Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ThredUp Inc (TDUP, Financial) achieved a 300 basis point increase in consolidated gross margin year-over-year.
- The US business posted a gross margin of 78.8%, which is 240 basis points higher than last year.
- ThredUp Inc (TDUP) launched new AI shopping products, including visual search and style chat, enhancing the customer shopping experience.
- The company saw an all-time high in orders and revenue per buyer in Q2, with more than $208 per active buyer in the US.
- ThredUp Inc (TDUP) plans to exit the European market, which is expected to immediately increase gross margins, improve gross profit growth, and accelerate the path to free cash flow.
Negative Points
- The European business struggled significantly, contracting 18% and posting a negative 23% adjusted EBITDA.
- The company experimented with new customer acquisition and promotions in the US, which did not perform as expected, resulting in acquiring 90,000 fewer customers.
- The challenging consumer environment, compounded by inflation, negatively impacted ThredUp Inc (TDUP)'s core customers.
- The company had to be more promotional in Q2, which negatively impacted unit economics and pulled forward lower quality revenue into June.
- ThredUp Inc (TDUP) expects the consumer environment to remain challenging, with potential worsening due to economic factors and the upcoming US election cycle.
Q & A Highlights
Q: What specifically changed in the second quarter regarding the European business, and how did you come to the decision to divest it?
A: We had been focusing on product, technology, and operations, and then shifted to consignment to drive gross profit. However, it took longer to materialize. New leadership indicated it would take even longer and more capital. Given global challenges, we decided to focus our resources on the US market, where we believe we can achieve better results. (James Reinhart, CEO)
Q: Can you quantify the impact of the self-inflicted issues on US EBITDA for this year?
A: The impact of the buyer strategy change was around $6 million in lost revenue, translating to approximately $2 million in EBITDA. (Sean Sobers, CFO)
Q: Can you explain the changes made in mid-Q1 that negatively impacted Q2, and what was done in June to correct it?
A: We experimented with a flat dollar-based credit system instead of a percentage off the first order. This did not perform as well, so we reverted to the previous strategy of percentage off with free shipping on June 1. (James Reinhart, CEO)
Q: How did the changes in customer acquisition strategy affect gross margins?
A: Initially, gross margins were favorable, but as we became more promotional towards the end of the quarter, it offset the earlier benefits, resulting in a mixed gross margin outcome. (Sean Sobers, CFO)
Q: What are you observing in terms of consumer behavior on the platform?
A: Consumers, especially budget shoppers, are more discerning and require higher discounts to convert. Premium shoppers remain consistent, but budget shoppers need about 20% higher discounts compared to last year. (James Reinhart, CEO)
Q: Why was the change in customer acquisition strategy made?
A: We were looking for new sources of growth and lifetime value, aiming to find a better strategy for acquiring new customers and improving long-term value. (James Reinhart, CEO)
Q: Was the change in customer acquisition strategy in response to competitive dynamics?
A: No, it was an internal initiative to explore new growth opportunities and improve lifetime value, not a response to competitive changes. (James Reinhart, CEO)
Q: How do you view the impact of the macro environment on your guidance?
A: The macro environment has worsened, with consumers becoming more selective in their spending. This, combined with our strategic missteps, has led to a revised guidance. (James Reinhart, CEO; Sean Sobers, CFO)
Q: How are you managing the capacity and expense structure in your distribution centers given the current volume?
A: Despite the challenges, we sold more clothing in Q2 than ever before. The main issue was the need for higher discounts to convert budget shoppers, not a problem with our distribution center capacity or cost structure. (James Reinhart, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
