RealReal Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

There are 9 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to The RealReal Fourth Quarter twenty twenty four Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Caitlin Howe. Please go ahead.

Speaker 1

Thank you, operator. Joining me today to discuss our results for the period ended 12/31/2024 are Chief Executive Officer and President, Rocky Lebec 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.

Speaker 1

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.

Speaker 2

Thank you, Caitlin. Good afternoon, everyone, and welcome to The RealReal's fourth quarter and full year twenty twenty four earnings conference call. Today, I am pleased to report strong Q4 and full year results. We accelerated growth through the year, culminating in 14% revenue growth in Q4. We reached important financial milestones in 2024.

Speaker 2

We delivered positive adjusted EBITDA and positive free cash flow for the full year. The RealReal is at the intersection of luxury and value. This position has never been stronger or more relevant. Customers come back to The RealReal again and again to find one of a kind pieces and to monetize their closet. Confident that we are the experts in luxury resale.

Speaker 2

We built relationships with our buyers and consigners founded on trust. We exited 2024 from a position of strength. Healthy supply trends, strong buyer engagement and operational excellence enabled us to achieve GMV and adjusted EBITDA above our guidance range for Q4. We also delivered positive results on several customer KPIs, including conversion, retention and engagement. Ajay will provide more details on our financial results for the fourth quarter and full year later in the call.

Speaker 2

I would like to highlight a few notable achievements as 2024 marked an important inflection point for The RealReal. We delivered our first full year of profitable adjusted EBITDA as a business. Free cash flow improved $104,000,000 versus last year resulting in our first full year of positive free cash flow. 2024 also marked a return to profitable growth. GMV was $1,800,000,000 up 6% year over year.

Speaker 2

Consignment revenue was up 14% for the year with particular success in unlocking mid and high value supply. And active buyers on a trailing twelve month basis were up 5% year over year. These achievements are the result of foundational changes we've implemented. We've sharpened our focus on our core business and returned to growth with improved unit economics. Today, I'll talk through the ways we're making progress on our three strategic pillars unlocking supply through our growth playbook, driving operational efficiencies and obsessing over service.

Speaker 2

Let's start with the growth playbook. The first component of our growth playbook is our sales team, which is a strategic differentiator. As a reminder, our sales team is made up of our luxury managers who work directly with our consignors to build trust and maximize supply. Over the course of 2024, we spent time optimizing our incentive structure and elevating our sales team's experience. We better aligned the team's compensation with our overall company goal of driving profitable supply, focusing the team on value rather than units.

Speaker 2

Better compensation alignment and elevating the employee experience have resulted in more supply value per luxury manager, lower attrition and higher sales team retention compared to last year. Today, more than half of our sales team has now been with The RealReal for over two years. We expect these changes to drive results through deeper relationships with sellers, higher approval ratings and a better seller experience. Notably, the value generated per sales rep in 2024 was up roughly 15% compared to the prior year. In 2025, we will further improve our sales team's best in class service, while using technology to drive efficiency.

Speaker 2

We are excited to expand our Smart Sales AI initiative. This initiative leverages customer data and external data to help luxury managers assess which clients are most likely to confine at any time. Tools like Smart Sales allow our luxury managers to service more consignors and improve efficiency. Early results of this initiative have been very encouraging and we are planning a broader rollout in 2025. The second piece of our growth playbook is marketing.

Speaker 2

Our marketing and brand teams unlock supply by driving brand heat and relevance that translates into customer acquisition and retention. We've refined our marketing channel investments to better target, engage with and acquire more high value consignors. Our marketing technology team has adopted new tools that increase our precision in targeting. We have an attractive consignor demographic. It's a diverse group that skews younger, affluent and fashion focused.

Speaker 2

About half of our consignors are millennials or Gen Z and they're loyal, selling with us multiple times per year. We're seeing strong early results in our evolved approach to acquisition, and we'll continue to optimize our targeting throughout the year. In 2024, our brand marketing highlighted trust and authenticity. We continue to be active on social channels generating buzz for our brand. For example, during the past holiday season, our Journey of a Bad video, an engaging take on our authentication and fashion expertise drove increased followers, more traffic and elevated new member sign ups.

