Dive Brief:
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ThredUp’s third quarter revenue rose 7.4% year over year to $67.7 million, as its number of active buyers rose 18% to 1.7 million and orders rose 24% to 1.6 million, the resale site said Monday.
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But margins shrank and profits declined. Net loss widened to $23.7 million, from last year’s $14.7 million net loss. Gross profit declined 3% to $44.5 million, and gross margin contracted to 65.5% from 72.8% last year.
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The company’s “Resale-as-a-Service” platform added new clients, including Hot Topic and Francesca’s, and expanded its Athleta and Vera Bradley relationships, according to a company press release.
Dive Insight:
Despite ThredUp’s sales and active customer gains in the quarter, the company lowered its outlook, citing a tough consumer environment and unusual price competition from legacy retail.
The company now expects fourth-quarter revenue to reach between $62 million to $64 million, (down from its previous estimate of $70 million to $72 million), and gross margin to range between 62% to 64% (down from 64% to 66%). For the year, revenue should reach $279 million to $281 million (down from $283 million to $287 million), with gross margin in the range of 66.5% to 67% (down from 67% to 69%), per its release.
Normally, secondhand clothing should sell especially well at a time when consumers are looking to save money, but shoppers are distracted by the discounts offered by the traditional apparel retailers that are using promotional pricing to clear away their excess inventory, ThredUp CEO James Reinhart told analysts Monday.
“[O]ver the past 12 months, there's been a massive buildup of apparel,” he said, adding, “And while we don't have the same inventory risks that other retailers have, we're not immune to the pressure on prices.”
That should level off sometime next year, however, he also said. “When retailers sell through their excess inventory [and] prices normalize we believe there is a significant opportunity for resale to take share,” he said. “For a customer that's been conditioned to expect 60% to 80% off retail for their clothes yet still feeling the effects of inflation, resale is going to be a go-to for value.”
The company is also prioritizing its resale-as-a-service platform, where third-party retailers use its software and logistics to offer secondhand items, according to Chief Financial Officer Sean Sobers.
“We are focusing our inbound resources on supporting our RaaS clients, which has the effect of fueling product revenue at the expense of consignment during this period of meticulous expense management,” he told analysts.
Left unaddressed is that online resale so far has struggled turn a profit, as noted in new research from WD Partners. Consumers are fully embracing buying secondhand goods, but brick-and-mortar stores have an operational advantage in the space, according to the firm’s report.
For now, ThredUp has enough liquidity to get through a tough period in the near term, though “rising interest rates and strained capital markets” could cause trouble if the company needs more cash, according to William Blair analysts led by Dylan Carden.
“Ultimately, we believe that thredUP is building a unique and powerful moat in single-SKU fulfillment that should have broader use beyond its current focus on women’s resale apparel,” Carden said in emailed comments.
