RealReal [REAL] Conference call transcript for 2022 q1
2022-05-10 20:14:08
Fiscal: 2022 q1
Operator: Ladies and gentlemen, thank you for standing by and welcome to the RealReal's First Quarter 2022 Earnings Results Conference Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your first speaker today Caitlin Howe, Vice President of Investor Relations. Thank you. Please go ahead ma'am.
Caitlin Howe: Thank you, operator. Joining me today to discuss our results for the period ended March 31st, 2022, our Founder and CEO, Julie Wainwright; President, Rati Levesque; and Chief Financial Officer, Robert Julian. Before we begin, I would like to remind you that during today's call we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking for which historical financial measures we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a stockholder letter earlier today, both of which are available on our Investor Relations website. I would now like to turn the call over to Julie Wainwright, Chief Executive Officer of the RealReal for introductory remarks and then we will go directly into a question-and-answer session. Julie?
Julie Wainwright: Thank you, Caitlin and thank you to everyone joining our earnings call today. Before we get into the quarter's results, I want to take a moment to acknowledge the ongoing humanitarian crisis in Ukraine. Our thoughts are with those impacted by this devastating war and we wish for a resolution to this conflict and a return to piece in the region. Today, we are pleased to announce better-than-anticipated financial results for the first quarter of 2022. During the quarter, we delivered solid topline growth despite COVID-related staff call-outs in and our authentication centers early in the first quarter. Since supply drives demand, our return to normal staffing levels resulted in strong demand on our platform due to increased inventory. GMV was driven by fine jewelry and watches, high-value handbags and strong growth rates in women's apparel and shoes. Of note the RealReal sales in apparel are contrary to e-commerce reported retail trends. Importantly, during the first quarter, we also continued to generate significant operating expense leverage on both fixed and variable costs. After better-than-anticipated financial results in the first quarter, we are pleased to confirm our full year guidance and provide guidance for the second quarter of 2022. Notably, we continue to project the RealReal will be profitable on an adjusted EBITDA basis in 2024. And we are on track to achieve our Vision 2025 targets. These targets and projections rely on a number of assumptions; number one, continued topline growth of at least 30%; number two, operational excellence with improved variable cost productivity; and number three, laser-focused disciplined on fixed costs. We note that the RealReal delivered on all three of these points in the first quarter 2022 results. The near-term risk to the business continued to be inflationary pressures on our transportation costs and attracting and retaining sales and operational talent. For transportation costs we are taking immediate steps to offset these increases. For sales and ops hiring, we exited the quarter in good shape. However, we are actively recruiting to fill positions, as we grow. Looking forward, we continue to see strong demand in our business. As inflation has ramped up and prices have increased in the primary luxury market, we believe the RealReal is a demonstrated value option offering unique and highly coveted items within the luxury goods space. Therefore, we believe we are positioned for a strong 2022. And with that, we will now go into our Q&A session.
Operator: Thank you. Your first question comes from the line of Anna Andreeva with Needham. Your line is open.
Anna Andreeva: Great. Thank you so much and congrats, operating great in tough environment. We had a couple of questions. The number of new buyers accelerated this quarter. Can you talk about the behavior of these buyers compared to the previous cohorts? And curious, if you're seeing a bigger trade down from the primary market, and just a follow-up on guidance for 2Q, you're guiding for roughly similar run rate in GMV, despite lapping a much tougher compare. Just curious, what are you seeing in the business quarter-to-date? Just given, we've been hearing a lot of negative sentiment in the consumer space. Thank you so much.
Julie Wainwright: We'll let Robert answer the second part. You should also recognize that when we are giving the guidance for Q2, we are now five weeks into Q2. So we wouldn't give guidance, if we didn't have strong faith in our quarterly estimate. But, to your first question about new buyers and cohorts, look we measure our cohorts over time. The new buyers are acting in the first quarter of buying just the same as the other buyers. The biggest shift in our business has been more apparel which is actually growing in incredibly fast rate, and up to where it was pre-COVID time. So apparel as a shift, but the new buyers is actually like our previous cohorts. So there's no change there. The trade down from the primary market hard to measure. Our premise has always been that when inflation hit or a recession, that we were going to be a beneficiary of both because we do -- we are a value player. So our demand is strong, and it's really tied to us having inventory in the site. But again, we have no way of tracking our people switching their purchasing power, purchase from primary to secondary. I can tell you in the past, people have moved away from fast fashion. And we'll monitor we'll ask people these questions and monitor that and we do it every year. So that survey will go out sometime in May. Now, let's go to guidance for Q2. Robert?
