Q2 Earnings: The RealReal Struggles with Customer Preference for Affordable Clothing
The RealReal, facing inventory shortages due to labor constraints, is bucking industry trends by boosting its workforce, executives revealed on Tuesday. Q2 revenue surged 47% year-over-year to $154 million, with gross merchandise value jumping 30% to $454 million.
Customers migrated toward less expensive items, causing an average order value drop of 7% to $486 over the past year. However, the number of orders and active buyers increased by 39% and 22% respectively, reaching 889,000. Despite these gains, the company reported a net loss of $53.2 million, lower than the same period last year's $71 million.
Speaking to analysts, executives expressed concern over the pandemic-driven surge in apparel demand abating sooner than anticipated. Furthermore, consumers shifted from luxury purchases like jewelry and watches to more moderately priced clothing and footwear.
To address the staffing shortage, The RealReal has implemented strategies such as raising compensation in some sectors and introducing self-service technology for consignors.
While the company exceeded expectations in several metrics for the quarter, it adjusted its annual outlook due to supply shortfalls and changes in consumer demand. The lowered expectations are primarily due to the company's plan to reduce reliance on purchased inventory and increase focus on consigned items, although it doesn't factor in potential economic downturns, according to Chief Financial Officer Robert Julian.
The executive team is still searching for a CEO following the abrupt departure of founder Julie Wainwright in June. Some analysts view the company's optimistic outlook as ambitious, arguing that there are still uncertainties regarding the secondary half of the year.
Future revenue projections indicate a modest annual growth of around 6.5% for the full year 2025, with revenue estimates ranging between $655.52 million and $656.9 million. However, the stock's sensitivity to market movements remains high, as indicated by a beta of 2.61.
The RealReal is anticipated to face challenges in achieving profitability and may see per-share losses increase to $0.52 per share by the end of 2025. Nevertheless, the stock has potential for a 86% upside based on Wall Street analysts' price targets, which could be influenced by broader market conditions.
In an attempt to mitigate challenges arising from supply shortages and changing consumer demand, The RealReal is undertaking AI-driven initiatives to improve operations. These efforts may help the company attain profitability on an adjusted EBITDA basis by 2024 as planned.
- The RealReal is increasing its workforce to combat inventory shortages, but the company's net loss still stands at $53.2 million due to the pandemic-driven surge in demand abating sooner than anticipated.
- Despite the ongoing challenges, The RealReal is implementing self-service technology for consignors and raising compensation in certain sectors to address the labor constraints faced.
- The executive team is optimistic about the company's AI-driven initiatives, believing they will help The RealReal achieve profitability on an adjusted EBITDA basis by 2024 as planned.
- Although facing potential economic downturns and uncertainties in the second half of the year, Wall Street analysts see the stock having a 86% upside based on price targets, influenced by broader market conditions.
