ThredUp Inc.

Good afternoon, ladies and gentlemen, and welcome to the ThreadUp Q4 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, March 3, 2025. I would now like to turn the conference over to Lauren Frasch. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss ThredUP's fourth quarter and full year 2024 financial results. With me are James Reinhart, ThredUP CEO and co-founder, and Sean Sobers, CFO. We posted our press release and supplemental financial information on our investor relations website at ir.thredup.com. This call is being webcast on our IR website, and a replay of this call will be available on the site 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 earnings guidance for the first fiscal quarter and full year of 2025, future financial performance, market demand, growth prospects, business strategies and plans, investments in AI technologies, our ability to cost-effectively attract new buyers, and the effects of potential tariffs, inflation, and general economic uncertainty on consumer demands. Words such as anticipate, believe, estimate, and expect, as well as similar expressions, are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, involve known and unknown risks and uncertainties, including our ability to effectively deploy new and evolving technologies, such as artificial intelligence and machine learning, in our offerings and the effects of inflation, increased interest rates, changing consumer habits, and general global economic uncertainty. Our actual results could differ materially from any projections of future performance or results expressed or implied by such 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 IR website. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. 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 for, or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings press release and supplemental information posted on our IR website. Now, I'd like to turn the call over to James.

Good afternoon, everyone. I'm James Reinhart, CEO and co-founder of ThredUP. Thank you for joining our fourth quarter 2024 earnings call. Given the completed divestiture remix in November of 2024, my remarks will focus exclusively on our continuing operations in our U.S. business, unless otherwise noted. We are pleased to share ThredUP's financial results for Q4 and our expectations for Q1 and fiscal year 2025. We'll provide an update on growth, gross margins, adjusted EBITDA margin expansion, and detail further customer-facing improvements across our marketplace. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our fourth quarter 2024 financials in more detail and provide our outlook for the first quarter and full year 2025. As always, we'll close out today's call with a question and answer session. Let me start by saying that we've made substantial progress in re-accelerating growth in the U.S. while maintaining our free cash flow and adjusted EBITDA targets. As we announced in January, our fourth quarter performance was well above our expectations, and that progress has continued into 2025. This is driven by three factors. First, our customer acquisition and retention strategy. Customer acquisition remained very strong in Q4, with new customer volume up 32% year over year. Q1 is also shaping up to be one of the strongest acquisition quarters in our history. We expected active buyer growth to inflect positive in Q1, and are pleased to be ahead of our plan at this point in the quarter. Customer retention metrics remain strong quarter to date, with conversion rates from visit to purchase at all-time highs. Despite scaling spend significantly in Q4 and further again in Q1, strong conversion and retention means our paybacks remain in line with our sub-one-year goal. We are increasingly confident we can invest more aggressively in growing new buyers while still achieving our free cash flow targets. This is likely to be our approach for the foreseeable future. Second, our sourcing strategy and processing capabilities. With buyer growth accelerating, we are now sourcing, processing, and listing more high-quality apparel than ever. We are no longer stemming the flow of sellers onto our marketplace. Instead, we are scaling up processing capacity across our network to meet the needs of more and more buyers. Fresh listings on ThredUp, which we identify as items under 14 days old, are up 9% quarter-to-date on a year-over-year basis and continuing to accelerate. Fresh listings remain a key input to buyer growth and retention. We are confident we're meeting the mark so far in 2025. Just as important, this uptick in supply isn't just, quote, unquote, more stuff to chase revenue growth. Rather, this is increasingly more desirable and premium apparel targeted at delighting our core resale market. As we noted on our last call, our premium selling service is now live to 100% of sellers. Top brands from this service include brands like Kate Spade, Veronica Beard, PINCO, and Love Shack Fancy. Average listing prices for items from premium bags are 50% higher than in traditional bags. Items coming from premium kits now make up more than 10% of newly listed items, and this has been growing sequentially for three quarters. As a