The RealReal (NasdaqGS:REAL) FY 2025 Conference December 03, 2025 10:30 AM ET Company ParticipantsAjay Gopal - CFOConference Call ParticipantsNone - AnalystNoneWe're hosting Ajay Gopal from The RealReal, so thank you so much for joining us. First time here at the conference.Ajay GopalYeah, thank you.So for starters, I want to hit on just kind of an overview on luxury resale, which is your core business. Just for investors less familiar with the resale subsector, could you speak to it at a high level as to w ...

Core Insights - The Real Real is experiencing significant momentum in the luxury resale market, with a projected Gross Merchandise Value (GMV) of $2 billion for the first time in its history, indicating a market shift towards resale [2][3] - A notable statistic reveals that 58% of consumers now prefer the secondary market over the primary market, highlighting a change in consumer shopping behavior [3] Company Strategy - The company operates 19 physical locations, which facilitate consignment by reducing friction for consigners and enhancing customer engagement [4][5] - Plans for expansion include opening 1 to 3 new stores annually, while maintaining a digital-first approach [7] Market Dynamics - The total addressable market (TAM) in the U.S. is estimated at $200 billion, representing significant potential for growth in the luxury resale sector [9] - The intersection of luxury and value is driving consumer willingness to spend, particularly on high-value items such as fine jewelry, watches, and handbags [10] Technological Advancements - The Real Real has leveraged technology and AI to streamline the processing of items, improving efficiency and reducing costs per unit [12][13] - The introduction of the AI tool "Athena" has enabled faster item processing, enhancing operational capabilities [13]

Core Insights - The RealReal reported strong third-quarter results, with gross merchandise value (GMV) increasing by 20% to $520 million and revenue rising by 17% to $174 million, leading to an upward revision of full-year GMV guidance to over $2.1 billion [2][3] Sales Performance - The company’s internal report highlighted fine jewelry as the fastest-growing category, with first-time watch buyers increasing by 46% and searches for wedding dresses rising by 247% year-over-year [4] - Handbag searches for fair-condition items grew by 32%, indicating a shift towards practicality and value retention among consumers [4] Consumer Behavior - Economic conditions are influencing consumer behavior, with nearly 70% of Americans living paycheck to paycheck and 25% struggling to pay bills recently [5] - Almost half of U.S. shoppers now purchase secondhand items as frequently as new ones, suggesting that resale has become a regular purchasing behavior rather than a niche choice [5] Operational Efficiency - The company’s growth strategy emphasizes supply quality and operational discipline, with a revised compensation plan that increased average supply value per luxury manager by 12% [7] - The AI-enabled intake system, Athena, managed 27% of all items during the quarter and is projected to handle 40% by year-end, automating authentication and listing processes [8] Financial Metrics - Gross profit rose by 16% to $129 million, supported by higher-value sales and automation gains, while consignment margins improved to 89% and direct-sales margins rose to 21% [11] - Operating expenses decreased by 6% as a share of revenue, reflecting continued cost discipline, with the company ending the quarter with $123 million in cash and reducing debt by $86 million since early 2024 [11] Future Outlook - For the fourth quarter, The RealReal expects GMV between $585 million and $595 million, representing an approximate 17% increase, and revenue between $188 million and $191 million, up roughly 16% [12] - Management anticipates that efficiency improvements and sustained consumer demand for secondhand luxury will support steady growth into 2026 [12] Customer Engagement - Users who both buy and consign, referred to as "Flywheelers," are two to three times more valuable than single-side participants, driving higher transaction frequency and long-term loyalty [9] - The RealReal's high-value pop-up events generated over $2.6 million in supply within a few days, indicating strong engagement with luxury consignors [10]

