The RealReal, Inc. (REAL) Q3 2025 Earnings Call Transcript
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Overview
The earnings call summary reflects strong financial performance, with significant growth in GMV and revenue projections, and positive EBITDA outlook. The company is making strategic investments in AI, automation, and marketing, which are expected to drive efficiency and growth. The Q&A section highlights management's confidence in their strategies and market position, despite some uncertainties. The announcement of new initiatives and partnerships, along with positive cash flow projections, further supports a positive sentiment. Overall, these factors suggest a likely stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
GMV (Gross Merchandise Value) $520 million, up 20% year-over-year. Growth was driven roughly evenly by unit volume and higher average selling prices.
Revenue $174 million, up 17% year-over-year. Consignment revenue increased 15% year-over-year, and direct revenue increased 47% compared to Q3 of 2024.
Adjusted EBITDA $9.3 million or 5.4% of total revenue, up 380 basis points year-over-year. This improvement reflects gains from operating efficiencies, AI, and automation.
Free Cash Flow $14 million, a $12 million improvement year-over-year, demonstrating favorable cash dynamics as the business grows.
Average Order Value $584, up 12% year-over-year, driven by higher average selling prices.
Take Rate 37.9%, declined 70 basis points year-over-year due to a mix into higher-value items and categories.
Gross Profit $129 million, up 16% year-over-year. Gross margin was 74.3%, down 60 basis points compared to the prior year due to a higher mix of direct revenue.
Operating Expenses $136 million, leveraged 620 basis points year-over-year as a percent of revenue. Excluding stock-based compensation, operating expenses leveraged by 470 basis points.
Active Buyer Base More than 1 million active buyers, up 7% year-over-year, marking a new all-time high.
Operating Cash Flow $19 million, a $10 million improvement year-over-year.
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Operating Highlights
Fine Jewelry: Fastest-growing category with a 46% increase in first-time watch buyers, led by heritage brands.
Wedding Dresses: Search volume increased by 247%, indicating a growing trend for major life milestones.
Handbags: Searches for fair condition handbags increased by 32%, showing a shift towards the 'lived-in' look.
Luxury Resale Market: Solidified position as a market leader with a total addressable market of over $200 billion in untapped supply in U.S. closets.
Retail Stores: Currently operating 18 locations with plans to add 1-3 stores per year, providing a 10-year growth runway.
AI-Enabled Product Intake (Athena): Touched 27% of all items, aiming for 30-40% by year-end, with a goal to reduce processing time from 14 days to 7 days.
Sales Team Productivity: Supply value per luxury manager increased by 12% year-over-year, supported by AI tools and a new compensation plan.
Flywheelers Strategy: Focus on customers participating in both buying and selling, who are 2-3x more valuable and transact more frequently.
AI-Fueled Marketing: Developing a smart prospecting engine to enhance targeting of new consignors and combining organic and paid social media for brand relevance.
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Risk or Challenges
Market Conditions: The company faces potential risks from economic uncertainties that could impact consumer spending on luxury resale items. While the market for resale is growing, economic downturns or reduced consumer confidence could adversely affect demand.
Competitive Pressures: The luxury resale market is becoming increasingly competitive, with other players entering the space. This could lead to pricing pressures and challenges in maintaining market share.
Regulatory Hurdles: The company operates in a space that may face evolving regulations, particularly around resale and secondhand goods. Compliance with these regulations could increase operational costs.
Supply Chain Disruptions: Although not explicitly mentioned, the reliance on consignors and the supply of luxury goods could be disrupted by external factors such as economic conditions or logistical challenges.
Strategic Execution Risks: The company’s growth strategy relies heavily on AI and automation, which may face implementation challenges. Additionally, the expansion of brick-and-mortar locations and experiential events requires significant investment and operational efficiency to succeed.
Economic Uncertainties: The company’s performance is tied to consumer spending, which could be impacted by broader economic conditions, including inflation or recessionary pressures.
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Guidance & Outlook
Full Year GMV Outlook: The company expects full year GMV in the range of $2.10 billion to $2.11 billion, reflecting a 15% growth at the midpoint of the guidance range.
Full Year Revenue Outlook: Revenue is projected to be in the range of $687 million to $690 million, representing a 15% growth at the midpoint of the guidance range.
Full Year Adjusted EBITDA Outlook: Adjusted EBITDA is expected to be between $37.7 million and $38.7 million, with an adjusted EBITDA margin of 5.5%, reflecting a 400 basis point improvement compared to 2024.
Fourth Quarter GMV Outlook: GMV is expected to range between $585 million and $595 million, representing 17% growth compared to the prior year period at the midpoint of the guidance range.
Fourth Quarter Revenue Outlook: Revenue is expected to range between $188 million and $191 million, reflecting 16% growth compared to the prior year period at the midpoint of the guidance range.