Speaker 2

The third and final piece of our growth playbook is stores. As a part of our neighborhood store strategy, we position stores in affluent residential areas to create a frictionless experience for our consignors. Stores generate supply and drive awareness. In 2024, nearly 25% of new consignors were acquired through our retail locations. In Q4, we added two new stores to our fleet in Miami and Houston.

Speaker 2

We're off to a great start in both markets and are excited to be a part of these communities. We are seeing the benefits from our growth playbook showing up in strong supply metrics and momentum in the top line. Moving to our next strategic pillar, operational efficiency. As a reminder, our rich data and tech capabilities enable us to benefit from recent advancements in AI. We've used these capabilities to drive efficiency and accelerate our path to profitability.

Speaker 2

Cost leverage from improvements in automation took hold in 2024, helping our teams to process units quickly and efficiently, cutting over one full day of processing time. Through increased productivity, we kept headcount steady while driving growth. In 2025, we are launching our Athena AI initiative, addressing the processes that happen from the time an item arrives in our authentication center to the time it's launched on our site. Athena leverages our data assets and AI capabilities to drive significant efficiencies. This enhancement aims to optimize our workflow and uses sophisticated image recognition to authenticate and pre populate key item attributes.

Speaker 2

More accurate item attribution results in improved search, higher customer satisfaction, lower returns, better pricing accuracy and quicker time to launch. And we are just getting started. By the end of the year, we expect athena to touch almost half of the items coming into our authentication centers. Turning to our third strategic pillar, obsess over service. At The RealReal, obsessing over service is a key part of our brand.

Speaker 2

From day one, we were clear that bringing a luxury experience to resale is important to this category. This focus has resulted in The RealReal's leadership position in luxury resale as a high trust, high NPS, high engagement platform. We are a modern luxury marketplace built on service, trust and authenticity. We have done this by fostering a deep connection with our community of 38,000,000 members, listening to their feedback and evolving our platform to meet their needs. For our buyers in Q4, we launched obsession sharing, a feature that gives our members the ability to share their favorite items with their family, friends and followers.

Speaker 2

We are excited to see our members use this feature as a way to express their personal style, inspire others to engage with our brand and deepen their connection with The RealReal. For our consignors, we have set over service through reducing friction in the consignment process, balancing their needs on convenience, price and speed. The RealReal is known for rapid sell through. Nearly all of our items sell within ninety days. And we work to ensure that items sell for the highest price the market will bear.

Speaker 2

Our AI driven pricing engine helps us do this. At the end of twenty twenty four, '80 '5 percent of our total units were launched using our pricing algorithm. This data driven approach has been central to our efforts to improve pricing transparency, an important element in building further trust with our sellers. Obsessing over service will continue to be a key differentiator and shape the evolution of our business. In closing, our strategic pillars have aligned our company focus and our growth playbook is working.

Speaker 2

We are laser focused on unlocking profitable supply. As resale continues to gain momentum, there is significant opportunity ahead and The RealReal is well positioned as the market and thought leader in luxury resale. With that, I'll turn the call over to Ajay to discuss financial results and the outlook for 2025.

Speaker 3

Thank you, Ravi. It's an exciting time for The RealReal and luxury resale. As Ravi mentioned, we expect the resale market to continue to grow and as the market leader, The RealReal is well positioned to take out sized share. Over the course of the last two years, we've completed a strategic refocus and it's exciting to see how the business has returned to $1,800,000,000 in GMV as a significantly stronger and more profitable company. 2024 marks several defining moments for The RealReal.

Speaker 3

We achieved positive adjusted EBITDA for the full year, an increase of $65,000,000 versus the prior year and an increase of $122,000,000 on a two year basis. Free cash flow and operating cash flow were both positive for the full year, highlighting the power of our business model as we scale. For the year, we expanded gross margin by 600 basis points through optimizing our consignment take rate and driving operational efficiencies. We grew active buyers on a trailing twelve month basis and average order values continue to trend well above $500 reaching an all time high of $579 in Q4. Today, I will walk you through our 2024 financial results and discuss our outlook for 2025.

