With supply chain bottlenecks impacting clothing manufacturers and inflation squeezing shoppers, now seems like the time for used clothing sellers to shine. The market doesn’t quite see it that way.
RealReal REAL luxury shipper -4.34%
on Tuesday reported that sales through its platform, known as gross merchandise value, rose 31% in the first quarter from a year earlier, better than Wall Street expectations. . Gross profit grew well by 35%. ThredUp,
The company, which sells more generic brands, said on Monday’s earnings call that it saw revenue grow 31% year-over-year, a number that was in line with analyst expectations. The company’s 26% gross profit growth was better than expected, thanks to improved logistics as the company better aggregated orders before they were shipped.
While both companies had a pretty good first quarter, they painted very different pictures of the health of their customer bases: Low-to-moderate-income consumers seem to be hitting the mark. trades between goods and experiences, but those with more money are simply hunting for value deals.
ThredUp CEO James Reinhart said in the company’s earnings report that there are “countless disruptive forces” that are causing consumers to spend cautiously on apparel, including the war in Ukraine, high inflation and a general change in spending on tourism and experiences. As a result, thredUp has slightly lowered guidance for the full year, expecting 27% revenue growth in the midpoint of guidance, compared with previous guidance of 33% growth. Meanwhile, RealReal remains the same outlook for this year. It expects revenue to grow about 39% this year.
RealReal CEO Julie Wainwright said on the company’s earnings report that demand for luxury goods has recovered. The bottom line is that the RealReal is starting to sell more clothing, which generally costs less than high-end jewelry or handbags but results in a higher acquisition rate for the company.
So far, shares of ThredUp are down 59% while shares of RealReal are down 62%. This is a steeper drop than even the struggling, mature clothing seller Gap,
down 32%. Resale is a category that’s still small with plenty of room for growth, but it probably doesn’t help given the recent lack of sympathy for loss-making tech companies with the goal of high growth. Additionally, both are regulated marketplaces that process items, authenticate them in the case of RealReal, and sell and ship on behalf of their customers. All of those steps could put more pressure on profits as long as inflation remains high. But behind the foggy short-term outlook are the two companies that are still seeing healthy growth in the number of active buyers and a solid competitive strategy in the form of a scale system to handle. and sell second hand items on behalf of their customers.
After the sharp sell-off, both thredUp’s and RealReal’s businesses valued the transaction at or below their respective next 12-month sales, bringing their valuations below low-cost retailer TJX Cos and the vicinity of Gap. It’s hard to predict which way consumer sentiment will go, but at this stock price, thredUp and RealReal both look like cheap bets.
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