Earnings Call Transcript - REAL Q4 2021

Operator, Operator

Good day. And thank you for standing by. Welcome to the RealReal Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin Howe, Head of Investor Relations.

Caitlin Howe, Head of Investor Relations

Thank you, operator. Joining me today to discuss our results for the period ended December 31, 2021, are 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, CEO

Thank you, Caitlin, and thank you to everyone for joining our earnings call today. We're pleased to announce solid financial results for the fourth quarter and full year 2021 with continued top-line growth as well as significant operating expense leverage. We are encouraged by our ability to continue to grow the business at a high rate while also effectively managing operating costs. Throughout 2021, we continued to expand our use of proprietary technology in our operations. Specifically, in our authentication centers, we drove operational efficiency through innovative technologies, including our proprietary diamond measurement equipment and machine learning and AI algorithms. Additionally, we drove an increase in our average selling prices through refining our pricing algorithm. Through the expanded use of technology in our operations, we are improving unit economics, enabling scaling of our business and driving higher average selling prices. As the impact of COVID recedes, our business is becoming more predictable again. Therefore, today, we return to providing forward-looking guidance for Q1 and full year 2022. Importantly, we are now in a position to report our expected timeline for attaining profitability. We project that the RealReal will be profitable on a full-year adjusted EBITDA basis in 2024. This conclusion relies on three main assumptions: continued annual top-line growth of at least 30%, operational excellence with improved variable cost productivity; and third, controlling our fixed costs and leveraging our prior investments in technology and stores. At our Investor Day in March, we look forward to providing more details regarding our path to profitability and our long-term financial targets that we refer to as Vision 2025. We have never been more excited about the long-term prospects of our business. The recent growth and heightened interest in luxury resale indicate increased consumer demand and momentum in the space. We believe the RealReal is uniquely positioned to capitalize on these trends. And with that, we'll now open it up for our Q&A session.

Caitlin Howe, Head of Investor Relations

Operator, we're ready for questions.

Operator, Operator

Our first question comes from Lauren Schenk of Morgan Stanley. Please proceed.

Lauren Schenk, Analyst

Great. Thanks for taking my question. I just had a few questions on the timeline to profitability. Is there an assumed GMV target within that 30% CAGR that you're looking towards? What's the assumed gross profit per order in that? Is it still $100 sort of the key threshold? Or does it need to be above that to get there? And then lastly, any what's the assumed sort of store opening cadence or total number of stores that you're projecting in that 2024 number? Thank you.

Robert Julian, CFO

This is Robert. I’ll address the first part of your question and then let Julie and Rati share their thoughts. Regarding the specific GMV target for 2024, we are not disclosing that at this time. While we have set internal expectations, we’re not providing specific numbers for GMV, CAGR, or the anticipated top-line growth rate, which aligns with what Julie mentioned—30% or more. We will disclose specific targets for GMV, revenue, and adjusted EBITDA as part of our Vision 2025 plan during our Investor Day in March. However, we are currently not providing specifics for 2024 beyond confirming that we will achieve positive adjusted EBITDA in that year. As for gross profit per order, we do not have a specific target, but it remains an important metric for our business that we continue to track, and it has been growing. We concluded the year with approximately $92 or $93 of gross profit per order in 2021, and we expect this growth to continue. Nevertheless, I would advise caution in viewing it as the sole key to our profitability, as it does not take into account our cost structure. While we monitor gross profit per order, it’s essential to consider other key metrics necessary for achieving profitability. As Julie pointed out earlier, these include our ongoing growth rate of over 30%, modest productivity improvements in our variable cost base—which we estimate to be low to single-digit productivity—and our responsible management of fixed costs, with only modest increases anticipated moving forward. Regarding new store openings, I’ll briefly comment and then hand it off to Julie and Rati. We are actively opening new stores, having already launched one in Brentwood, California, in 2022. We will continue to seek out advantageous locations where our store model is effective. I’ll stop there. That was quite a bit of information.

Julie Wainwright, CEO

Yeah. I agree with that on the store openings. And I would say that we have nine stores that are opened now for less than a year. And the metrics continue to be healthy, with 30% of our new consignors still continuing to come from our retail locations. We continue to see a halo effect that happens regionally. They are driving new traffic as well, with higher average selling price. So again, those metrics continue to be healthy. And we are always looking at new locations to see where our sellers and buyers are and what locations could make sense for us.

Operator, Operator

Thank you. Our next question comes from Erinn Murphy of Piper Sandler. Please proceed.

