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ThredUp CEO: ‘Predictable’ Budget Customer Bodes Well for 2023

ThredUp finished the fourth quarter with $71.3 million in revenue on net losses of $19.5 million.

The 2.1 percent year-over-year revenue decline still beat the resale company’s prior outlook of $62 million to $64 million in turnover as well as the $63.1 million in quarterly revenue analysts expected, according to FactSet.

The 19-cents-per-share net loss was better than the 20 cents projected by analysts surveyed by FactSet.

In a Nutshell: ThredUp hopes to fight off declines in both buyers and orders in the year ahead. It finished the year with 1.7 million active buyers, or a 2 percent decline, while total orders fell 8 percent to 1.5 million in the fourth quarter.

In an earnings call, CEO and co-founder James Reinhart blamed the promotional environment and overall consumer spending pullback for declining fourth-quarter orders.

“We were facing a combination of budget shoppers pulling back on discretionary purchases at the same time when retailers were overflowing with apparel,” Reinhart said in the call. “We saw many of our core shoppers sitting on the sidelines. For those that were in-market, resale value proposition was diluted relative to the exceptional bargains being offered for clothing.”

But 2023 seems to be shaping up well for fashion resale, according to Reinhart, noting that the dynamics around the budget shopper are “more stable and predictable” than last year. Improving industry inventories will put the Bay Area company at an advantage, he continued, along with retail moving away from deep discounts and promotions.

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“When retailers eventually right-size their inventory balances reset prices to normalize levels, we think there’s an opportunity for resale to shine,” Reinhart said. “Consumers across income levels have been primed to expect significant discounts when shopping for their clothes. We don’t expect that sentiment to wane in 2023.”

ThredUp had 42 resale-as-a-service (RaaS) brand clients to start the new year, and has since onboarded J.Crew, Kate Spade New York and Francesca’s.

Gross margin was 63.1 percent, down 3 percentage points from 66.1 percent in the fourth quarter last year, namely due to the growth of ThredUp’s lower-margin European Remix business.

Completing a Dallas distribution center will help ThredUp get back on track this year, as will better cost control.

ThredUp is testing a new fee for its Clean Out service, as well a $14.99 processing fee, and is running new experiments on managing returns and calibrating promotions and merchandising mix using real-time data.

The new DC will grow ThredUp’s U.S. network-wide storage capacity from 6.5 million to 9 million items.

“Such technology [in the facility] includes a multi-level garment storage system providing 25 percent higher storage density, while containing 40 percent less energy than previous versions, as well as an automated tagged photo studio that automates size and brand identification and redesigned inspection studios optimized for future automation and inbound processing,” Reinhart said.

The facility will help the company to quickly scale processing when consumer recovery picks up, according to Reinhart.

“The distribution center already is pacing to hit our four-weeks backlog processing target by mid-summer,” he said. “As we process bags in real time, we can better sculpt and mix the seasonal goods we put online, and increase buyer engagement, purchase frequency and satisfaction.

And if promotions fade this year, this sets up a better landscape for ThredUp and the resale environment in general to reinvest in growth, as fewer consumers will be buying new apparel at bargain prices, he said.

Revenue guidance for the first quarter is expected in the range of $71 million to $73 million, which would represent a range from a 0.4 percent decline to a 2.3 percent increase. Gross margin is anticipated to range between 66 percent to 68 percent, down from 69.1 percent in the 2022 first quarter.

Full-year revenue guidance ranged between $310 million to $320 million, or a 7.5 percent to a 11 percent jump from the year prior. Gross margin is forecast to range between 66 percent to 68 percent, compared to 66.7 percent in the year-ago period.

ThredUp is also planning to reduce its capital expenditures by more than 60 percent in 2023 versus last year, and does not expect further significant capital expenditures until at least 2025. These cost cuts, alongside the additional cost optimization decisions outlined and other actions such as the layoffs throughout the company last year, are part of ThredUp’s larger goal to reach breakeven adjusted EBITDA by the back half of 2023.

As of Dec. 31, 2022, ThredUp had cash and cash equivalents of $38 million.

Net Sales: ThredUp reported total fourth-quarter revenue of $71.3 million, a 2.1 percent decline year-over-year from the $72.9 million in the prior-year period.

Consignment revenue, the money taken from commission of sales made on the platform, decreased 16.2 percent to $37.5 million from $44.8 million in the 2021 fourth quarter. Product revenue, which comes from sales of products owned by ThredUp, increased 20.4 percent to $33.8 million from $28.1 million in the year-ago period.

For the full year, total revenue was $288.4 million, an increase of 14.5 percent year-over-year over 2021’s $251.8 million.

Consignment revenue decreased 6 percent to $175 million from $186.1 million in 2022. Product revenue increased 72.6 percent to $113.4 million from $65.7 million in the year-ago period.

Net Earnings: Net loss was $19.5 million at ThredUp for the fourth quarter, amounting to a per-share loss of 19 cents, compared to a net loss of $17.9 million for the 2021 period on an 18 cents per share loss.

Adjusted EBITDA loss was $5.8 million, an improvement from the year-ago adjusted EBITDA loss of $10.5 million.

Net loss was $92.3 million for the full year 2022, or a loss of 92 cents per share, compared to a net loss of $63.2 million, which amounts to a loss of 82 cents per share. Adjusted EBITDA loss was $43.4 million for the year, compared to adjusted EBITDA loss of $36.5 million for 2021.

CEO’s Take: When asked about the opportunity to attract first-time shoppers who are trading down, Reinhart again turned to the “promising” conditions in the year ahead.

“If you start to see retailer promotions come down, and you still feel like the shopper is looking for value, I think that intersection of those two things suggests that resale could really do quite well in this environment,” he said. “Some of that is from trade down, and some of that is just prices getting more normalized in a traditional retail context, meaning that you’re just going to be more expensive. So then the value proposition for resale should be stronger. That’s how we think this setup in 2023 looks, and we’ll see whether it plays out that way, but I think we’re feeling cautiously optimistic.”