Speaker 3

Starting with the fourth quarter, Q4 GMV of $5.00 $4,000,000 increased 12% versus last year, exceeding our guidance range. GMV outperformance was driven by success in unlocking mid and high value supply. Revenue of $164,000,000 increased 14% in the quarter benefiting from higher consignment volume and an increase in profitable high value direct revenue. Active buyers increased to $408,000 up 7% on a trailing three month basis. Active buyers on a trailing twelve month basis returns to growth up 5% versus last year at $972,000 Fourth quarter gross profit of $122,000,000 improved $16,000,000 year over year resulting in gross margin of 74.4%, which increased 40 basis points versus the prior year.

Speaker 3

Fourth quarter operating expenses of $127,000,000 were flat year over year. As a percent of total revenue, operating expenses leveraged over 1,100 basis points. Excluding stock based compensation and a $6,000,000 charge for restructuring in 2023, operating expenses leveraged five thirty basis points driven by efficiency efforts in marketing and operations. Adjusted EBITDA of $11,000,000 or 6.7% of total revenue increased $9,600,000 versus prior year. We generated $27,000,000 in operating cash flow for the quarter resulting in free cash flow of $19,000,000 We are very pleased with the cash generation that our business model delivers as we scale.

Speaker 3

As a reminder, unlike a typical retailer, we don't purchase inventory ahead of a season for our consignment business. We pay our consignors after an item sells on our platform. This favorable cash conversion cycle creates a benefit to working capital and cash flows as we grow. Moving to our full year 2024 results. Full year GMV of $1,830,000,000 increased 6% versus prior year.

Speaker 3

Revenue of $600,000,000 was up 9% versus the prior year driven by GMV growth and benefiting from changes in our take rate initiated in late twenty twenty two. Consignment and shipping revenues grew fourteen percent and fifteen percent respectively for the year and direct revenue was down 18% as we established a better baseline for that business. Full year gross profit of $448,000,000 improved $71,000,000 year over year. Gross margin of 74.5% increased 600 basis points versus full year 2023. We've made tremendous progress on our gross margin over the past two years.

Speaker 3

From 2022 to 2024, we increased gross margins over 1,600 basis points by overhauling our take rate structure, refining our product mix and driving operational efficiencies. Full year operating expenses of $5.00 $4,000,000 declined $39,000,000 year over year. As a percent of total revenue, operating expenses leveraged nearly 1,500 basis points in 2024. Excluding stock based compensation and $43,000,000 in 2023 restructuring charges, full year operating expense leveraged by five fifty basis points. We achieved a significant milestone in 2024 delivering our first full year of positive adjusted EBITDA at $9,300,000 a $64,000,000 increase versus 2023.

Speaker 3

This improvement in profitability translated to $27,000,000 in operating cash flow, up $88,000,000 year over year and free cash flow of positive $1,000,000 up $104,000,000 versus prior year. We ended the year with $187,000,000 in cash, cash equivalents and restricted cash. Turning now to 2025. You heard Rati talk about our focus on unlocking profitable supply. Our results in 2024 reinforce our confidence that our growth playbook is working and we are making progress in unlocking the $200,000,000,000 luxury resale TAM in The U.

Speaker 3

S. We believe our strategy can deliver high single digit to low double digit growth over the medium term. We are projecting full year GMV of $1,960,000,000 to $1,990,000,000 for the year, increasing 8% at the midpoint of our guidance. Revenue is expected to be between $645,000,000 and $660,000,000 up 9% year over year at our midpoint and aligned with our growth expectations over the medium term. For the full year, we expect a relatively stable take rate and gross margin compared to the prior year.

Speaker 3

Operating expense seasonality by quarter is also expected to be similar to last year. Adjusted EBITDA is expected to be in the range of $20,000,000 to $30,000,000 delivering between 203 basis points of adjusted EBITDA margin expansion year over year, driven by strong flow through from continued top line growth and operating expense leverage. Capital expenditures are expected to be roughly 2% to 3% of total revenue for the full year. Regarding timing of spend, due to the cadence of project deployment and timing of incentive payments, we expect operating cash flow and therefore free cash flow to be back half weighted. Moving to our outlook for the first quarter.

