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TI

TheRealReal, Inc. (REAL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was solid on topline and margins with revenue up 11% YoY to $160.0M and gross margin up 40 bps to 75.0%; non-GAAP EPS was $(0.08), essentially in line with Street, and revenue modestly beat consensus by ~$0.2M .
  • GAAP net income of $62.4M was driven by non-cash items (change in fair value of warrants and gain on debt extinguishment); Adjusted EBITDA was $4.1M, up ~$6.4M YoY, marking the third consecutive quarter of positive Adjusted EBITDA .
  • Management reaffirmed full-year 2025 guidance and introduced Q2 guidance (GMV $476–$486M, revenue $157–$161M, Adj. EBITDA $3–$4M), citing flexibility of the marketplace model and potential tariff tailwinds given domestic sourcing of supply .
  • Catalysts: continued supply momentum (highest new consignors in 2+ years), improved direct-channel economics (25.5% gross margin), AI-led operational gains (Athena), and subsequent deleveraging (June payoff of remaining 2025 notes) .

What Went Well and What Went Wrong

What Went Well

  • Strong topline and margin execution: GMV +9% YoY to $490M, revenue +11% YoY to $160M, gross margin up 40 bps to 75.0% .
  • Direct-channel profitability inflected sharply: direct gross margin reached 25.5%, up from 3.3% a year ago; management expects ~20% range sustainability due to mix and disciplined inventory strategy .
  • Consignor acquisition and supply momentum: “highest number of new consignors in over two years” with stores driving 25% of new consignors; Real Partners referral program now generating >$1M of incremental monthly supply .

Management quotes:

  • “We are reaffirming our full year 2025 guidance despite the uncertainties from tariffs and a less predictable backdrop.” – CEO Rati Levesque .
  • “Athena… now more than 10% of items are processed via Athena… in this initial phase, we cut processing times by an estimated 20%.” – CEO Rati Levesque .
  • “First quarter 2025 direct gross margins were 25.5%… a substantial improvement.” – CFO Ajay Gopal .

What Went Wrong

  • Operating cash flow seasonality/working capital: operating cash flow was negative $28.3M in Q1, with management guiding to back-half weighted cash generation due to timing of incentive payments and working capital .
  • GAAP results obscured by non-cash gains: GAAP net income of $62.4M was primarily driven by change in warrant liability (+$42.5M) and gain on extinguishment of debt (+$37.1M), complicating comparability of GAAP EPS and net income .
  • Operating expenses grew 6% YoY to $132.8M; while leverage improved by 410 bps as a percent of revenue, opex remains heavy as AI and automation scale across functions .

Financial Results

Consolidated P&L and EPS vs Prior Periods and Estimates

MetricQ1 2024Q4 2024Q1 2025Q1 2025 Consensus
Revenue ($USD Millions)$143.8 $164.0 $160.0 $159.8*
Gross Profit ($USD Millions)$107.3 $122.1 $120.0 N/A
Gross Margin (%)74.6% [derived: 107.279/143.800] 74.4% 75.0% N/A
Adjusted EBITDA ($USD Millions)$(2.3) $11.0 $4.1 $4.0*
GAAP Diluted EPS ($USD)$(0.30) $(0.62) $(0.14) N/A
Non-GAAP EPS ($USD)$(0.12) $(0.01) $(0.08) $(0.081)*

Note: Consensus values marked with * are from S&P Global. Values retrieved from S&P Global.

Revenue Mix (Segment Breakdown)

MetricQ1 2024Q4 2024Q1 2025
Consignment Revenue ($USD Millions)$115.6 $128.1 $123.8
Direct Revenue ($USD Millions)$12.7 $19.5 $20.5
Shipping Services Revenue ($USD Millions)$15.4 $16.3 $15.8
Total Revenue ($USD Millions)$143.8 $164.0 $160.0

KPIs

MetricQ1 2024Q4 2024Q1 2025
GMV ($USD Millions)$451.9 $503.5 $490.4
Number of Orders (000s)840 870 869
Take Rate (%)38.4% 37.7% 38.6%
AOV ($USD)$538 $579 $564

Additional KPI notes: trailing twelve months active buyers were 985,000 in Q1 2025 (+7% YoY) . In Q4 2024, trailing three months active buyers were 408,000 (+7% YoY) reflecting a definitional update in 2024 .