reminder, this service is priced higher at $34.99 per kit, with more tools for sellers, longer consignment windows, a floor on discounts, and more dedicated customer support. We are continuing to innovate on behalf of sellers. Whether you want us to do all the work, you want to do more of it yourself, or somewhere in between, we remain relentless in our pursuit of making ThredUp the leading choice to sell secondhand apparel online, expanding our TAM, and at the same time, our sustainability impact. Third, our generative AI product and technology investments. We continue to believe that AI disproportionately benefits ThredUp relative to other marketplaces and retailers, and that generative AI can significantly enhance the secondhand shopping experience. For years, our dream was to build a secondhand shopping experience that was indistinguishable from shopping new. Advancements in generative AI are inching us closer to that reality in multiple ways. First, our AI search functionality continues to delight customers and drive the conversion rates I mentioned earlier. Since inception, 1.3 million image searches have been performed, and sessions with an image search have an 85% higher conversion rate. Second, We are using this search technology to generate visual category pivoting, allowing customers to find the exact style of dress or coat or denim that meets their needs, but in a way that feels much more intuitive to how customers shop online. High performing AI generated pivots can draw click through rates north of 15%, well above merchandising engagement rates without imagery. This is particularly important for new customers who have never shopped secondhand online. Third, Iterations of our style chat and image search are powering new ways to shop this year. Soon, any social feed, board, or archive of style you have will be able to be ingested into ThredUP to help you shop these looks for less secondhand. We will be starting with a deeper Pinterest integration in the weeks ahead, and we'll follow up with other social platforms throughout 2025. Linking where you get inspiration in fashion with how you can best find those looks is a linchpin to our strategy. We expect this technology will also empower creators, influencers, and affiliates to curate and showcase our millions of high-quality second-hand items to their audiences. Finally, fourth, we are leveraging AI across our infrastructure. Last quarter, we launched 360-degree high-definition photos, paving the way for AI-generated lifestyle imagery on individual product pages. 360-degree photos have increased 30-day sell-through rates up to 12%, depending on the category. This quarter, we launched automated digital measurements, increasing the accuracy and shopability of everything on ThredUP. We should see better measurements, translating to improved conversion, lower returns, and increased customer retention. Now turning to the consumer environment. Last week, we released early data from our upcoming resale report about the impact that tariffs are having on consumer psychology. Our take is that with tariffs and inflation dominating the national conversation, consumers are concerned about price hikes across retail. In this environment, secondhand could become more attractive for shoppers seeking out affordable, high-quality clothing. According to the data, 51% of consumers say higher prices due to inflation impact how much they spend on apparel. 62% of consumers say they're concerned that new government policies around tariffs and trade will make apparel more expensive. And 59% of consumers say if new government policies around tariffs and trade make apparel more expensive, and they will seek more affordable options, like secondhand. Before I turn it over to Sean, I want to do a quick review of the competitive advantages in our business, especially now that we are exclusively focused on the U.S. Our competitive advantage comes from the compounding effects of three hard problems we've solved. First, we built a name-brand reverse logistics supply chain that has created a massive supply advantage in the resale market. Winning the battle for high-quality supply continues to be an important part of our defensibility. Second, we have built world-class infrastructure, technology, and software to process single SKU apparel at scale. With ongoing innovations in processing technology and AI, we are extending our advantage even further while we grow capacity and reduce costs. Third, we have built a data-driven managed marketplace that connects buyers and sellers on our platform. We ingest millions of data points that, combined with the algorithms and models that sit on top of that data, help us improve our acceptance, merchandising, photography, pricing, and marketing capabilities. The rapid deployment of AI technology to serve customers better comes directly from this longstanding data advantage. As I've said from our very first public filing, our strategy has been developed with a deeply calculated approach about what it takes to build and sustain competitive advantage over time. We believe that every day our supply advantage increases, our infrastructure and data mode widens, and the network effects of our marketplace grow.