Robert Julian: Yes. Thanks for the question, Anna. We feel comfortable with our guidance for Q2 on the top line. The projection is about 33.5% of growth in GMV for Q2 versus last year. We feel that's very achievable. It's in the range of what we talked about 30-plus percent growth. So we feel good about what we're projecting. As Julie mentioned, we're a month into the quarter at this point. So we actually have one of the three months in the books and we feel good about the trends and the projections that we see.
Anna Andreeva: Great. Can I just squeeze another one? Just a follow-up on direct sales. I think the highest as a percent of GMV, it's ever been. How should we think about the mix just for the balance of the year, especially as looking at inventory that's growing in line with sales now this quarter?
Robert Julian: Yes. So direct revenue as percent – direct revenue as a percent of total revenue was in fact higher than normal. In Q1 it was about 34% of our total revenue. And last year in Q1 it was 25%. That's really a function of sell-through. So the inventory that we had on hand sold through at a higher rate than we expected and that did drive that percentage up in terms of the proportion of our total revenue coming from direct. We do anticipate as the year progresses for that percentage to come down. The absolute amount of direct revenue stays relatively constant throughout the year. It becomes a little bit of a different comparison because direct revenue started to grow in the second half of last year. And so the growth rate will decline as the comparison changes. And we do anticipate over time the direct revenue as a percent of total revenue will go down. We do have initiatives that we had mentioned before that we are deemphasizing the direct business in favor of our consigned business model and we do have initiatives to reduce that over time. There will always be some portion of our business that will be direct. There is direct revenue comes from out-of-policy returns. There is direct revenue that comes from things like get paid now. That will continue and will probably grow in proportion of our top line as time goes on. The part of our business direct businesses driven by purchases from vendors and wholesale or so on, we will deemphasize. But in general overall that percentage should come down over time and we project that for the second half of the year as well.
Anna Andreeva: Okay. That’s super helpful. Thank you so much guys.
Operator: Our next question comes from the line of Michael Binetti with Crédit Suisse. Your line is open.
Michael Binetti: Hey, guys. Thanks for taking our questions here. So I think you sound confident in where 2Q is headed. But as we try to look at it on a 3-year basis to think about what the growth rates have been here quarter-to-quarter relative to the pre-COVID world, it looks like you're baking in a bit of an acceleration in 2Q and then a little more in the second half on that basis. Maybe just a little help because there's obviously been a lot of noise in the retail marketplace in the US at least and that the couple of the other analysts have mentioned as well. But maybe just a little up in 2Q and what you're seeing in the top line dynamics unfolding since the end of the quarter in March that boost your confidence in 2Q?
Julie Wainwright: Yes. Okay. Before we get going, one of the things I do want to comment, we're in a different sector than we get lumped in with e-commerce quite a bit and we're not an e-commerce business, we're a marketplace business and we're on the high end of the marketplace business. And we do sell unique products that have – that don't have multiples. So some of the basic retail credit card that it really doesn't apply to us and we have been countering that. So whenever we -- we certainly are aware of what's going on in the normal e-commerce business. We're certainly paying attention to everyone's earnings reports, but they don't map to our business really as -- because of where we sit as a marketplace and a value play in the luxury space with unique products. So, to be honest, one other bit of -- from people that are really getting in and understanding our business. We also don't necessarily map to what happens in the peer-to-peer marketplaces which have more margin pressure on them than we do and certainly have different price points than we do. So with that, I'm going to turn it over to Robert.