Speaker 3

GMV is expected to be in the range of $484,000,000 to $492,000,000 which represents 8% growth versus prior year at the midpoint of our guidance. First quarter revenue is expected to be in the range of $157,000,000 to $161,000,000 This reflects 11% growth versus last year at the midpoint of our guidance, driven by growth in both the consignment and direct business. As a reminder, 2024 was a leap year, so our first quarter has one less day in 2025, which results in a headwind of approximately one point of GMV and revenue growth for the quarter. First quarter adjusted EBITDA is expected to be between $3,000,000 and $4,500,000 As we continue on our path to profitability, we've made progress on improving our capital structure. On February 10, we announced a strategic debt transaction exchanging $183,000,000 of our 2028 convertible notes or $147,000,000 of new convertible notes due in 02/1931.

Speaker 3

We believe this transaction strikes the right balance between conversion price and capturing a discount on our 2028 debt. Through this transaction, we reduced our total indebtedness by $37,000,000 We're excited about how this transaction enhances our capital structure and gives us flexibility as we continue executing against our strategic pillars. In closing, I'd like to congratulate our team on reaching these important financial milestones during the year: profitable growth, positive adjusted EBITDA and positive free cash flow. Their relentless focus on unlocking supply through our growth playbook, driving operational efficiency and obsessing over service are why we were able to meet these important targets in 2024. With that, I will turn the call back over to the operator to begin Q and A.

Speaker 3

Operator?

Operator

Thank you. And our first question comes from the line of Ike Boruchow with Wells Fargo. Your line is open. Please go ahead.

Speaker 4

Thanks, everyone. Congrats on the results. Couple of questions maybe for Ajay. Sorry, if I missed it. Just did you give an operating cash flow and a free cash flow number for this year based on the guide?

Speaker 4

And the second question would be on the marketing spend, so it's clearly gaining you're getting an ROI on that marketing dollars are growing, I think it was up 6% in the quarter. What's the plan as we get into the first quarter and beyond? Are we planning to accelerate the marketing engine because it's you're starting to drive better GMV growth? How should we think about that?

Speaker 3

Yes. Thanks for the question, Mike. To your first question on cash flow, we didn't give any explicit guidance on cash flow. I would say that if you're really good about the results in Q4 and 2024, we had adjusted EBITDA of positive CAD 9,000,000 that translated to CAD 27,000,000 in operating cash flows for the year and free cash flow against that was positive $1,000,000 So great flow through from adjusted EBITDA down to cash flow metrics. We would expect these trends to continue, but we don't have any specific guidance on those metrics in 2025.

Speaker 3

And then on marketing, yes, marketing, we're seeing good leverage on our marketing spend. It was in Q4, we had a benefit, but actually for the year, we had leverage of 130 basis points in marketing. We like where it's at right now. If you look at the seasonal patterns, you'll notice as a percentage of revenue, Q4 was slightly higher than it was in Q3. And we'll continue to look at marketing as a balance between what we invest in sales, what we invest in stores and what we spend in marketing.

Speaker 3

That's being our growth playbook for how we go about unlocking supply. So I think behind the scenes there is productivity on marketing. We're investing in things that are giving us stronger ROIs and we're taking that and reinvesting it back into things like social and other channels where I would say we'll probably underrepresented in the past.

Speaker 4

Got it. And then just one more follow-up, just the relationship between take rate and AOV. So it sounds like take rate, you're expecting to kind of flatten out from here. Should we expect AOV to continue to increase as you're kind of getting more higher value items, given the economics that your sellers are getting?

Speaker 3

Yes, great question. So AOV in Q4 was a high point for us as a business. We came in at $579 per order, which was and it contributed about six points of our GMV growth. The relationship between take rate and AOV is really dictated by our rate card. So if you look at our commission structure, we do reduction in the amount of take rate we keep as people sell higher value items.

Speaker 3

So that relationship will continue. As like you saw in Q4 on a sequential basis, when AOVs jump up as much as they did, you do see an effective take rate percent coming down, but the dollars are obviously higher in those kind of transactions. So I would expect that our take rate to be relatively stable going forward. And what that really means is we're done with lapping trade structure in the past. I think from this point onwards, we're going to optimize around the edges, but we'll keep it largely stable going forward.

Speaker 4

Got it. Thanks so much.

