The RealReal, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. The RealReal operates an online marketplace for authenticated, consigned luxury goods. Dollar amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $141.9 | $146.7 | Down 3% |
| Gross profit / gross margin | $90.0 / 63.4% | $78.6 / 53.6% | Gross profit up 14% |
| Operating loss | $(81.8) | $(54.7) | Loss widened |
| Net loss | $(82.5) | $(57.4) | Loss widened |
| Net loss per share | $(0.83) | $(0.61) | |
| Adjusted EBITDA, non-GAAP | $(27.3) | $(35.3) | Loss narrowed |
| Operating cash flow | $(30.4) | $(49.4) | Cash use decreased |
| Investing cash flow | $(15.9) | $(8.4) |
Consignment revenue rose 22% to $102.6 million, while direct revenue fell 49% to $25.0 million as the company reduced vendor-purchased inventory. Shipping services revenue increased 3% to $14.3 million. GMV grew 4% to $444.4 million and NMV grew 6% to $327.8 million. The take rate increased to 37.4% from 35.7%, reflecting a commission-structure change effective November 2022. Active buyers rose to 1.014 million from 828,000; AOV was $499 versus $487.
Cash and cash equivalents were $247.1 million at quarter-end, down from $293.8 million at December 31, 2022. Current assets were $311.1 million and current liabilities $183.9 million. Convertible notes had $460.0 million aggregate principal ($450.5 million net carrying value): $172.5 million due 2025 and $287.5 million due 2028. No amounts were drawn on the $50 million revolving facility at March 31; it was amended in April to expire in June 2023. The company reported compliance with facility covenants at quarter-end.
Material changes and unusual items
- Gross margin improved as consignment revenue grew and direct revenue became a smaller share of sales. Direct revenue gross margin fell 18 percentage points, in part due to discounted liquidation of company-owned inventory and additional inventory provisions.
- Q1 included $36.4 million of restructuring charges: $25.7 million of right-of-use asset impairments, $7.2 million of leasehold impairments, $1.7 million of severance and $1.8 million of other charges. The company closed two flagship stores, two neighborhood stores and two consignment offices, and reduced San Francisco office space.
- The February savings plan included eliminating approximately 230 positions, about 7% of the workforce, and reducing real estate. The company estimated total real-estate-plan charges of approximately $33.6–$40 million, with $33.6 million incurred in Q1; implementation was expected to be substantially complete by fiscal year-end 2023.
- Property, equipment and right-of-use asset impairments contributed to non-cash adjustments in operating cash flow. Capital expenditures for property and equipment were $11.7 million; capitalized software development costs were $4.2 million.
Outlook, commentary and risks
The company gave no specific revenue or earnings guidance in the supplied filing text. Management stated that existing cash was expected to cover working capital and capital expenditure needs for at least the next 12 months, while also noting that operating losses and negative operating cash flows could continue. The company may seek additional financing and cautioned that it might not be available on acceptable terms or at all.
Management cited macroeconomic uncertainty, inflation and consumer discretionary spending as potential pressures on demand and costs. Other significant risks include the ability to retain consignors and buyers, maintain product supply and authentication quality, realize savings from the restructuring, and manage competition, seasonality and operating costs. The Chanel trademark and advertising litigation remained unresolved, with the company unable to estimate potential losses. An opt-out shareholder suit also remained pending; on May 2, 2023, the court dismissed a Section 12 claim but allowed Sections 11 and 15 claims and class allegations to proceed.
Management concluded that disclosure controls and procedures were effective at a reasonable-assurance level as of March 31, 2023. The company reported an accumulated deficit of $1.034 billion and a history of operating losses.
Important facts for investors to verify
- Whether the savings plan delivers the expected recurring cost reductions, and whether total restructuring costs remain within the estimated range.
- Whether consignment and GMV growth can offset lower direct revenue and the company’s substantial operating losses.
- Cash burn, capital expenditure needs, and the company’s ability to maintain adequate liquidity after the revolving facility’s June 2023 expiration.
- Debt repayment and conversion exposure, particularly the $172.5 million of 2025 Notes, and potential dilution or cash-settlement requirements.
- Developments and potential financial exposure in the Chanel and remaining shareholder litigation.