Robert Julian: We've talked before about really not liking the two-year and three-year stack view of our revenue given the very unusual result that we had in 2020 due to COVID. And if you look at our growth rate in Q2 of 2020 versus 2019, it was minus 20%. And then in 2021, it was plus 92%. And now we're seeing in Q2 of 2022, it's plus 33.5% as I mentioned before. And I think that's a return to normal. I don't think it's an unusual growth rate or a change in what we would expect long-term and going forward. And also I would say that the calendarization of our GMV over the year and by quarter is very consistent with what you would see in a typical year. Even in the strange years in 2020, the proportion of our revenue that comes in each of the quarters what we're projecting now is very consistent with that. So for those reasons, I feel confident that we have a good and accurate forecast for Q2 top line.
Michael Binetti: And then, I guess to follow that, should we -- to latch on your comments about thoughts on trade down. Are you seeing any signs of trade down within your business as you look across the different classifications and categories? I guess in a perverse way that could be a good thing to see within your ecosystem, it probably means you get on more people's radar outside the ecosystem if budgets start to tighten.
Julie Wainwright: No. What we've seen though is more -- and I don't think this will -- as we stated earlier, we're selling more apparel, which has a more natural lower price point than a fine jewelry or a handbag, but it has a higher take rate for us. So, our apparel did start returning to normal last quarter -- Q4, it started to return to normal but now in Q1 we're back to normal and those trends continued in April. So, it's more of a category shift mix than it is a trade down.
Michael Binetti: Okay. Thanks a lot for the help.
Operator: Your next question comes from the line of Lauren Schenk with Morgan Stanley. Your line is open.
Lauren Schenk: Great. Thanks. Could you talk a little bit about supply trends that you saw in 1Q relative to the fourth quarter? And then, if you could update us on sort of the supply mix that you're seeing? And then, just lastly on the ending inventory balance. You mentioned you're expecting to continue to work through that over the next few quarters. Could you maybe help us break down how much of that inventory is vendor versus the direct buy -- or the -- sorry, the buy now and the returns piece? Thank you.
Rati Levesque: Yes sure. I'm going to have Robert take the second part of that question but this -- I'll take the first part. And barring the supply trends are concerned, they were similar to last year by was quite healthy. I think we talked about that. We did have some issues getting the product up on the site because of labor shortages. But that's behind us now. As far as supply mix goes, seeing the same trend. We are seeing more ready-to-wear, as Julie mentioned on the seller side as well. 30% of our sellers continue to come from stores, that's quite healthy. And in-home is back to pre-COVID numbers if not healthier. So all the trends we target a lot of KPIs in supply whether that's average unit pickup or conversion, supply mix, value and all of those are quite healthy for Q1.
Robert Julian: And Lauren your question about the makeup of our inventory by the different buckets that we categorized. About 60% of our total owned inventory is from vendor purchased or wholesale activity. About 25% of our inventory balances from get paid now by upfront or throw in -- what I'll call it recovered inventory, which is an operational sort of issue. And about 15% of the total inventory balance is due to a lot of policy. And that's just as stated on the balance sheet of the $70 million to $73 million that's a breakdown by category.
Lauren Schenk: Okay, great. And just one follow-up. Where do you see that vendor mix going over the next couple of quarters?
Robert Julian: We see it declining fairly significantly.
Lauren Schenk: Great. Thanks.
Operator: Your next question comes from the line of Kunal Madhukar with UBS. Your line is open.
Kunal Madhukar: Hi. Thanks for taking my questions. A couple of if I could, just a follow-up on the inventory side. So, obviously, you sold through much more of your inventory than you expected. So was this unexpected -- but the inventory overall only increased by about $2 million, $2.5 million. So was the unexpected inventory coming more from like get paid now, or was it more like return out of policy? And then as we look ahead to the future in the next few years, one of the things that's in there is an expectation that you will be able to deliver 30% plus growth on GMV period-after-period year-after-year. And as we think about a worsening macro-outlook, which a lot of people are talking about. And Julie, kind of, refer to it in terms of the more value-conscious consumers. So how does it impact the wallet share for the more value-conscious people, will they be more impacted by inflation and a downturn? And so may just exit the market completely?
