TheRealReal, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Growth Playbook:
  • Sales Team: Optimized incentive structure, achieving 15% higher supply value per luxury manager, lower attrition, and higher retention. Rolled out SmartSales AI initiative to target consignors.
  • Marketing: Refined channel investments to target high-value consignors, leveraging social channels and holiday campaigns to drive awareness and sign-ups.
  • Stores: Neighborhood stores in affluent areas contributed 25% of new consignors in 2024; added two stores in Q4 2024 in Miami and Houston.
• Operational Efficiency: Used AI to cut processing time by over a day. Launched Athena AI initiative to optimize authentication and item launch processes, aiming to touch almost half of items in authentication centers by year-end.
• Obsess Over Service: Launched Obsession Sharing feature for buyers. Focused on reducing consignment friction, with 85% of units using AI-driven pricing engine to ensure items fetch the highest market price.

Segment Performance

• Q4 2024: GMV was $504 million, up 12% year-over-year. Revenue was $164 million, up 14%. Gross profit was $122 million with a gross margin of 74.4%. Adjusted EBITDA was $11 million. Active buyers on a trailing three-month basis were up 7% to 408,000, and AOV in Q4 was $579.
• Full Year 2024: GMV totaled $1.83 billion, up 6% year-over-year. Revenue was $600 million, up 9%. Gross profit was $448 million with a gross margin of 74.5%. Adjusted EBITDA was $9.3 million. Consignment revenue was up 14%, active buyers on a trailing 12-month basis were up 5%, and free cash flow was positive $1 million.

Guidance

• 2025 Outlook:
  • Full year GMV projected $1.96 billion to $1.99 billion (8% growth midpoint). Revenue expected $645 million to $660 million (9% growth midpoint). Adjusted EBITDA expected $20 million to $30 million.
  • Q1 2025: GMV $484 million to $492 million (8% growth midpoint), revenue $157 million to $161 million (11% growth midpoint).
  • Capital expenditures expected 2%-3% of total revenue, with operating cash flow and free cash flow back half rated. Strategic debt transaction in February 2025 reduced total indebtedness by $37 million.

Risks

• No detailed risk discussion, but general forward-looking statement risks mentioned about actual results differing from projections.

Question and Answer

• Q: Ike Boruchow on cash flow and marketing spend
  • A: No explicit cash flow guidance, but trends expected to continue. Marketing spend showing leverage, with focus on balancing investments in sales, stores, and marketing.
• Q: Bobby Brooks on supply growth and active buyers
  • A: Supply growth driven by marketing, sales, and retail; 25% new consignors from retail. Active buyers sticky, with $5k+ spend up 20% year-over-year.
• Q: Jay Sole on sales team efficiency
  • A: Sales team productivity up 15%, with highest reps bringing in $10M+ annually; AI initiatives to further enhance productivity.
• Q: Ashley Owens on store openings and SG&A leverage
  • A: Store openings expected 1-3 per year; SG&A leverage from variable sales costs and fixed G&A functions as the business grows.
• Q: Kunal Madhukar on revenue and G&A leverage
  • A: Direct revenue stable at 10%-15% of total revenue. G&A leverage from scaled infrastructure as business grows.
• Q: Bobby Brooks on AI in consignor experience
  • A: Athena AI to optimize authentication, item launch, and pricing, aiming to improve seller experience and buyer search