Fourth Quarter Adjusted EBITDA Outlook: Adjusted EBITDA is projected to be between $17.5 million and $18.5 million, approximately 9.5% of total revenue, with over 275 basis points of margin expansion year-over-year at the midpoint of the range.
Operational Efficiency Goals: The company aims to achieve full listing automation and reduce processing time from 14 days to 7 days, with Athena, the AI-enabled product intake process, expected to touch 30%-40% of all items by year-end.
Retail Expansion Plans: Plans to add 1 to 3 new stores per year, providing a 10-year runway for growth from new stores.
Marketing and AI Initiatives: Focus on developing an AI-fueled smart prospecting engine to enhance targeting of new consignors and building a 360-degree presence combining organic and paid social media to boost brand relevance and digital performance.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you speak to the confidence you have in the Q4 GMV growth guide and what informs your targets?
A:The company is confident in the Q4 GMV growth guide, which is around 17% at the midrange. They attribute this to their growth playbook, which includes sales, marketing, and retail efforts coming together. The compensation structure launched in Q3 has been extended to the entire sales organization, driving conversion. They are also seeing early positive results from referral and affiliate programs, AI smart scoring, and prospecting for new sellers, which has led to double-digit new seller growth. High-value pop-up events are strengthening relationships with sellers, and the market shift towards resale is providing additional momentum.
Q:How should we think about growth rates for next year, given the robust results this year?
A:The company expects growth rates in the medium term to be in the high single digits to low double digits, balancing top-line growth and EBITDA margin expansion. However, given the current momentum, they anticipate being closer to the high end of that range, around low double-digit growth rates, in the short term, particularly in the first half of 2026.
Q:How has the expansion of drop shipping initiatives in fine jewelry gone, and what are the next milestones?
A:The drop shipping initiatives, which started with watches, handbags, and more recently jewelry, are in the testing and learning phase. The company is building capabilities and sees drop shipping as a tactic to bring incremental supply and onboard international partners in the future. They believe it can make a meaningful contribution in the medium term.
Q:What is driving the revenue growth, and how much of it is due to product supply versus processing efficiency?
A:The revenue growth is primarily driven by the amount of supply coming through the door. The company focuses on its growth playbook, which includes sales, marketing, and retail efforts. They are also seeing success in social media and strengthening relationships with sellers. Double-digit consignor growth numbers and increased trust in the secondary market are contributing factors.
Q:What lessons have been learned in the past year, and what has exceeded expectations?
A:The company has made progress on its three strategic pillars: profitable growth, operational efficiencies, and obsessing over service. They achieved 20% growth, a 5% EBITDA margin, and an 8-point increase in trust year-over-year. The launch of Athena, which now processes 30-40% of inventory, has been a significant milestone. They have also closed $2 billion in GMV in their history and believe the best is yet to come.
Q:How are competitive dynamics evolving in the resale market, and have you observed any changes in discounting intensity from peers?
A:The company sees the market shift towards resale as beneficial, with a $200 billion TAM. They focus on their strategic moats, including expertise, data, and a diverse product offering, which have built trust with their community of over 40 million members. They believe their infrastructure and data for processing single SKU items give them a competitive edge. They did not specifically comment on changes in discounting intensity from peers.
Q:What is embedded in the Q4 EBITDA bridge, particularly within G&A and other OpEx buckets?
A:The company expects continued focus on operating efficiencies, with most OpEx leverage coming from operations and tech, driven by AI-driven initiatives like Athena. They also see similar levels of leverage in SG&A, with investments in making the sales team more efficient. Trends like a 12% increase in the value of supply for existing luxury managers are expected to continue.
Q:What is driving the balance between ASP and unit volume growth, and what factors are influencing these metrics?
A:The growth is evenly split between ASP and unit volume. ASP growth is driven by a new sales compensation plan that rewards value over volume, an AI-driven pricing algorithm, and investments in authentication and customer trust. Unit volume growth is influenced by consumer preferences and the company's ability to quickly respond to trends.
Q:What is driving the strong growth in direct revenue, and what is the outlook for this revenue stream?
A:Direct revenues grew by 47% year-over-year, driven by comping a smaller proportion of business last year. The company expects direct revenues to remain between 10-15% of total revenues. Gross margins in this channel expanded by 370 basis points to 21% in Q3, and the company feels confident in driving strong, profitable growth through this channel.
Q:What are the next steps for helping the sales team procure more supply, and are there other levers for supply growth?
A:The growth playbook includes sales, marketing, and retail efforts coming together. The company is focusing on flywheelers in marketing, referral and affiliate programs, AI smart scoring, social media campaigns, and high-value events. They are also benefiting from the market shift towards resale, with 58% of shoppers preferring the secondary market.
Q:What cost savings are being realized from Athena, and what is the outlook for its impact?