Julie Wainwright: Okay. I'm going to answer the last. We always look at what happens in the luxury space. The luxury business is one of the most resilient businesses. We're not in a need to low-cost bottom dollar business, which is impacted by different things but the luxury business is tremendously resilient. And we have a phenomenal flywheel where our buyers' become sellers and our sellers' become buyers, which gives us confidence. The other thing we always look at is what's happening in the funnel of our -- in terms of our -- the beginning of us getting a lead for consignment. And that actually is very, very healthy. We don't expect that to change. You can imagine that some people are going to sell their things because they need the money. Other people are going to sell their things to buy new things. But I don't see our end of the market being hit in this market, we would have seen -- there I know of businesses that if the market drops and clearly the market has been dropping or their business evaporates. We have not seen that on our side of the business at all. And the luxury market is phenomenally resilient. The reason we're confident about our growth is because of our low penetration rate overall. So, we have less than 2% of potential consignors in the US and 40 -- over 40% of our consignors that can sign with us are first-time consignors. That's been almost since the beginning of time. So we're still introducing the market, introducing people to the whole value of consigning and that they have trapped value in their house. Once they start consigning with us, they tend to continue. As you know, our consignors have a high purchase rate on our site through our most valuable customers, but we're also converting more buyers to become consignors. So we are very confident about the future growth. We're very confident about our positioning. And with that I'm going to turn it over to Robert to talk about the other issue.
Robert Julian: Yes. So Kunal, the question was about where inventory grew in spite of the higher sales through. So, using the same categories that I gave before in terms of where our direct revenue is -- the own direct revenue. I would say that about 60% of the growth in inventory from the end of the year to end of Q1 came from the get paid now by upfront recovered category. And then the remaining 40% was split equally between out-of-policy returns and the vendor purchased in wholesale category.
Kunal Madhukar: Got it. Thank you, so much.
Operator: Your next question comes from the line of Simeon Siegel with BMO Capital Markets. Your line is open.
Simeon Siegel: Thanks. Hi everyone. Just the AOV, did you say how like-for-like ASP is to normalize for mix? And then, I don't know if we're still talking about GP per order, but just any thoughts on how to think about that going forward? Thanks a lot.
Robert Julian: I guess I'll start on the gross profit per order because you guys know that's not my favorite metric. I think that gross profit per order in Q1 was about $95 that was I believe it was an increase year-over-year but...
Julie Wainwright: It was a $90. Yes $90.
Robert Julian: $90 it was -- I think it was $85 last year. So about a $5 increase year-over-year.
Julie Wainwright: Yes.
Robert Julian: And again, it's not my favorite metric because it sort of ignores our entire cost base when you're talking about our path to profitability, but it was up year-over-year. I think it might have been down slightly sequentially.
Julie Wainwright: And then I can take the first question around AOV and ASP. AVO is up year-over-year since 2019. And there really is just an inverse relationship between units per transaction and ASP. So we did see that go up, driven out of units per transaction. And then, ASP as for like-for-like items, we are getting smarter. We have often technology which I heard about at Investor Day around testing higher prices around average selling prices. It's all machine learning driven and we feel really good about that. And when we control for mix, we do see average selling price up.
Simeon Siegel: And I know -- thank you. That's great. And then I know the take rate tends to be a function of the -- I guess within the AOV. So how are we thinking about any changes or any opportunities on the take rate side?
Julie Wainwright: Yes. We do think there's some opportunities there and we're looking at it now, because we do have some areas where we don't have a lot of competition, but we haven't completely finalized, but we do think there's some opportunities on the take rate side, mostly on the low end of the product spectrum.
Robert Julian: We did take that from--
Julie Wainwright: Yes, take rate now is up, yes, driven out of more ready-to-wear, but it's also driven by the change we made last year in taking more commission on low-priced goods, as well as unbranded jewelry.
Rati Levesque: And we think on low-priced goods, there's still an opportunity. When I say low price, I mean very low priced.
Simeon Siegel: Perfect. Thanks a lot everyone. Good luck for the rest of the year.
Julie Wainwright: Thank you.
