ThredUp Inc.

Good day and welcome to the ThredUP Q2 2021 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Lana Adair, Investor Relations. Please go ahead.

Good afternoon and thank you for joining us on today's conference call to discuss ThredUP's second quarter 2021 financial results. With us are James Reinhart, ThredUP's Chief Executive Officer and Co-Founder, and Sean Silvers, the company's Chief Financial Officer. We posted our press release and supplemental financial information on our investor relations website at ir.spiteup.com. This call is also being webcast on our IR website, and a replay of this call will be available on the website shortly. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call, including but not limited to statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies, and plans. These forward-looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially. Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in our SEC filings earnings press release, and supplemental information posted on our investor relations website. In addition, during the call, we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliation with comparable GAAP measures in our earnings release. Now I'd like to turn the call over to James Reinhart.

Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUp. Thank you for joining us for ThredUp's second quarter 2021 earnings call. With two quarters behind us as a public company, we're excited to share financial results and business highlights from our second quarter, including ThredUp's anticipated entry into the European resale market. I'll also provide commentary on our ninth annual resale report with our first ever ThredUp impact section. This section details how ThredUp is creating positive change in the world. I'll then turn it over to Sean Sobers, our Chief Financial Officer, who will walk through our financials in more detail and provide our outlook for the third quarter and fiscal year 2021. For the second quarter in a row, we achieved record revenue, record gross profits, record gross margins, record active buyers, and record orders. Our growth metrics indicate that our business continues to rebound from its pandemic slowdown, and we believe we're on a clear path to sustainable growth. Given we're a managed marketplace, let me comment in turn on both the demand and supply trends we're seeing. On the demand side this quarter, we benefited from a return to some degree of normalcy given increased vaccination rates. In late spring, restrictions were lifted across the country, global guidelines expanded, and most states went back to business as usual, enabling consumers to reengage in everyday activities outside of their homes. While the Delta variant has created some new wariness in parts of the country, many of us are still preparing for in-person school and the return to in-person work this fall. And as such, we expect consumer spending to be resilient through the end of the year, edging back to pre-pandemic levels by some projections. Purchasing behavior on ThredUp supports this trajectory. Kids' sales were up 50% in July compared to June, while sales for women's items like dressier working pants saw a 32% month-over-month increase during the same period. In addition, sales for both midi dresses and formal dresses grew by 16%, and sales for heels experienced 21% month-over-month growth. So while we entered the second half of the year with the enthusiasm that demand for consumer apparel is, quote-unquote, back, as many are saying, we also anticipate challenges from the Delta variant to linger and competition for consumer wallet share to be fierce. On the supply side, we are continuing to build selection in our marketplace to historic levels to capitalize on the growing number of sellers entering the resale market. While our second quarter 2021 financial results were better than expected, one area where we did not make as much progress as we had hoped is in the reduction of bag processing times. Even though we have accelerated overall processing capacity by more than 40% since this time last year, Regular bag processing times have increased to 12 weeks on average across our distribution network. We continue to provide VIP expedited service for those who are focused most on earning money. We have continued to see incredible interest for our clean-out kit service, resulting in a seemingly endless amount of supply. We plan to continue to invest in processing capacity and automation to reduce this backlog and expand our item selection. Now let me turn to our Resale as a Service program. We've recently launched four new RAS clients, including Farfetch, Madewell, LG Electronics, and Fabletics. Of note, Madewell debuted the first white-label resale shop enabled by ThredUP's 360 RAS platform, bringing to life our robust 360 capabilities to deliver a fully customized resale experience. We will continue to roll out more features for our RAS partners in the coming months. In addition, Our deal with LG Electronics signals that any consumer business, not just fashion retailers, can leverage ThredUP's resale platform to empower their customers to do good in the world. These RAS deals are primarily structured to include upfront integration fees, as well as ongoing service, usage, and or revenue sharing fees. We are in the nascent stages of implementing this structure for new client agreements, as well as ongoing client renewals, but we believe this is an exciting part of our future. In late June, we published our ninth annual resale report, which measures the U.S. second-hand market and assesses current consumer trends. According to the report, conducted by independent data provider Global Data, the second-hand market in the U.S. is projected to double $77 billion in the next five years. Within that, resale is expected to grow 11 times faster than the broader retail clothing sector during the same time period. This predicted growth is driven by sellers putting record amount of product into the market. 76% of people who have never resold clothing are open to trying it, meaning that there are nearly 120 million anticipated future sellers who will continue to drive industry growth as it becomes easier to sell clothes online. This new data only confirms for us that we must continue to invest in our platform, infrastructure, technology, data science, to capitalize on the resale opportunity in front of us. Although we are still in the early stages of this transformation in resale, there are emergent signals suggesting that secondhand is displacing traditional retail. In particular, resale is expected to be twice as big as fast fashion by 2030, as thrifters replace fast fashion purchases with secondhand clothing. Consumers say they care more about wearing sustainable apparel than they did before the pandemic, and also have a growing disdain for both eco and financial waste. The environmental impact of these behavioral changes is significant, and that impact will only amplify as more people participate in thrift. Also included in this year's report for the first time is a section on ThredUP's impact. At ThredUP, we do well by doing good. We are creating positive change by transforming the way we shop and consume. By enabling resale at scale, we're ushering in a more circular future for fashion and helping new waves of consumers, brands, and retailers take positive steps towards sustainability. To date, ThredUp has processed more than 125 million unique secondhand items and displaced an estimated 1.1 billion pounds of carbon emissions. When you buy a secondhand item instead of a new one, you reduce its carbon footprint by 82%. 82%. I'm proud that by giving new life to millions of used clothes, we are offsetting the environmental and financial cost of fashion. The fashion industry can and will do better, and ThredUp is committed to being part of that change. We believe this is just the beginning. You can view our full report at www.thredup.com backslash resale. Finally, last month we announced the initial phase of our international expansion strategy with the agreement to acquire Remix. one of Europe's leading fashion resale companies. The deal is expected to close in the fourth quarter. The acquisition will accelerate ThredUP's international growth plans in Europe, where the secondhand market size was estimated by global data to be 21 billion in 2020, growing to 39 billion by 2025. Much like ThredUP's own proprietary operating platform, Remix has built custom single-skew logistics that can process millions of unique garments efficiently. With this acquisition, ThredUp adds a complementary operational engine and an experienced management team to springboard its expansion to Europe. We plan to invest in Remix product offerings, processing infrastructure, and go-to-market strategy to accelerate its marketplace growth. The Remix acquisition also allows ThredUp the potential to extend its RAS platform beyond the U.S., enabling brands and retailers to deliver customized resale experiences to their customers in Europe. A number of the world's leading brands and retailers already rely on ThredUp's RAS platform to power their resale channel, and international expansion opens the doors to potential future growth. We're bullish about the massive opportunity in the European resale market, and we're thrilled about the chance to build upon Remix's technology and operational expertise. In closing, we are continuing to invest in the future. Our acquisition of Remix, our ongoing technology investments in RAS, the scaling of our distribution and processing network, all of this is part of our strategy to build the leading resale company in the world. We believe these investments will pay dividends over time, and we're confident that given our strong unit economics, now is the time to be more aggressive. Consumer behavior, especially among young people, is shifting in such material ways that we must go big and we must go fast to inspire and capture this new generation of consumers who are shopping secondhand.