Operator

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Bobby Brooks with Northland Capital Markets. Your line is open. Please go ahead.

Speaker 5

Hey, good afternoon, team. Thanks for taking my question. I wanted to first start, could you just give us a sense of your perspective of what will really be driving supply growth going forward? Obviously, one of your benefits is that you really have a mosaic approach to supply, But maybe at a high level, is it evenly balanced between current and new consignors? I think one of the interesting things you said and Roddy said in the prepared remarks was about 25% of the new consignors came through the retail.

Speaker 5

Maybe what was that rest of the mix of that the rest of the 75%? How did they kind of come through your channel? Just really curious about that.

Speaker 2

Yes. Thanks, Bobby. Thanks for the question. So supply growth and unlocking profitable supply, you've heard us talk a good amount about that now and that's really marketing, sales and retail coming together, making sure that we're creating that frictionless experience for our seller. That's number one in our objective there.

Speaker 2

But it's also making sure that we're bringing in the right seller, right, that mid to high value seller, whereas before or in the past, we were looking at sellers across all price points, right. So we've gotten much better at targeting that mid to high value seller. Yes, and you're right, 25% of our new sellers do come from retail. We also see the average selling price being five to seven times higher, on a unit basis coming from retail. So, you know, we're excited because we believe we're just getting started here.

Speaker 2

So the growth playbook is really starting to work, meeting the sellers where they are, being more purposeful about our incremental spend in marketing and really going after again that medium to high mid and high value consignor, being more predictive in how we're thinking about that, creating more loyalty to the brand. Our trust metrics are also up, so thinking about the top of the funnel. And on the sales side, again, leveraging AI through smart sales, you heard me talk through that. The sales team retention numbers are really good. Over half of our luxury managers have now been here two or more years.

Speaker 2

So all and there's so much room to go even in the affiliate program and partnerships. So, we'll continue to chip away here, but we're as a team pretty excited about the opportunity. And, you know, Bobby, you've heard me say this, the TAM is no constraint to our growth. There's $200,000,000,000 trapped in people's closets and $80,000,000,000 that gets added to that annually. So we're going to continue to change the way people shop.

Speaker 5

For sure, yes. It's a huge market that you guys are tapping into. I just wanted one clarifying question off of that was, you said the average selling price coming in from retail stores is five to seven times higher. Did I hear that right or am I understanding that right?

Speaker 2

Yes, that's right, Bobby. And what I mean by that is when they're meeting with a luxury in the luxury consignment office, we call them LCOs and they're meeting with a gemologist, a watchmaker, a handbag authenticator. So that's where they're consigning their jewelry, watches, handbags and those items are usually much higher, right, than a pair of shoes or a ready to wear item.

Speaker 5

Yes, yes, for sure. And then just last

Speaker 2

one And what's the and that's why Bobby Retail is so important to us. It's new, but it's also value that comes through there and that goes back to disrupting the space there and building trust with our consignors so they can meet with that expert.

Speaker 5

Yes, for sure. That makes perfect sense to me. And then maybe just last one for me is active buyers in 4Q saw a nice sequential step up and but that's pretty in line with how with your seasonality given holiday shoppers stepping in. But we're six weeks into first quarter and so I was just kind of curious like have those new customers you get those new customers that you gained in the fourth quarter, have you seen them be a bit more sticky given all the updates and improvements to the platform? Just kind of curious about that.

Speaker 2

Yes. So I think you're talking about consumer health in general, Bobby, I think is where you're going on that. And I think we're seeing buyers be quite resilient, as well as our seller base, right? You see it in our average order value. We're seeing fine jewelry, watches, handbags, quite sticky and the buyer is quite engaged there.

Speaker 2

One of the stats that I'm into is buyer spending $5,000 or more is up 20% year over year. So really kind of educating people on our value play here, which is that intersection between a value and luxury, and making sure people and educating them on what they cost what these items cost in the primary market and the value they're getting from us just becomes more relevant. So we are happy to see that the buyers are quite sticky right now in general and highly engaged and resilient.

Speaker 5

Thank you very much. I'll return to the queue.

Operator

Thank you. One moment as we move on to our next question. And our next question is going to come from the line of Jay Sole with UBS. Your line is open. Please go ahead.