Operator: Your next question comes from the line of Susan Anderson with B. Riley. Your line is open.
Alec Legg: Hi. Good afternoon. Alec Legg on for Susan. My first question just on the -- going back to the direct revenue, is there any major difference between the vendor the paid now option and the out-of-policy return margins?
Robert Julian: There are just certainly different margins by category in the owned inventory. The margin -- it's a competitive market in terms of what we can buy items for an expected gross margins. So there are -- I wouldn't say it's by, the difference between Get Paid Now or vendor and wholesale, but it's different gross margins by product category certainly.
Alec Legg: Okay. And then, this quarter like you mentioned a lot of operating leverage, how much of that was driven by mix leverage versus say improving your variable cost productivity?
Robert Julian: Yes. So we saw a very nice fixed cost leverage in the quarter versus prior year in round numbers roughly 1,600 basis points on that part of our cost base. And we saw very nice productivity on our variable cost base, another 250 basis points which stated in terms of variable cost productivity, it was almost 7% productivity on our variable cost base. And between the two of them we saw 1,870, almost 1,900 basis points of leverage on our operating expenses in the quarter versus prior year.
Alec Legg: Perfect. Very helpful. And then my last question just on the neighborhood store strategy. How many stores do you have now and thoughts for the future? And then any metrics around the stores you can share this quarter?
Rati Levesque: Sure. We have 16 stores right now that are shoppable. We also have three luxury consignment offices that's a place where you can just go in and drop off your goods or meet with an expert. They're supply-driven. And, yes, I mean, our strategy on stores are the same as last quarter. We're opportunistic as far as locations go. If we find real estate that look enticing, we'll definitely take them up on it. 30% of our sellers continue to come from the stores and both on the supply and demand side quite healthy there.
Julie Wainwright: But our goal is to -- we're estimating this year may be done, because unless we have an extraordinary lease that falls our way but in two stores per year going forward of new openings.
Alec Legg: Perfect. Thank you. Best of luck for the rest of the year.
Julie Wainwright: Thanks.
Operator: Your next question comes from the line of Michael McGovern with Bank of America. Your line is open.
Michael McGovern: Hey, thanks for taking my question. I have two. The first one, I think the consignment take rate was up pretty significantly year-on-year, but the consignment gross margin was still down slightly. I was just wondering if there's anything to call out for either of those on the consignment side. And then, just for your full year EBITDA guidance obviously, implies some margin improvement. So can you just remind us of the fixed cost leverage versus variable cost productivity gains that are underpinning that kind of margin improvement, through the end of the year? I guess, what kind of change should we put into our model? Thank you.
Robert Julian: So on consignment, take rate that is largely a fund of mix. When you see our take rate going up or down, it's almost always just the mix of category between high take rate items versus low take rate items. And if anything on, item-by-item basis, we've stayed either flat or increased slightly. So that's how it's a question of mix. Same thing on the margin. I will say in the way we report, margins in our Q, we include the shipping expense, the net shipping expense on the consigned side we knew that category is actually consigned in services and the direct is a category that's cleaned by itself. And so a little bit of, what you might see on a consigned gross margin change again, could be mixed, but it's largely a function of there also being services and shipping and shipping has been a headwind. What was the -- I'm sorry the second question, on the leverage its variable leverage...
Michael McGovern: Just yes just in the context of the full year, guidance just looking at based on my math, about $65 million in losses in the first half of the year then to get to the lower end of the range of full year guidance, would suggest about an improvement of $35 million in losses. So I guess, could you describe that kind of margin improvement just -- any context you can give us for that?
Robert Julian: Yes. I do think you're going to continue to see, the fixed cost leverage that we have seen in the past and you're going to continue to see, support OpEx as a percent of revenue decline. Largely that part of our cost base I've described as primarily fixed. And with the seasonality of our business, and with increased top line growth in both GMV and revenue for Q3 and Q4 and the second half of the year, just mathematically you're going to continue to see really nice leverage on that part of our cost base. And I think, you should expect to continue to see the type of productivity, we talked about at Investor Day that our variable cost productivity needed to be 3% to 5% sort of low- to mid-single digits. We did better than that in Q1. But I think, that our current projections include that type of productivity on the variable cost base. And again, with the seasonality and the increased revenue in the second half of the year, that's what's falling through in the improved profitability in the second half.
