Q3 2024 RealReal Inc Earnings Call

In This Article:

Participants

Caitlin Howe; Vice President of Investor Relations; RealReal Inc

Rati Levesque; President, Chief Operating Officer; RealReal Inc

Ajay Gopal; Chief Financial Officer; RealReal Inc

Mark Altschwager; Analyst; Robert W. Baird & Co., Inc.

Ashley Owens; Analyst; KeyBanc Capital Markets Inc.

Robert Brooks; Analyst; Northland Capital Markets

Marvin Fong; Analyst; BTIG

Presentation

Operator

Good day. Thank you for standing by. Welcome to The RealReal third-quarter 2024 financial results conference call. (Operator Instructions) Please note that today's conference is being recorded.
I will now hand the conference over to your speaker host, Caitlin Howe, Senior Vice President of Finance. Please go ahead.

Caitlin Howe

Thank you, operator. Joining me today to discuss our results for the period ended September 30, 2024, are Chief Executive Officer and President, 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 uncertainties. 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 operating results in 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. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website.
I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal.

Rati Levesque

Thank you, Caitlin. Good afternoon, everyone, and welcome to The RealReal third-quarter earnings conference call. I'm honored to speak with you today as the new CEO of The RealReal. I've spent the last 13 years at this company working with some of the best, most talented people in the industry. We built the world's largest online marketplace for authenticated resale luxury goods on a foundation of trust, expertise, and unmatched customer service.
Our teams are executing well against the company's vision: to change the way people shop for the better. We are creating a unique circular shopping experience built on technical expertise and high-touch human service. I've been deeply involved with the foundational changes we've made to the business, and I'm looking forward to continuing to champion our strategies, obsessing over service, operational excellence, and scaling the business through our growth playbook.
I'm proud of the progress we've made, and I'm pleased to report strong third-quarter results. GMV, revenue, and adjusted EBITDA exceeded our expectations for the third quarter, increasing confidence in the momentum of our business and enabling us to raise our full-year guidance. Third-quarter GMV grew 6% versus last year, an acceleration from the second quarter. Revenue of $148 million increased 11%, driven by strength in consignment revenue, up 14% versus last year and an increase of more than 20% on a two-year basis.
We also achieved solid progress on our path to profitability. Third-quarter adjusted EBITDA of positive $2.3 million marks our second quarter of positive adjusted EBITDA, and importantly, we delivered positive free cash flow for the quarter. Supply metrics are strong, with both units and value increasing versus last year.
As we've highlighted before, we believe there's $200 billion in untapped value for luxury resale items in the US alone. Our growth is driven by unlocking that supply for our platform. Over the years, we built a unique multi-channel approach that includes luxury managers, stores and the power of our marketing to unlock the profitable supply. We refer to this approach as our growth playbook.
We often mention that we are a supply-constrained business. Essentially, what this means is that if we can procure the supply, we can sell it. Our lifetime sell-through rate is over 90%. Success in executing against our growth playbook relies on driving supply through three key areas: sales, marketing, and our retail stores.
The first of these key areas is our sales team, comprised primarily of our luxury managers. This team is responsible for building and maintaining relationships with our consignors and providing education about selling with the RealReal. Our luxury managers also serve as trusted consultants, helping to assess the value of their clients' current assets and advising on purchases of luxury goods in the primary market.
Our top luxury managers generate up to $10 million in supply annually through their client relationships. We've been working on providing them with the tools to do their jobs efficiently and we've created an incentive structure to drive profitable supply.
Recently, we launched our smart sales tool, which leverages consumer macro and other data points. The tool enables our sales team to understand which clients are most likely to consign at a given time and helps our luxury managers direct their efforts efficiently. Our sales and merchandising teams are able to curate our platform's assortment through tech capabilities.
We are enhancing the ways we leverage trend information and historical purchase and consignment data. We identify which brands and categories are in high demand, and mobilize our sales team to proactively pursue these items. We are seeing continued success with our sales team composition and incentive structure updates.
As we've previously discussed, we've shifted our luxury manager profile towards individuals with luxury experience and deeper existing connections with consignor target. In addition, we focused our sales team's incentive structure on GMV dollars versus units, which has contributed to our gross margin expansion. The benefit is showing up in our strong supply trends, top-line growth, and historically high retention rates for our sales team.
The second key for growth is marketing. As the first mover in our space, we have spent 13 years creating the ultimate intersection of luxury and value, approaching fashion from a position of real authority and real expertise. During the turnaround, we may have been a bit quiet in asserting our role in this space.
In 2024, we started leveraging social media platforms like TikTok and Instagram to engage customers and potential consignors. We recently doubled down on social content that makes complicated topics like authentication and sustainability feel relatable. Through these efforts, we've realized some of our highest engagement rates on post.
Furthermore, we recently published our annual resale report, which uses data to educate both the press and customers about industry trends. The resale report had seven times the engagement that we've seen previously, helping to showcase the brand's leadership in the luxury resale space. While perception and awareness are up, there's still more work we can do. We view this as an exciting opportunity to talk to customers about what differentiates the RealReal.
The third key area to growth is retail. Our stores offer a curated experience and provide consignors with access to experts for on-the-spot valuations for fine jewelry and watches. We are pleased with the performance of our fleet of 16 retail locations, affirming that the neighborhood store strategy is working. We position stores in areas where our consignors live versus being solely focused on traditional prime retail areas.
A unique aspect of our retail strategy is that the store's primary intent is to generate supply and drive awareness. We continue on the path of opening one to three stores per year in key markets and are looking forward to welcoming stores in Miami and Houston to our fleet later this year. So to recap, as a supply-driven business, our growth playbook is centered on generating supply, and we are driving results through our sales team, marketing and retail stores.
Moving to operational excellence. We continue to improve our operational efficiency, leveraging our robust proprietary data assets and AI capabilities to build trust and improve the customer experience.
In 2023, through increased automation, we reduced processing time by over 10%, while keeping headcount steady and supporting top line growth. Cost savings from this important work have expanded our margins and funded current-year investments that drive operational efficiencies.
For years, The RealReal has been a leader in authentication, with proprietary tools like Vision and Shield helping build customer trust. The work we've undertaken in 2024 is reshaping how we process items. We are leveraging AI and technology to improve speed and reduce human intervention. We use our robust data sets to help route items for authentication based on risk level to automate attribution and copywriting and to determine optimal pricing levels.
The majority of our items are now priced using our proprietary algorithms. Through incorporating historical sales data along with current fashion and pricing trends, we instill confidence that items will sell quickly and for the highest, fairest price.
The combination of human expertise and our wealth of data is an important differentiator. By pivoting our focus back to our core consignment business, improving our fixed cost structure, and lowering operational costs, we've enabled our return to growth and improved our unit economics.
GMV and revenue growth accelerated as we moved through Q3, and we're headed into the important fourth quarter with ample supply. As we enter the final quarter of the year, we're encouraged by the momentum we're seeing in the business. We're planning for strong Q4 sales and positive adjusted EBITDA for the year. It's clear that our growth playbook is working, with proof points in both top and bottom line.
The RealReal is positioned as the leader in the market with lots of room to scale. I'm excited about the future, but right now, we are heads down, focused on execution to close out 2024. I'd like to thank our team for their hard work throughout the quarter. I'm looking forward to delivering on our 2024 commitments and starting our next chapter of growth.
With that, I'll turn over the call to Ajay to discuss our financial results and outlook for the remainder of 2024.

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