The RealReal is at the start of a new chapter, having announced long-time executive Rati Levesque as its new CEO on 28 October. Her era at the helm is starting on a high note: the company beat expectations in its third quarter, with revenues rising 11 per cent year-on-year to $148 million, as reported on Monday. Gross merchandise value (GMV), which accounts for the total value of goods sold, rose 6 per cent to $433 million.
The company reported losses of $18 million, or 12.1 per cent of total revenue. This is an improvement year-on-year; in the same period in 2023, the company reported losses of $23 million, or 17.3 per cent of total revenue.
Levesque has been at The RealReal since its founding 13 years ago — she helped found the company alongside Julie Wainwright (who stepped down from the CEO role in January 2023). Since, Levesque has held senior roles across sales, merchandising, product, technology, operations and marketing. She replaced former CEO John Koryl, who had held the role since February 2023.
“I’m honoured to speak with you today as the new CEO of The RealReal,” Levesque said on Monday’s earnings call. “I’ve been deeply involved with the foundational changes we’ve made to the business, and I’m looking forward to continuing to champion our strategy: obsessing over service, operational excellence and scaling the business through our growth playbook. I’m proud of the progress we’ve made and I’m pleased to report third-quarter results.”
This is a significant moment for The RealReal, approximately two years since the company initiated its turnaround strategy. Prior to Koryl’s arrival, which he marked with dramatic cost-cutting measures (including over 200 layoffs), The RealReal was in dire straits, as the labour and cost-intensive backend processes prevented the company from achieving growth or profitability. For the year ending 31 December 2022, the company reported losses of $196 million, or 32.5 per cent of total revenue.
In late 2022, The RealReal initiated a series of changes, with the view of getting the business to adjusted EBITDA breakeven, which CFO Ajay Gopal said got the company to where it is this quarter. This included emphasis on consignment and de-emphasis on its direct business, reducing inventory and updating the consignor commission structure. The RealReal reached profitability in the fourth quarter of 2023, for the first time since its 2019 IPO.
Looking forward, The RealReal raised its full-year guidance. It now anticipates full-year revenues of $580 million to $595 million, up from $595 million to $602 million.
What’s next for TRR
Heading into the fourth quarter of fiscal 2024, investors are broadly optimistic. Ahead of today’s earnings, Bobby Brooks, analyst at Northland Capital who covers The RealReal, launched the firm’s coverage with an outperform rating. He puts this down to the company’s improved profitability, leadership position in the luxury secondary market, large total addressable market (TAM) and improved ways of unlocking supply.
For the third quarter, the bulk of revenue was from consignment, which depends on sellers. Consignment revenue totalled $116.9 million; direct revenue totalled $15.6 million; and $15.2 million was shipping services revenue. In the third quarter, consignment revenue grew 14 per cent compared to the same period in 2023.
“For Q3, we’re particularly pleased because it’s not a seasonal high quarter for us,” Gopal said on Monday’s call. “We managed to do that at a point where previously we were not quite there yet.”
UBS remains neutral. In a note on 29 October, analysts Jay Sole and Mauricio Serna noted that they are “slightly more convinced” that The RealReal is heading in the right direction, taking its third-quarter beat as a signal that its self-help efforts are showing “modest benefits to its profit and loss (P&L)”. They also note that The RealReal’s improved social media engagement is paying off, and attribute the changes in social media performance to marketing spend changes under new CMO Sri Batchu and creative director Kristen Naiman, both of whom have been in their roles for under a year.
Levesque highlighted this social push. “During the turnaround, we may have been a bit quiet in asserting our role in the [luxury resale] space,” she said. “In 2024, we started leveraging social media platforms like TikTok and Instagram to engage customers and potential consigners. We recently doubled down on social content that makes complicated topics like authentication and sustainability feel relatable.” These efforts have generated some of the company’s highest engagement rates on posts, she told investors.
Levesque’s appointment announcement took Brooks by surprise, he says, but he adds that he doesn’t believe The RealReal would make this switch unless they believed she was the right fit. Sole and Serna are also ambivalent about the appointment, noting that it’s “somewhat concerning” given it was unexpected. That said, they acknowledge Levesque’s 13-year tenure at the company — plus the fact that she helped found it — as inspiring confidence.
On her strategic plans as CEO, Levesque assured investors that no major changes are on the cards. She highlighted adjustments she made two years prior as interim CEO, including right-sizing commissioning fees, moving out of the direct business and removing unprofitable categories. “I see that as sticky and not changing,” she said. “Return to growth is a big talking point for us internally.”
Moving forward, the primary challenge will be sourcing more supply, which Brooks is confident The RealReal can achieve by refocusing on its core, high-margin consignment segment; overhauling its commissioning structure; and revamping its salesforce and hiring processes (which, he says, trickles down to a larger supply of higher quality items).
“Supply is quite healthy right now,” Levesque said on the call, referencing The RealReal’s growth playbook that combines sales, marketing and retail stores. Gopal credited much of The RealReal’s success since the beginning of the year to the increase in supply given by this combination. Levesque added that, as CEO, she will continue to think about new ways to acquire supply.
Brooks flags that The RealReal’s drop in sales from 2022 to 2023 was calculated, as part of the strategy to reinforce its core consignment business by scaling back on purchasing inventory. This, he says, has positioned the brand well for revenue growth.
“As we enter the final quarter of the year, we’re encouraged by the momentum we’re seeing in the business. It’s clear that our growth playbook is working, with proof points at both top and bottom line,” Levesque said. “I’m excited about the future, but right now, we are heads-down focused on execution to close out 2024.”
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