Michael McGovern: Got it. Thank you.
Operator: Your next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open.
Ike Boruchow: Hi, guys. Robert, two questions for you. First on the gross margin line. I know this direct revenue question has been asked that, but I'll ask it more from a margin perspective. Can you kind of be more explicit about your gross margin expectations for the upcoming quarter and for the year. There's just such a meaningful mix dynamics that are taking place. I think, it might be helpful for us to understand exactly, how to think about the gross margin line.
Robert Julian: Yes. So, a couple of comments in answer to that question. You should see gross margin improve, as the proportion of our revenue coming from the direct business declines, that is projected in our Q2 results and the guidance we projected for Q2. And you can extrapolate. You have Q1 actuals we've given Q2, you can extrapolate second half. And so, you will see that there's a pretty significant increase in gross margin in second half versus first half. And again, it's primarily due to this declining proportion of our revenue coming from direct in the second half of the year versus the first half of the year, all very much consistent with how we projected the year and what we communicated in terms of our initiatives going forward and deemphasizing direct. But there is a pretty significant improvement in margin in the second half versus first half due to that mix change.
Ike Boruchow: But we should expect in 2Q to see another quarter of pressure maybe not as much as Q1, but year-over-year pressure in gross margin below the 60.4% from last year correct?
Robert Julian: That's correct. And I would say that you should see sequential improvement from Q1, but you're going to continue to see pressure on a year-over-year basis in Q2 itself. And then you'll see a lessening of that pressure in the second half versus prior year.
Ike Boruchow: Got it. And when we get to the end of the year does that kind of lead us to a flattish kind of gross margin versus the 55% last year?
Robert Julian: Led us to maybe a little down I would say -- not significant, but I won't give a specific number.
Julie Wainwright: Well also because it sets out to itself.
Robert Julian: Yes. So maybe a little bit down, but flattish is probably within the realm of what we're projecting yes.
Ike Boruchow: Yes. That's all I wanted. That's so helpful. And then just the last one on marketing. So you've got some pretty good leverage on the marketing line in the past couple of quarters. I think those compares get a little bit more challenging as we move forward in Q2 and beyond. Can you just kind of help us how are you guys thinking about the marketing spend going forward for the rest of the year?
Julie Wainwright: Marketing spend we've -- I mean it's -- I don't know what we said in our Investor Day, not a lot. We have a nice flywheel effect so we expect to see it get continuously although not dramatically more efficient. The variable part of marketing the fixed cost obviously gets very efficient. But -- we're doing a really good job of driving efficiencies aided by the flywheel effect. And also really spark variance of our marketing mix. So, we're not as dependent on digital as other people which is actually helped with the business.
Robert Julian: And I would say for all the reasons that Julie just gave you, we're looking at our support OpEx and we're looking at our productivity by each functional area. And actually, marketing is one of the areas where we are getting the most productivity the most leverage and it's for the reasons that Julie mentioned earlier, but it's actually really a success part of our story in terms of the efficiency and productivity and leverage is in the marketing group.
Julie Wainwright: And we've been aided by the stores, 30% of new consignors are coming from the stores. We also had a healthy level of new buyers and really how and how -- and supply is strong from that. And we get -- so the stores have aided that quite a bit.
Ike Boruchow: Got it. Okay. Thanks so much.
Operator: Your next question comes from the line of Tom Nikic with Wedbush Securities. Nikic, your line is open.
Unidentified Analyst: Andrew Weiner here on for Tom. Thanks for taking our question. Just a quick one. So you had a COVID disruption going into Q1 which at this point it seems to be mostly behind us it implied GMV growth rate for Q2 is about the same at about 31%. Is there anything that's preventing any sequential improvement here in Q2? And what really gives us confidence that there's going to be that acceleration in the second half?
