The RealReal reported a return to top line growth in Q1 2024, the first time in three quarters, driven by double-digit growth in consignment revenue.
Q1 2024 saw the highest ever gross margin rate for the Ecompany, significantly improving bottom line results and adjusted EBITDA by $25 million year-over-year.
GMV and adjusted EBITDA for Q1 exceeded the high end of guidance, while revenue met the high end of guidance expectations.
The company provided positive guidance for Q2 2024 and updated full year guidance, raising the midpoint of the full year adjusted EBITDA range.
Strategic Focus and Initiatives
The RealReal is focusing on its core consignment business and driving efficiencies, which is contributing to its financial results.
Adjustments to sales team compensation and more targeted marketing spend are aimed at attracting higher lifetime value consigners.
The company is beginning to test new initiatives to grow its core business, with a focus on automation and AI to improve client experience and scale the business profitably.
It is projected to deliver positive adjusted EBITDA for the full year 2024, indicating strong momentum in the core business.
Market Position and Outlook
The RealReal is leveraging its position as a leader in the luxury resale market, focusing on growing consignment revenue and expanding margins.
The company aims to deliver exceptional experiences to consignors and provide outstanding luxury goods to buyers, with a positive outlook for continued momentum and growth.
Question and Answer
Health of the Consumer and Average Order Value
Question
Can you elaborate on the factors contributing to the increase in average order value and average selling price, and what this indicates about the health of the consumer?
Answer
The company observed an 8% increase in average order value, as well as growth in average selling price and units per transaction, suggesting a healthy consumer base.
Consignment revenue is growing, and the buyer and seller funnel appears healthy, with marketing-generated opportunities leading to conversions.
Impact of AI and Automation on Pricing and Sales
Question
How is the integration of AI and automation, particularly in pricing and sales efforts, expected to impact the business?
Answer
The company is seeing positive results from AI in pricing, with improvements in pricing strategy and dynamic adjustments.
AI is also being leveraged in sales to target the right sellers at the right time and improve efficiency.
The company is testing and refining these AI applications to drive further benefits.
Gross Margin and EBITDA Outlook
Question
Can you provide insights into the gross margin outlook for the remainder of the year and the factors influencing the second-quarter EBITDA guidance?
Answer
The first quarter saw a record-high gross margin of 74.6%, driven by a favorable mix of direct GMV and expansion of consignment margins.
The company expects gross margin to remain close to this level throughout the year, with potential fluctuations based on mix and business dynamics.
The second-quarter EBITDA guidance reflects the typical seasonality of a slightly smaller volume compared to the first quarter, as well as factors such as salary increases and operational investments.
Drop Ship Consignment and New Supply Channels
Question
Can you provide an update on the drop ship consignment capability and its potential impact on supply and the business?
Answer
Drop shipping is one of the new channels for supply the company is exploring, along with other initiatives such as watches, international expansion, and partnerships.
It is still in the early stages, and the company is optimistic about its potential as a new supply channel strategy.
The focus is on expanding supply channels in general to support growth.
Operational Efficiencies and EBITDA Performance
Question
Can you discuss the operational efficiencies and investments that contributed to the higher-than-expected EBITDA in the first quarter?
Answer
The strong first-quarter performance was driven by higher-than-anticipated volume, with strong supply and efficient sell-through.
Record-high gross margin, driven by a favorable mix of direct GMV, also contributed to the upside.
The company demonstrated operating discipline in managing expenses, leading to overall strong results.
GMV Acceleration and Mid-Value Supply
Question
What factors are driving the anticipated GMV acceleration in the second quarter, and how is the mid-value supply performing?
Answer
The GMV acceleration is attributed to healthy supply, successful targeting of high-value sellers, and effective retention strategies.
The mid-value supply is in a better position, and the company continues to optimize its promotional strategy to attract this segment.
Success in GMV acceleration relies on alignment and coordination between retail, marketing, and sales efforts.
Supply Growth Drivers and Active Buyer Trends
Question
Can you elaborate on the key drivers of supply growth, including the mix of higher-value items, volume from existing versus new sellers, and the impact of retention and acquisition strategies?
Answer
Supply growth is a result of both retention and acquisition strategies, with improvements in both volume and product value from sellers.
The company focuses on onboarding the right sellers with high-value items and optimizing its sales and marketing efforts to target them effectively.
Other factors contributing to supply growth include store drop-ins, improved retention numbers, successful referral and affiliate programs, and technology enhancements.
Active Buyer Trends and Engagement Strategies
Question
As the platform experiences acceleration in GMV, how should we think about the trend in active buyers and the company’s strategies for engaging new buyers?
Answer
Active buyers, as a trailing 12-month metric, are influenced by past business changes but are expected to improve as the company’s orders growth accelerates.
The company focuses on engagement and retention strategies, such as referral and affiliate programs, to attract and retain new buyers.
As the business continues to grow, active buyer numbers are expected to trend positively, although the exact trajectory will depend on various factors.
Competitive Landscape and Differentiation
Question
How has the competitive landscape evolved in the past quarter, and how is the company positioning itself within this landscape?
Answer
The company regularly conducts awareness studies and competitive analysis, with the most recent findings emphasizing the importance of doubling down on the core business and maintaining consumer trust.
The RealReal differentiates itself through initiatives such as concierge pods, pricing transparency, relationships, and a full-service experience, aligning with its long-term strategic priorities.
The company is focused on solidifying its long-range plan and continuing to build on its strengths in the luxury resale market.
Consignment Gross Margin and Competitive Dynamics
Question
Is the current consignment gross margin, which reached a high level in the first quarter, near its upper bound, or is there potential for further expansion?
Answer
The company believes there is still room for expansion in consignment gross margin through operational efficiencies and margin structure improvements.
While the pace of margin expansion may slow, the company is confident in its ability to continue growing gross margins in the consignment business.
Luxury Goods Market and Pricing Trends
Question
Given the recent volatility in the primary luxury goods market, are you seeing any indications of trade-down behavior or higher-end shoppers becoming more price-conscious and potentially favoring the RealReal?
Answer
The company observes fluctuations in brand performance within the luxury goods market but maintains a diversified mix of categories and brands, which helps mitigate risks.
RealReal’s flexibility in pricing allows it to adapt to changing consumer preferences and behaviors.
While there were indications of consumer caution around price targets in the past, particularly in the higher-end segment, the company did not observe this trend in the first quarter.