Core Insights - The RealReal's 2025 Resale Report highlights a cultural shift in luxury resale, emphasizing its desirability and accessibility, with over 40 million members engaging in the marketplace [1][10] - The report indicates that nearly one-third of clothing purchased in the U.S. last year was secondhand, with 58% of consumers preferring the secondary market [3] Market Trends - Fine jewelry and timeless handbags maintained strong demand, while nostalgia for 2010s fashion and 1980s maximalism influenced consumer preferences [2] - Vintage searches increased by nearly 30% year-over-year, as consumers sought long-term value through resale [2] Consumer Behavior - 47% of consumers now consider resale value before purchasing new items, reflecting a shift in buying habits due to inflation and rising retail prices [7] - The report notes a rejection of uniformity in fashion, with consumers favoring unique pieces that express personal style [3] Brand Performance - Resale values for luxury items showed significant increases: Rolex Datejusts (+17%), Goyard Saint Louis totes (+18%), and Hermès Birkin 30 (+15%) [7] - Isabel Marant emerged as the 1 most-searched contemporary label, with a 54% increase year-over-year [7] Notable Events - Celebrity influence was evident, with Kendrick Lamar's Celine Super Bowl jeans driving a 963% increase in related searches within 24 hours [7] - The report highlights a surge in wedding-related searches across generations, with vintage engagement rings seeing a 198% increase [11]

Financial Data and Key Metrics Changes - Q1 GMV reached $490 million, a 9% increase year over year [27] - Q1 revenue was $160 million, reflecting an 11% year-over-year growth [28] - Adjusted EBITDA for Q1 was $4.1 million, up $6.4 million from the previous year, with adjusted EBITDA margins increasing over 400 basis points [31] - Gross profit for Q1 was $120 million, a 12% increase year over year, resulting in a gross margin of 75%, up 40 basis points [30] Business Line Data and Key Metrics Changes - Consignment revenue increased by 7%, while direct revenue surged by 61% compared to Q1 of 2024 [28] - Average order value (AOV) rose to $564, a 5% increase year over year [9] - The company reported its highest number of new consignors in over two years, contributing significantly to supply growth [10][27] Market Data and Key Metrics Changes - Active buyers increased by 7% on a trailing twelve-month basis, reaching 985,000 [27] - The company expects direct revenue to remain between 10% to 15% of total revenues going forward [29] Company Strategy and Development Direction - The company is focused on three strategic pillars: unlocking supply through a growth playbook, driving operational efficiencies, and obsessing over service [10][21] - The growth playbook includes initiatives like the "Get Paid Now" program and dropshipping, aimed at enhancing supply and profitability [15][76] - The company is leveraging AI and automation to improve operational efficiency and customer experience [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate uncertainties in the macroeconomic environment, particularly due to its unique position in the luxury resale market [6][34] - The company anticipates that rising prices in the primary market could motivate consumers to monetize their closets, potentially increasing supply [88][89] - Full-year guidance for GMV is set between $1.96 billion and $1.99 billion, reflecting an 8% year-over-year increase at the midpoint [33] Other Important Information - The company ended the quarter with $154 million in cash, cash equivalents, and restricted cash [32] - Operating cash flow for Q1 was negative $28 million due to timing of incentive payments and working capital seasonality [32] Q&A Session Summary Question: Can you provide context around the improvements in direct revenue margins? - Management explained that direct revenues consist of out-of-policy returns and vendor purchases, with the "Get Paid Now" initiative significantly improving profitability, achieving a margin of 25.5% compared to 3% last year [38][39] Question: What signals are being observed in consumer behavior amid macro uncertainty? - Management noted consistent buyer resilience and strength in conversion rates, with a positive outlook on supply growth due to reduced friction in the consignment process [40][42] Question: Is there seasonality in direct revenue as a percentage of total revenue? - Management indicated that direct revenue is expected to remain between 10% to 15% of total revenues without inherent seasonality, depending on buyer mix [48][50] Question: How did the revenue mix play out in Q1? - Management confirmed that the revenue mix was consistent with expectations, with direct revenue comprising about 10% to 15% of total revenue [82][83] Question: What is the outlook for the second quarter revenue guidance? - Management reiterated that the second quarter revenue is expected to grow by 9%, aligning with GMV growth, and emphasized the stability of their business model amid external pressures [95][94]