Julie Wainwright: Excited about it. Well, there's a couple of different things. I'm going to let Rati talk about this. But one of the things in general once we -- for the demand side once we have supply on. So once we get back to full staffing, we got the product up on our shelves so to speak our virtual shelf it really had an aggressive sell-through. So we ended the month -- actually ended the quarter in a really nice way in Q1 and we expect to be on target for April. But our growth in GMV is directly tried to how many leads we have coming in and our ability to hire and retain salespeople as I noted in my opening remarks and -- so we feel good about that. It's something we've been doing for a while. Do you want to add more color?
Rati Levesque: Yes. I think on the supply side there are leads and opportunities like Julie mentioned are there at the top of the funnel very healthy. And for us it's all about hiring and like Julie said retention, which is goes ebbs and flows as we all know, especially, during COVID, but we have many things in place to mitigate that risk and keep attrition in a good spot.
Caitlin Howe: Hey, Tom this is Caitlin. The only other thing I would add is Q2 of last year we grew 92%.
Julie Wainwright: Well, that not from base. Well, that's a company was shut down. The company was shut down in 2020.
Robert Julian: Just in terms of the actual data. So our GMV growth rate in Q1 was 30.8%. Projected GMV growth in Q2 is 33.6%. But I would also encourage you to look at the revenue growth rate. So the revenue growth rate in Q1 of this year was 48.5% and the revenue growth rate projected for Q2 is 52.3%. So we're talking about more than 50% growth of revenue in Q2 versus prior year and it doesn't exactly match the same percentages of GMV because of this proportion that comes from direct which has a higher impact on revenue than it does on GMV in terms of the growth rates. But it's a pretty healthy amount of growth built into the Q2 projections.
Unidentified Analyst: Got it. Thank you very much.
Operator: Your next question comes from the line of Ashley Helgans with Jefferies. Your line is open.
Ashley Helgans: Hi. Good afternoon and thanks for taking our question. You've talked about the price increases in the primary market driving up refill values. We're just wondering how are consumers responding to higher prices on your platform? And then is there any way you can quantify the pricing benefit to your GMV growth? Thanks.
Julie Wainwright: So I'll let Rati add more color to this. But one of the things we do is we don't try to evolve, the way we set up in price is we try to get the optimal price not the highest price. And what that means is we take velocity of sale into consideration. And that's really important for our consigners to know that our cadence of sell-through can be anticipated and expected and it's consistent. It also allows us to pretty accurately forecast when we need new op centers due to running out of space. So velocity of sale is one of the measurements for the sell-through our velocity of sale has not dropped. In fact if it did drop, we would lower the price. So it really is finding that balance between the highest price possible without losing velocity of sales. Do you want to add more?
Rati Levesque: No, that's right. We can quantify exactly how much like-for-like items are moving at, but that's something we're constantly testing. And we're constantly moving that bar, right? So if we price something at $5 and it's sold really quickly we're going to test $10 next time. So we're constantly optimizing.
Julie Wainwright: And overall – yes, over time -- yes our items have gone up in $10 to $15 in the last five years. But this is a -- it's not static at all. So it's dynamic.
Ashley Helgans: Okay. Great. And if I could just throw in one more. Would you expect a weaker macro backdrop to actually drive supply higher as consumers maybe look to monetize their items?
Julie Wainwright: I do. But I mean that's just making a sort of a wild forecast. But I really – look our business started in 2011 the tail end of a recession. And once people found they could monetize product in their home that was sort of just free money sitting around they really jumped on it. So I personally believe we are going to see, if we go into a recession or if people are feeling the impact of inflation, they'll be looking around to see what they can monetize. Clearly, there are other points in view out there, and no one knows but we weren't sort of born out of a recession as a company.
Ashley Helgans: Okay. Great. Thanks so much.
Operator: Your next question comes from the line of Marvin Fong with BTIG. Your line is open.
Marvin Fong: Great. Thanks for tacking my questions. Pretty much all of them to ask I'll just ask this one on take rate. As we think about it just going forward, I know that, apparel and ready-to-wear is take rate accretive. So just as we stand in the first quarter what's your thought about mix today versus sort of the normalized rate? Do you think that there's more room for apparel and ready wear and higher take rate items to grow as a portion of the mix, or are we just about where we should be?