Non-GAAP/Unusual Items

  • GAAP net income of $62.4M included +$42.5M change in fair value of warrant liability and +$37.1M gain on extinguishment of debt in Q1 2025 .
  • Adjusted EBITDA excludes stock-based compensation, payroll tax on stock transactions, restructuring, and the warrant/debt effects; Adjusted EBITDA was $4.1M (2.6% margin) vs $(2.3)M in Q1 2024 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GMV ($USD)Q2 2025N/A$476–$486M New
Total Revenue ($USD)Q2 2025N/A$157–$161M New
Adjusted EBITDA ($USD)Q2 2025N/A$3.0–$4.0M New
GMV ($USD)FY 2025$1.96–$1.99B $1.96–$1.99B Maintained
Total Revenue ($USD)FY 2025$645–$660M $645–$660M Maintained
Adjusted EBITDA ($USD)FY 2025$20–$30M $20–$30M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
AI/Technology InitiativesEmphasis on generative AI potential; margin expansion and operational efficiencies highlighted; positive Adj. EBITDA and FCF in 2024 .Athena AI intake now >10% of items; ~20% faster processing; continued automation; improved pricing algorithms and upcoming algorithmic discounting .Scaling AI from vision to execution; measurable throughput gains.
Direct Channel EconomicsDirect revenue smaller and pressured YoY in 2024; margin specifics limited in releases .Direct gross margin 25.5% vs 3.3% LY; expected ~20% sustainable; Get Paid Now economics superior on like-to-like basis .Material improvement and sustainability; lever for supply capture.
Supply Growth/Consignor AcquisitionStrengthening supply trends; raised FY guide in Q3; record Q4 revenue; stores expanding .Highest new consignors in 2+ years; stores contributed ~25% of new consignors; referral program >$1M supply/month; reconsignments targeted .Momentum accelerating across channels.
Tariffs/MacroGeneral macro cautions in forward-looking statements .Potential tariff beneficiary due to domestic closets sourcing; reaffirmed FY guidance despite uncertainty .More confident positioning amid macro/tariff noise.
Dropship ExpansionEarly testing in late 2024 (watches) .Expansion into handbags; good traction; authentication post-purchase; B2B vendor uploads .Program scaling beyond pilot.
Capital Structure/Deleveraging2024 note exchange; warrant liability introduced; FCF positive in 2024 .June 2025 payoff of remaining $26.749M 3% 2025 notes; $63M debt reduction YTD .Continued deleveraging improves flexibility.

Management Commentary

  • Strategy reaffirmed: “Our results demonstrate consistent execution on our strategic pillars: unlocking profitable supply… driving operational efficiency… obsessing over service.” – CEO Rati Levesque .
  • Macro framing: “We occupy a unique position at the intersection of luxury and value, and we source our supply primarily from domestic closets… potential to realize benefits in the current environment.” – CEO Rati Levesque .
  • AI operations: “Athena… launched in Q1… now more than 10% of items are processed via Athena… cut processing times by an estimated 20%.” – CEO Rati Levesque .
  • Direct margin: “First quarter 2025 direct gross margins were 25.5%… a substantial improvement.” – CFO Ajay Gopal .
  • FY outlook: “We are reaffirming our full year 2025 guidance…” – CEO Rati Levesque; CFO detailed GMV $1.96–$1.99B, revenue $645–$660M, Adj. EBITDA $20–$30M .

Q&A Highlights

  • Direct economics sustainability: management expects direct margins around ~20% with mix effects; Get Paid Now offers better contribution dollars than consignment on like-for-like items .
  • Seasonality/mix: direct expected to remain 10–15% of revenue (~5–6% of GMV) without inherent seasonality; consolidated gross margin not pressured by direct given selectivity .
  • Demand/supply health: buyer funnel and conversion remained resilient; supply growth consistent with reduced friction and targeted reconsign outreach; highest growth in new sellers in 2+ years .
  • Tariff/macro: domestic sourcing limits direct impact; possible tailwinds from consumers seeking value and monetizing closets as primary prices rise .
  • Product performance: fine jewelry and handbags performing well; AOV up 5% YoY .

Estimates Context

  • Q1 2025 Delivery vs S&P Global Consensus: revenue $160.0M vs $159.8M* (slight beat), non-GAAP EPS $(0.08) vs $(0.081)* (in line). Adjusted EBITDA $4.1M vs EBITDA consensus ~$4.0M*; note consensus “EBITDA” definitions may differ from company’s Adjusted EBITDA .
  • Q2 2025 Guidance vs Consensus: revenue guide $157–$161M vs $159.6M* midpoint aligns; Street likely to focus on sustainability of direct margins and supply momentum .

Note: Consensus values marked with * are from S&P Global. Values retrieved from S&P Global.

Results vs S&P Global Estimates

MetricQ1 2025 ConsensusQ1 2025 ActualSurprise
Revenue ($USD Millions)159.806*160.033 +$0.226
EPS Normalized ($USD)-0.08121*-0.08 +$0.001
EBITDA/Adj. EBITDA ($USD Millions)3.982*4.110 (Adj. EBITDA) +$0.128

Note: Consensus EBITDA may not be strictly comparable to company-reported Adjusted EBITDA.

Key Takeaways for Investors

  • Supply engine is accelerating: multi-channel growth playbook (sales, marketing, stores) drove the highest new consignors in 2+ years; referral programs and dropship expand addressable inventory .
  • Direct-channel economics are now a meaningful lever: with ~25.5% gross margin and 10–15% revenue mix, direct offers incremental contribution without diluting consolidated margin, supporting market share gains .
  • AI-led efficiency is translating to execution: Athena’s throughput gains and algorithmic pricing/discounting should drive faster sell-through and lower operating intensity over time .
  • Quality of earnings matters: GAAP net income was elevated by non-cash warrant and debt extinguishment effects; non-GAAP EPS and Adjusted EBITDA are better indicators of operating performance .
  • Guidance credibility: reaffirmed FY outlook and Q2 guide consistent with GMV/revenue trajectory; back-half weighted cash generation expected due to working capital timing .
  • Balance sheet improving: subsequent payoff of remaining 2025 converts in June reduces leverage and enhances flexibility for growth initiatives .
  • Near-term trading lens: modest revenue/EPS beat, positive Adjusted EBITDA, and reaffirmed FY guide are supportive; watch direct margin sustainability and continued supply momentum as key drivers into Q2/Q3 .