Speaker 6

Super. Thank you so much. Roddy, you said something interesting in the many things that we're seeing in the prepared remarks, one of which was that your sales team was like 15% more efficient essentially than they have been before. And it sounds like you've invested a lot of not just money, but also resources and time to help the sales team. You mentioned the retention number.

Speaker 6

If you think about all the different salespeople within your organization, what's the difference between the most experienced salespeople and sort of the newer salespeople who presumably are just getting started and aren't as efficient yet? And I asked that because what's the sign of like how much productivity you can gain from the sales team as you continue to drive these initiatives going forward? Like if it was up 15%, like is there a possibility that these people can be twice as effective, three times effective or are we really talking about incremental gains from here? Thank you.

Speaker 2

Yes. Thanks, Jay. This is another place where I think we're just getting started as well. The comp structure is one thing and it hasn't been even scaled out to the entire org, right? We played with that last year.

Speaker 2

We tested, iterated, and we're starting to see the fruits of that in small ways, this earlier this year. So yes, we are seeing 15 more supply year over year per rep just getting started. Our highest reps bring in $10,000,000 plus annually. So there's no reason why we can't even go more in that direction and just focusing them again on the quality of supply versus just the value or sorry, just the units or quantity of supply. We hire an awesome group of talented people who really build relationships with our consignor.

Speaker 2

They're core to what we do and all of that hard work is paying off in a big way.

Speaker 6

Got it. And maybe Ajay one for you. If we think about the growth forecast for Q1, can you just break that down a little bit like how you expect it to be in terms of units versus GMV, like pricing? What are you forecasting?

Speaker 3

Yes. Thanks for the question, Jay. So we had strong momentum coming into this year. We closed Q4 with GMV up 12%, revenue up 14%, and we're seeing that strength carry through into Q1. Our guidance for Q1 on revenue is for it to be up between 9% to 5%, so midpoint of 11%, which is quite comparable, I would say, to our exit rate from Q4.

Speaker 3

You heard me talk about the lead peer impact that plays into a hard point of pressure. So really factoring all that in, we feel pretty good about what we've guided to in Q1.

Speaker 6

Got it. Okay. Thank you so much.

Operator

Thank you. One moment as we move on to our next question. And our next question is going to come from the line of Ashley Owens with KeyBanc Capital Markets. Your line is open. Please go ahead.

Speaker 7

Great. Thanks so much. So really quickly, I just wanted to touch on SG and A buckets. So moving into 2025, as we think about the drivers of the continued improvement there, I I know you mentioned stable gross margins and have talked a little bit on the marketing side as well. So how should we think about the relative leverage within the remainder of the SG and A buckets?

Speaker 7

Are there specific areas where you see the most opportunity that we should be mindful of in fine tuning our models?

Speaker 3

Yes. Thanks for the question, Ashley. SG and A was a good source of investment for us in 2024. We leveraged about 150 basis points as we went through the year. The way I would sort of break down that bucket, it's about a third of it is variable, about two thirds of it is more fixed in nature, fixed to semi fixed.

Speaker 3

On the variable side, you're primarily looking at sales. And you heard Rafi talk about the efficiency gains that we're seeing in sales. We're really excited about our rollout of smart sales initiatives, which is effectively targeting an AI driven targeting mechanism that allows us to make our reps more productive when they are out targeting consigners and reaching out to people that would be interested in selling. So that will continue to be a source of productivity for us going forward. And then on the G and A side, which is mostly the fixed space, we feel really good about our cost base and in product and technology as well as the classic G and A functions and we will continue to see leverage from that bucket of costs as we grow going forward.

Speaker 7

Okay, great. And then just quick housekeeping as well. How

Speaker 2

should

Speaker 7

we think about the pace of store openings for this year if one to three stores or low single digits is still the right number?

Speaker 2

Yes, Ashley. That hasn't changed our strategy on stores. We continue to say one to three stores a year. We just opened two in Q4. Last year, those are performing quite well.

Speaker 2

They're off to a great start. We'll have one also opening this year. And again, because of that halo effect that we're getting in supply once we open in the market, we're quite happy with the incrementality and the value coming in through stores at this time.