Robert Julian: Yeah. So Marvin this is Robert. I will tell you on our current projections as we look at Q2 and second half of the year. We do show an increasing take rate a trend for the take rate to increase throughout the year. Again it's a matter of mix as you said as we sell more higher take rate items that's reflected in the overall average take rate of the company. And without getting into specifics I can tell you that our current projection is an increasing trend for the take rate to slightly increase as the year progresses. Not very large changes, a few hundred basis points something like that but we do see an increasing trend based on mix.
Marvin Fong: Okay. Great. That's it. Thanks, Robert.
Operator: Your next question comes from the line of Oliver Chen with Cowen. Your line is operating.
Oliver Chen: Hi, everybody. One of our surveys at Cowen speaks to processing times as an opportunity as customers love speed. What's ahead there? Second you made lots of great progress on automation and pricing. Would love some highlights on the lower hanging fruit that's left there. And then finally Julie at Colombia we had a lot of great topics. We just love your views on blockchain as it intersects with authentication digital IDs then also metaverse given your experience in the industry? Thanks.
Julie Wainwright: Okay. Rati can you are on the first part.
Rati Levesque: So the processing time we did have some delays in early Q1 like we mentioned because of COVID-related impact. I'm happy to report that, processing times back in SLA for all categories. So that's great and our processing is about two weeks is our SLA. Overtime, we see that even decreasing some more, as we add more automation there as well. We have a vision to bring that all categories down pretty significantly over the next three years. So, excited about that plan. And then on the automation front like we mentioned in Investor Day there's a few areas that we targeted handbags being one of them. And by the end of the year we continue to be on track with the idea that we will be automating about 40% of all handbags. Fine jewelry, diamond specifically, will also be mostly automated over the next 12 to 18 months and pricing 80% of our items will be auto priced as well. So we're making really great traction there. And we continue to be on target. I'll let Julie, take the metaverse.
Julie Wainwright: Yeah. So we don't need to be a leader into the metaverse. I think the metaverse at this point is still a lot like second life. It's got some real sex appeal, but it's not a place the average person is going to hang out. So we can be a follower in the metaverse. I personally just as someone who reads a lot of neurological reports, I'm worried about people spending time in the metaverse but that's my own personal consideration. But we would be a real deep follower in that one. On blockchain, as it relates to authentication, we've had a lot of counterfeit and blockchain numbers come in. So I think that it's an interesting -- I think it's too nascent to really understand the impact. I mean, at the end of the day, if people opt in, into this and they buy the product they opt into whatever they have to do into the cloud. It could be useful. It could be useful for brands to get closer to their customers. However, it may in the case of brands who don't believe and resell be used against the customer and it could be a privacy issue. So I would say that, the jury is out. I know everyone's pretty excited about it. I think the technology is nascent. It can be counterfeited fairly easily. I think there's customer privacy, issues around it. And at the end of the day, when we look at what does it mean for us, I mean, there are -- on average we've got -- our products are about five years old for apparel and shoes. And after that it even gets older. So it could be a long time, before it becomes a relevant discussion in the world that we play in. But it's something we watch. It's something we've considered adding to our product. And to be honest, the cost benefit isn't there for us. And I know brands are experimenting and they love getting closer to the consumer. And I would say, like everything when you get the consumers also have to be aware.
Oliver Chen: Very helpful. Thank you. Best regards.
Operator: And there are no further questions over the phone line at this time. I would now like to turn the call back to Julie, for any additional and closing comments.
Julie Wainwright: Thank you all for joining us today on our earnings call. In closing, I want to thank the RealReal team, at all levels for their continued dedication and express my appreciation for strong start to 2022. We are looking forward to sharing other results with you on further progress on our path to profitability during our next earnings call. And then, finally, I'd like to thank our more than 27 million members who are joining us on our mission to extend the life of luxury and make fashion more sustainable. It's really important. We believe that's one of our key pillars. So thank you very much. And with that, we're going to end the call.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.
