TheRealReal, Inc. Q3 FY2024 earnings call

• GMV, revenue, and adjusted EBITDA exceeded expectations for the third quarter, with GMV growing 6% vs last year, revenue up 11%, and adjusted EBITDA at $2.3 million.
• Revenue was driven by strength in consignment revenue, up 14% vs last year and over 20% on a 2-year basis.
• Achieved positive free cash flow for the quarter. Supply metrics were strong with units and value increasing.
• The growth playbook focuses on sales, marketing, and retail: sales team with luxury managers driving supply, marketing leveraging social media and annual resale report for engagement, retail stores generating supply and awareness with 16 locations and plans to open more.
• Operational excellence efforts include leveraging AI and data assets to improve authentication, processing speed, and pricing, reducing processing time by over 10% in 2023 through automation.

Third quarter GMV was $433 million, growing 6% versus last year. Revenue was $148 million, up 11%. Consignment revenue was up 14% year-over-year. Gross profit was $111 million, with gross margin at 74.9%, an increase of 430 basis points versus the third quarter last year. Adjusted EBITDA was $2.3 million. Consignment revenue contributed significantly to the revenue growth, making up a higher percentage of total revenue, and the take rate improved to 38.6%. Active buyers on a trailing three-month basis increased 7% to 389,000.

• Raised full year guidance. Q4 GMV expected in the range of $484 million to $500 million (9% growth vs prior year midpoint), full year GMV range $1.81 billion to $1.826 billion.
• Fourth quarter revenue expected $158 million to $165 million, full year revenue $595 million to $602 million.
• Fourth quarter adjusted EBITDA expected between positive $6.5 million and $9.5 million, full year adjusted EBITDA $4.7 million to $7.7 million.

During the call, it was noted that forward-looking statements involve known and unknown risks and uncertainties, and actual results may differ materially from those suggested in such statements. Specific risks related to operational or market factors were not extensively detailed in the provided transcript but are generally implied by forward-looking nature.

Q: Guidance implies continued acceleration in GMV in Q4. Can you give additional context on supply trends or other factors giving confidence in that outlook? And any new strategic initiatives?

A: Rati Levesque stated supply is healthy, driven by sales (high retention, good compensation structure), marketing (personalization, targeting mid/high-value consignors), and retail (halo effect, high average selling price). Strategic initiative is the existing growth playbook working, with focus on being supply-driven and continuing to scale it.

Q: On gross margin, any further opportunity beyond 2024?

A: Ajay Gopal said mix may have small impact on margins going forward, but they feel good about current position and expect margins to stay in similar range.

Q: Update on AOV year-over-year growth and growth in volume vs AOV in Q4?

A: Rati Levesque mentioned the business is resilient, demand is strong, with focus on value and luxury intersection. Tactics include showing primary list price on product listings. Marketing spend expected to be higher in Q4 due to holiday season but with efficiencies.

Q: How does RealReal differ from luxury brands facing weaker results, especially with Chinese consumer exposure?

A: Rati Levesque said RealReal has a resilient business model, different from primary market, with strong supply due to growth playbook (sales, marketing, retail) and focus on value, trust, and service.

Q: Thoughts on incremental margin flow-through and returns?

A: Ajay Gopal said they have a path to growing dollars and margins, with strong flow-through on growth due to gross margin focus and operational excellence. Rati Levesque said return rate improvement was driven by mix and operational efficiencies, and return insurance is in testing with early uptake.