TheRealReal, Inc. Q1 FY2025 earnings call

• Growth Playbook: Success relies on driving supply through sales, marketing, and retail stores. Sales team drove consignor growth with revamped incentives; marketing reinforced luxury resale leadership via social media and influencers; stores contributed a quarter of new consignors in Q1 and worked with sales team on events. - Operational Efficiencies: Leveraged AI with Athena, where over 10% of items are processed via AI, cutting processing times by an estimated 20%. Algorithmic pricing for items and potential for algorithmic discounting to improve sell-through. - Obsession over Service: Enhanced user experience with features like obsession counts on product listings, Substack Strategy for fashion content, and improved navigation/search on the platform, driving buyer engagement.

In Q1 2025, consignment revenue increased 7% year-over-year. Direct revenue saw a significant jump, rising 61% compared to Q1 2024, with direct gross margins at 25.5% versus 3.3% in the prior year. Direct revenue is expected to remain in the range of 10% to 15% of total revenues going forward. GMV for Q1 was $490 million, up 9% year-over-year, and revenue was $160 million, up 11% year-over-year. Gross profit was $120 million, up 12% year-over-year, resulting in a gross margin of 75%, a 40 basis point increase from the prior year.

• Full-year 2025 guidance reaffirmed: GMV range $1.96 billion to $1.99 billion (8% growth at midpoint), revenue range $645 million to $660 million (9% growth at midpoint), adjusted EBITDA range $20 million to $30 million. - Second quarter 2025 guidance: GMV expected $476 million to $486 million (9% growth at midpoint), revenue $157 million to $161 million (10% growth at midpoint), adjusted EBITDA $3 million to $4 million. Operating cash flow and free cash flow expected to be back-half weighted.

• Macro economic uncertainties and potential strain on discretionary spending. - Operational risks related to supply chain and margins, including the impact of macroeconomic conditions on consumer behavior and supply trends.

Q: Could you provide context around key drivers of direct gross margin improvement and sustainability?

A: Ajay Gopal stated direct revenue includes out-of-policy returns, vendor purchases, and Get Paid Now. Direct gross margin improved to 25.5% from 3.3% prior year, and is expected to stay in the 20% margin range with mix variations.

Q: What signals are observed in consumer behavior amidst macro uncertainty?

A: Rati Levesque noted resilient buyer behavior with strength in top of funnel to conversion, and consistent new consignor growth due to growth playbook elements like sales, marketing, retail, and referral programs.

Q: How does AOV break down between units per transaction and average selling price?

A: Rati Levesque mentioned AOV up 5% year-over-year, with consistent UPT and ASP, and strength in fine jewelry and handbag sales contributing to AOV growth.

Q: Differences in margins between direct channels (out-of-policy, vendor, Get Paid Now)?

A: Ajay Gopal explained Get Paid Now has higher margins vs consignment, with a 15 point differential on like-to-like basis, but out-of-policy returns have similar margin structure to original sales.