Speaker 7

Okay, great. I appreciate the color. Thanks.

Operator

Thank you. I would like to our next question is going to come from Kunal Madhukar with Water Tower Research. Your line is open. Please go ahead.

Speaker 8

Hi. Thank you for taking my question. Couple if I could. One on the revenue outlook, in terms of direct revenue, how much is that factoring into your difference between the growth that you're projecting for GMV versus growth that you're projecting for revenue? And then I want to dive deeper into the G and A, especially the fixed cost, which is about $120 odd million based on what you just told us, Ajay.

Speaker 8

So can you talk about what are the potential opportunities for leverage because $120,000,000 seems kind of high based on the revenue base that you have? Thanks.

Speaker 3

Taken now. Thanks for your question. So on direct, which is the first part of your question, if you look at our results last year, we rightsized direct as a percentage of our portfolio. Today, it is about 10% to 15% of total revenues and slightly under 5% of total GMV. We expect it to stay there.

Speaker 3

Most of what's indirect is returns from customers that we end up taking title to because they are out of policy. And there is a certain element of when the purchase items are always consign to purchase items that we do on a very selective basis. So expect that to be a small part of our business, relatively stable going forward. We feel really good about the improvements in margin that we've driven on that revenue stream last year. And I think that's going to stay at about 15% gross margin on average.

Speaker 3

To your second question on the SG and A piece, so outside of sales, what it does include is our product and tech investment. So that's included in that no, sorry. Sorry, can you repeat your question there again?

Speaker 8

I was just looking at the SG and A part where you kind of mentioned that the G and A part, which was the fixed part was about two thirds of the total number. So when I look at SG and A on a non GAAP basis, that's about $170,000,000 So two thirds of that would be about $120,000,000 Wanted to understand, I mean, that is still like 18% of revenue, which is generally higher than what we see for other retailers. So just wanted to get a sense of like what's in there and what is the potential for like beverage from this number?

Speaker 3

Got it. So it is what's in there is classic G and A function. So it's back office, it's public company cost, it's finance, it's analytics, it's facilities footprint for our offices and things of that nature. I think it's going to be a significant source of leverage going forward, right? We've built the infrastructure needed for us as a company.

Speaker 3

We feel really good about that. It's not an area of like investment for us going forward and as the business continues to grow, you will see that come down as a percentage of total revenue.

Speaker 8

Thank you.

Operator

Thank you. And one moment for our next question. And we have a follow-up question from the line of Bobby Brooks with Northland Capital Markets. Your line is open. Please go ahead.

Speaker 5

Hey, guys. I just want to jump back on and ask a question on kind of how you mentioned that you see a big opportunity to drive operating leverage and improvements to the consignor experience with AI. So I was just kind of curious, could you maybe discuss what that looks like? And if these are more so future action points? And if there's more so future action points, what's the anticipated timeline of implementing those?

Speaker 2

Yes. Thanks, Bobby. I'll start. Najee, please, if I'm missing anything here. There's so much opportunity over the next couple of years is how I think about it.

Speaker 2

Smart sales is one piece. We're just getting started there. We'll scale that out throughout the year. Athena is another piece. You heard me talk about that in the prepared remarks.

Speaker 2

But not only will that bring better speed to the item to the site, so think about the service level agreement is how we talk about it internally to our consignors when an item is launched to site, but it's also more accurate. You're also getting better pricing by it because the attribution becomes better and more predictive. So then your pricing and the more that you can get for the consignor and for TRRs obviously are objective. You're taking one day off completely in the seller experience. So much opportunity and Athena not only works through the attribution, but think about it also as automating a lot of the characteristics less touches throughout the full funnel and processes.

Speaker 2

And then on the buyer side, you see better search, right? So you're getting an item on the in front of more people, which means better pricing, less discounting, all the things. So we're really excited about all the opportunities and our roadmap really focused on delivering efficiencies and operational excellence and again delivering product that resonates with the consignor.

Operator

Thank you. And that is going to conclude today's question and answer session. Ladies and gentlemen, this also does conclude today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.

Powered by Quartr
Earnings Conference Call
RealReal Q4 2024
00:00 / 00:00