that we always see.
Speaker Change: Yes, Tom.
Rati Sahi Levesque: Same same answer as before.
Rati Sahi Levesque: We always see kind of puts and takes like higher end brands doing really well like or Mezz Brunello <unk> right now has the strong momentum.
Rati Sahi Levesque: And then you see some brands kind of losing.
Rati Sahi Levesque: Listening a little less kind of market share, but I would say that that is something that we always see and we take that into consideration when we're pricing.
Rati Sahi Levesque: And we take that into consideration when we're pricing items, depending on what's happening. I think the kind of interesting thing for us, or our advantage, is that we are pretty diversified in our mix, category, and brand. So that helps us there. And then we have that flexibility, right in pricing. So, you know, yes, we are continuing to look. The last time we saw a little more pressure, how it came out was around pricing and the consumer being a little more cautious in their price targets.
Rati Sahi Levesque: On what's happening I think the interesting thing for US are our advantages that we are pretty diversified in our mix.
Rati Sahi Levesque: Category and brand so that helps us there and then we have that flexibility right in pricing so.
Rati Sahi Levesque: Yes, we are continuing to look the last time, we saw a little more pressure how it came out was around pricing and exit consumer being a little more cautious in their price.
Rati Sahi Levesque: Targets and so we'll continue to watch that but at this moment and in Q1.
Speaker Change: Haven't seen that yet.
Tom: Understand? All right.
Speaker Change: Understood Alright, thanks, Rob.
Speaker Change: Thanks, a J, thanks, Carl and best of luck the rest of the year.
Speaker Change: Thank you.
Tom: Thank you everyone. This will conclude our question and answers session now I'd like to turn it over to CEO, John <unk> for closing remarks.
Tom: Thanks, Rati. Thanks, Ajay. Thanks, Koryl. And best of luck for the rest of the year.
Operator: Thank you, everyone. This will conclude our question and answer session. Now, I'd like to turn it over to CEO John Koryl for closing remarks.
Tom: Yes.
John E. Koryl: Thank you for joining us today. Before closing the call, we'd like to thank our entire team for delivering a strong start to 2024. To the RealReal team, simply, thank you. Your relentless effort in delivering world-class service to our consignors and buyers is truly inspiring. We are playing to our strengths, and we are uniquely positioned to capitalize on the growing luxury resale space. We also want to thank our more than 36 million members as they join us on our mission to extend the life of luxury and make fashion more sustainable.
Speaker Change: Thank you for joining us today before closing the call we'd like to thank our entire team for delivering a strong start to 2024, so the real real team simply thank you.
John E. Koryl: Our relentless effort in delivering world class service to our consignor and buyers is truly inspiring we are playing to our strengths and we are uniquely positioned to capitalize on the growing luxury resale space. We also want to thank our more than 36 million members as they join us on our mission to extend the life of luxury and make fashion more so.
John E. Koryl: <unk>.
Speaker Change: Thank you all.
Operator: And thank you, everyone. Thank you for participating in today's conference call. This does include the program. You may now disconnect.
Speaker Change: Have a great day.
Speaker Change: And thank you everyone. Thank you for your participation in today's conference call. This does conclude the program you may now disconnect.
Operator: You have been removed from the call. Goodbye.
Speaker Change: You have been removed from the comp goodbye.
Operator: Okay.
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