A:Athena is driving efficiencies in operations and tech, contributing to 370 basis points of leverage in Q3. It currently processes 27% of items and is expected to touch 30-40% by year-end. Athena can save a couple of dollars per item and is expected to be a significant source of productivity and cost savings in the medium term.
Q:What is driving the GMV growth, and how much is due to market growth versus share gains?
A:The GMV growth is attributed to the company's growth playbook, which includes sales, marketing, and retail efforts, as well as tailwinds from the market shift towards resale. The company is also focusing on improving the customer experience, building trust, and reducing friction, which directly ties back to GMV growth.
Q:What is the status of high-value events, and how many can be supported per store?
A:High-value events are in the early stages, with the company testing their way into this strategy. These events are low-cost and bring in incremental supply, with some generating over $1 million in a couple of days. The company plans to launch these events monthly in major markets.
Q:What is the right rate of growth for the operations and technology line, and what drives dollar growth in this line?
A:The operations and technology line is driven by unit volume, with about 2/3 of the line tied to operations. While the company is becoming more efficient on a per-unit basis, absolute dollar growth is expected as the business grows. Athena is a key driver of efficiencies and is expected to continue contributing to margin expansion.
Q:What are the plans for cash uses on the balance sheet going forward?
A:The company is a cash-efficient business, with primary uses of cash being investments in fulfillment centers and automation technology like Athena. Q3 saw $19 million in operating cash flows and $14 million in free cash flow. Q4 is expected to be stronger, showcasing the positive working capital benefits of the business model.
Q:What is the outlook for marketing investments, and how should we think about marketing as a percentage of sales?
A:The company made a larger investment in marketing in Q3 to drive growth, with some onetime costs included. They are confident in the ROI of their marketing spend and balance growth with profitability. Marketing is a key lever in their growth playbook, driving new sellers and brand affinity.
Q:What insights can you share about customer behavior by age cohort?
A:The company has not shared specific data by age cohort but notes strong willingness to spend, particularly among millennials and Gen Z, who make up over half of their customer demographic. Higher-value consignors and flywheelers are also key focus areas, as they are more valuable to the business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the competitive discounting intensity from peers and did not quantify the exact cost savings from Athena beyond general statements about its impact. They also did not provide a clear upper limit for Athena's potential coverage of items or specific plans for cash uses beyond general investments in fulfillment centers and technology.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Productivity
AI engine
Ajay review
Athena value
Beach Tysons
CEO role
Conference result
Consignors store
Corner supply
Creative Director
Director fall
LTV
behavior
closet
end
expert
fact
fashion
flywheel
flywheelers
foundation
handbag
intake process
marketing effort
metric
pillar
plan
playbook
record
relationship
runway
sale supply
search
shopper
speed
supply consignor
tool
trust
value event
vision
REAL Transcript
The RealReal, Inc. (REAL) Q1 2026 Earnings Call Transcript
Unknown5-8
The earnings call summary shows positive financial metrics, including revenue growth, improved margins, and reduced net loss. However, the lack of strategic updates and unclear management responses in the Q&A section create uncertainties. The company's acknowledgment of risks and uncertainties further adds to the mixed sentiment. The absence of market cap data prevents assessment of potential volatility. Overall, the positive financials are balanced by the lack of strategic clarity, resulting in a neutral outlook for the stock price over the next two weeks.
The RealReal, Inc. (REAL) Q4 2025 Earnings Call Transcript
Positive2-26
The earnings call indicates strong revenue growth, improved margins, and reduced net losses, alongside positive cash flow. Strategic initiatives, including market expansion and tech enhancements, further bolster prospects. Despite risks in forward-looking statements, the overall outlook is optimistic. The absence of negative sentiment in the Q&A suggests confidence in management's responses. Given these factors, the stock is likely to see a positive movement in the next two weeks.
The RealReal, Inc. (REAL) Q3 2025 Earnings Call Transcript
Positive11-11
The earnings call summary reflects strong financial performance, with significant growth in GMV and revenue projections, and positive EBITDA outlook. The company is making strategic investments in AI, automation, and marketing, which are expected to drive efficiency and growth. The Q&A section highlights management's confidence in their strategies and market position, despite some uncertainties. The announcement of new initiatives and partnerships, along with positive cash flow projections, further supports a positive sentiment. Overall, these factors suggest a likely stock price increase of 2% to 8% over the next two weeks.
The RealReal, Inc. (REAL) Q2 2025 Earnings Call Transcript
Positive8-9
The earnings call shows strong financial performance with improved operating expenses and cash flow. The Q&A indicates confidence in growth momentum, scalability, and margin stability, supported by strategic initiatives like AI and drop ship expansion. Despite some uncertainties in revenue guidance, the overall sentiment is positive, driven by double-digit new seller growth and effective reinvestments. The company's strategic focus and optimistic outlook for margin expansion suggest a positive stock price movement in the short term.
REAL Slides
REAL Report
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