ThredUp on Monday reported that third quarter revenue rose 35% year over year to $63.3 million, an all-time quarterly high. Its number of active buyers rose 14% to 1.4 million and orders rose 28% to 1.3 million.
Gross margin expanded by 300 basis points year over year to 72.8%. Net loss widened to $14.7 million, or 23% of revenue, from $11 million in the year-ago quarter, according to a company press release.
In August, the company decided to end its Stitch Fix-like subscription styling box, replacing it with an algorithm-powered online "Thrift the look" option that enables customers to build outfits based on favorited ensembles, ThredUp CEO and co-founder James Reinhart told analysts Monday.
ThredUp joins Stitch Fix in realizing the limits of apparel box subscriptions and styling services. The company's "Goody Boxes" contributed $2 million to $3 million in revenue each quarter but gummed up its warehouse operations and "were proving difficult to scale efficiently," Reinhart said.
But ThredUp has the luxury of having other strengths to focus on instead. Executives on Monday noted the general boom in apparel resale, which has helped it with collection and sales of goods as well as customer acquisition. The company has also been able to avoid the supply chain woes roiling the industry because its inventory is sourced domestically.
A new, more automated distribution center in Dallas is expected to more than double its capacity to some 16.5 million items once it's fully operational, with more efficiency, as more orders can derive from a single source, executives said.
As consumers increasingly worry about inflation, ThredUp's prices were 15% lower year over year on average in the quarter, and the retailer is committed to keeping prices low, Reinhart said. Lower prices also mean less need for promotions and fewer returns, he said.
Another advantage is the company's "resale-as-a-service" enterprise. The company said it has processed more than 125 million secondhand items from 35,000 brands across 100 categories so far.
As a resale business the company is less dependent on the fourth quarter than many retailers, Chief Financial Officer Sean Sobers said. "We actually tend to pull back on marketing as a percentage of sales due to its high cost during Q4 and reallocate those dollars towards our processing efforts," he told analysts.
ThredUp executives noted that investments including in distribution, data science and automation will pressure revenues in the near term but said they will ultimately speed up its processing rate and revenues. The company has "clear momentum" thanks to its recently acquired overseas business and "rapidly evolving RaaS business," Wells Fargo analysts said Monday.
"We see the story having legs, as [gross margin] performance remains robust while top-line trends should continue accelerating into early 2022," Wells Fargo analysts led by Ike Boruchow wrote, adding that more efficiencies will likely be felt in 2023.