The RealReal, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. The RealReal operates an online marketplace for authenticated, consigned luxury goods, with additional direct sales and shipping revenue. Financial amounts below are in USD millions unless otherwise stated.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $130.9 | $154.4 | $272.8 | $301.1 |
| Gross profit / margin | $86.2 / 65.9% | $87.7 / 56.8% | $176.2 / 64.6% | $166.3 / 55.2% |
| Operating loss | $(40.9) | $(51.0) | $(122.7) | $(105.7) |
| Net loss | $(41.3) | $(53.2) | $(123.8) | $(110.6) |
| Adjusted EBITDA (non-GAAP) | $(22.3) | $(28.8) | $(49.6) | $(64.1) |
| Net cash used in operating activities | Not provided by quarter | $(60.9) | $(87.9) |
Q2 revenue fell 15% year over year; first-half revenue fell 9%. Q2 consignment revenue was essentially flat at $96.6 million, while direct revenue declined 51% to $20.9 million, reflecting the planned reduction in vendor-purchased inventory. First-half consignment revenue rose 10% to $199.2 million, but direct revenue fell 50% to $45.8 million.
Q2 GMV declined 7% to $423.3 million and orders fell to 789, from 934. AOV increased 10% to $537; active buyers rose to 985,000 from 889,000. The take rate was 36.7%, versus 36.1%. First-half GMV declined 2% to $867.7 million. Gross margin improved largely as lower-margin direct sales made up a smaller share of revenue and shipping costs declined. Management reported direct-sales gross margin pressure from discounted inventory liquidation.
Balance sheet, debt and liquidity
At June 30, 2023, cash and cash equivalents were $188.9 million, with $16.8 million of restricted cash; total current assets were $239.7 million and current liabilities were $168.0 million. The company reported a $275.6 million stockholders’ deficit and a $1,075.0 million accumulated deficit. Operating lease liabilities totaled $133.0 million.
Convertible notes had $460.0 million aggregate principal outstanding: $172.5 million of 3.00% notes due 2025 and $287.5 million of 1.00% notes due 2028. Net carrying value was $451.1 million. The $50 million revolving credit facility expired in June 2023 without renewal; nothing was drawn at quarter-end. Cash, cash equivalents and restricted cash decreased $88.1 million in the first half. Capital expenditures and capitalized software development used $27.3 million. Management said available cash should cover working capital and capital expenditures for at least 12 months, while also noting operating losses and negative operating cash flows may continue.
Changes, outlook and risks
- Restructuring: The February 2023 savings plan included eliminating approximately 230 roles (about 7% of the workforce) and closing stores, consignment offices and related logistics hubs, as well as reducing office space. First-half restructuring charges were $38.3 million: $26.3 million of lease right-of-use asset impairments, $7.2 million of leasehold improvements and fixed-asset impairments, $3.0 million severance and $1.8 million other charges. Implementation was expected to be substantially complete by year-end 2023; anticipated savings are not assured.
- Management outlook: No numerical revenue, earnings or cash-flow guidance is provided. Management expects direct revenue to decline as a share of revenue as direct purchases remain limited, and expects operating expense ratios to improve over the longer term. It identifies macroeconomic uncertainty, inflation, consumer demand, returns, supply and execution of cost-saving initiatives as material uncertainties. The company’s business is seasonal, with historically stronger supply in the third and fourth quarters and demand in the fourth quarter.
- Legal matters: The Chanel trademark and advertising case was stayed in July 2023 for renewed mediation scheduled for September; the company said the outcome and possible loss cannot be estimated. A separate securities claim by a shareholder who opted out of a previously settled class action also remains pending; the company cannot estimate possible losses. The earlier $11.0 million class-action settlement was paid in 2022.
- Other items: Inventory write-down and shrinkage provisions were $6.5 million in the first half, versus $1.0 million a year earlier. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting.
Investor verification priorities
- Track cash burn, remaining liquidity and funding options following the revolving facility’s expiration; assess the 2025 notes maturity against the company’s path to positive cash flow.
- Verify whether cost reductions deliver durable savings and whether additional restructuring, impairment or exit costs arise.
- Monitor consignment supply, GMV, orders, returns and cancellations, and the effects of the revised commission structure on take rate and consignor retention.
- Assess direct-inventory liquidation, inventory reserves and resulting gross margins, alongside the mix shift toward consignment revenue.
- Follow mediation and developments in the Chanel litigation and the pending securities claim, for which potential losses are not estimated.