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The RealReal Posts $43 Million Q3 Loss, Sees Return to Growth in Q4

With supply growing at The RealReal, the luxury consignment marketplace reported continued quarter-over-quarter growth, while year-over-year trends remained down due to Covid headwinds.

Speaking on a call with investors Monday, founder and CEO Julie Wainwright said improving trends in the company’s Los Angeles and New York City markets led to an influx of supply into its consignment offices and retail stores. Additionally, an increased request for white glove service overall contributed to gross merchandise volume (GMV) growth, she said.

“While uncertainty remains, we are laser-focused on making operational changes and strategic investments that will position us to emerge from Covid a stronger, more agile company and set us up for long-term sustainable growth going forward,” Wainwright said.

Quarter-over-quarter, GMV rose 17 percent to $245.4 million. Compared to last year, however, this metric was down 3 percent. Several categories grew in Q3, though, including fine jewelry, men’s and handbags, while women’s apparel and shoes remained on a slower recovery trajectory.

Chief financial officer Matt Gustke said he did not expect this new shifted mix of business—with more fine jewelry, handbags and watches as opposed to women’s apparel—to change significantly in the near future simply because this assortment is typical for the holiday season. As The RealReal enters peak holiday season, he predicted it would continue to see elevated levels of these categories on par with Q3, if not even higher.

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“As we get into next year, we are seeing interesting signs of recovery across categories,” Gustke said. “So, it’s not like no one’s buying women’s ready-to-wear, that is coming back nicely as well. And particularly as we get closer to the end of Covid, I think we’ll start to see a product mix drift back to what its historical level was.”

As a result of GMV growth, Wainwright said The RealReal has started reinvesting in marketing, sales, hiring and expanding its retail footprint. Already, these investments appear to be producing results. So far in Q4, retail and consignment office supply increased 48 percent year over year in October, Wainwright said. This compared to a 20 percent decline in Q3 relative to 2019 and an 81 percent year-over-year drop in Q2.

“This retail recovery amplifies our overall supply recovery and gives us optimism that a return to positive year-on-year GMV growth could happen over the balance of Q4,” Wainwright said.

This confidence comes as Covid cases continue to spike in the United States. According to Johns Hopkins University of Medicine, the seven-day moving average positivity rate reached 8 percent Sunday, just surpassing the metric’s summer peak. Total positive tests reached a new high of 128,360 Saturday, compared to the summer peak of 76,142.

Wainwright, however, directly addressed concern over the impact this may have on business and supply growth.

“Look, Covid’s out there, it’s not going away,” she said. “But, I would say our consigners and our sales team have learned how to live with it and pick up product safely. Store drop-offs really are changing the dynamics in key markets for us right now, even though we only have a few stores open [and] not just stores, [consignment office] drop-offs also. So, we’re not as worried about a big shutdown like we had before, where we couldn’t operate at all. I think, certainly, Covid is rampant, but it’s more under control in the urban areas than it was before.”

Overall, Wainwright said The RealReal feels “pretty good” about where it is, specifically pointing to that 48 percent growth in retail and consignment office product supply in October. “And we do expect to see seasonality and gift giving during the holiday time,” she said. “It’s still uncertain times, we don’t want to sound overly optimistic, but we have enough early indicators that we feel good.”

Total revenue for the quarter stood at $78.1 million, a 16 percent improvement from the previous quarter and a 4 percent decrease compared to the prior-year period. Consignment and service revenue rose 15 percent from the previous quarter to $64.4 million, marking a 7 percent decline year over year. Meanwhile, direct revenue, $13.6 million, represented both a consecutive-quarter rise, at 25 percent, and on a year-over-year increase of 11 percent.

The RealReal’s gross profit declined 5 percent year over year to $49.8 million. The company recorded a net loss of $43.3 million. Adjusted earnings before interest, taxes, depreciation and amortization came in at a minus $29.0 million, inclusive of $2.2 million of Covid-related expenses such as higher payroll, PPE, deep cleanings and more.

GAAP basic and diluted net loss per share was ($0.49) and non-GAAP basic and diluted net loss per share was ($0.41). At the end of the third quarter, cash, cash equivalents and short-term investments totaled $395.2 million.