Erinn Murphy, Analyst

Great, thank you. Good afternoon. Two questions for me. First, as we think about the inflationary environment and particularly the price increases that we're seeing in the handbag category, can you talk about the opportunity that you see for your business over time just from a gross profit per order perspective given the pricing umbrella in the primary market? And then the second question I have is around the sources of supply. It sounds like it's still pretty healthy. Can you talk about how that looks from stores versus in-home appointments? And is there still a need to utilize virtual appointments as we think about the new normal going forward? Thank you so much.

Julie Wainwright, CEO

Sure. Let's talk about the specific rationale regarding LVMH's announced fairly hefty increases in their handbags. Well, that absolutely benefits resale and certainly benefits us and our consignors on two levels. One, it allows us to raise the price of those bags but still offer a better value for the consumer. So the consignor benefits, the consumer benefits in comparison to buying full retail, and it makes retail even more attractive. So that's all good. What that indicates is the impact on the average order size. We have been focused on improving our unit economics. Our average selling price on a unit basis has been increasing steadily for the last two years, as has our average order size due to us going from about 1.93 to now over 2 units per order. Thus, we are gaining a larger share of the consumer's wallet and people are engaging with retail. What that suggests for the forthcoming changes in the price in the retail market, we wouldn't make that prediction. All I can tell you is that a combination of our pricing algorithms that are increasingly sophisticated with human oversight means we will be able to adjust prices quickly as we observe changes in consumer demand. But overall, our average order value and average unit selling price has been on the rise.

Rati Levesque, President

Sure. So as far as sources of supply, it's very healthy and continues to be healthy in home. Our concierge services continue to be the most valuable channel for us, followed by our retail locations. Virtual is also part of the mix, and we launched that during COVID two years ago when COVID first hit. And that also is very lucrative for us. It also helped to enhance our sales team's productivity because now they're able to take more appointments per day. So, again, it's the in-home and retail as well as virtual helping with the productivity. But overall, we're feeling really good about the supply coming in, both in units and dollars.

Operator, Operator

Thank you. Our next question comes from Anna Andreeva of Needham. Please proceed.

Anna Andreeva, Analyst

Great. Thanks so much. And good afternoon, guys. We had two questions. I wanted to follow up on the gross margin decline in the fourth quarter. I think a mix shift to direct was a big part of that. You mentioned Real will be limiting that owned inventory going forward. But I'm curious how should we think about gross margins implied in Q1 and the full-year guide? And then secondly, I just wanted to follow up on the processing delays you called out in late December and early January. Did you quantify what that meant on sales and EBITDA? Just trying to gauge how much that's affecting Q1. Thank you so much.

Julie Wainwright, CEO

Well, I'll take the last part and then I'll switch it over. To explain the dynamics of our marketplace because we have such a high repeat rate and strong engagement with the site, it is dependent on getting more products up on the site to satisfy that demand. So we went into January with a hiring rate behind and then had up to 40% call-out in our operations centers, which was quite significant. For perspective, January was growing at 40% versus a year ago prior to the call-out. However, it dropped not because we didn't have user engagement with the site but because new products weren't available on the site. The only area, and we are now back to normal with our commitment to get the units up on the site once we receive them, and we returned to normal around the second week in February, excluding fine jewelry and watches, which will return to normal very shortly. Most importantly, that didn't affect product availability. So we had a backlog of incoming product that we're managing through. It's always difficult to quantify the impact, but if you were growing 40% and now you're moderating your guidance, you can infer that certainly the first 6 to 6.5 weeks of the quarter were depressed due to the Omicron variant and the subsequent effects. However, as I mentioned, that has mostly, mostly returned to normal.

Robert Julian, CFO

Anna, reconciling the decline in gross margin in Q4 versus the prior year, it's about a 550 basis point decline. It's primarily due to two different areas. One you've already mentioned, which was the mix impact of the increase in the direct business as a percent of our total revenue, about 31.5% of our total revenue came from the direct business versus last year, which was just under 19%. This mix impact was a negative influence of around 900 basis points. In the future, we intend to deemphasize the part of our business where we are purchasing inventory as we did during COVID, when we faced challenges getting supply into people's homes for these concierge-type appointments that Rati mentioned. It is our intention to reduce that aspect of our business, and we expect direct revenue to decline as a percentage of our total revenue in the future. As I mentioned, the total decline was 550 basis points, and the mix was 900. We had a positive offset, which came from site credits as a percentage of revenue. That improved quite a bit year-over-year. The site credits were utilized for very specific reasons last year that are no longer necessary this year. We experienced about a 350 basis point improvement overall in our gross margin due to site credits becoming a much smaller percent of our total revenue. So the net between those two is the 550 basis point decline in gross margin year-over-year that you see.

Anna Andreeva, Analyst

Okay, that’s really helpful. Appreciate it.

Operator, Operator

Thank you. Our next question comes from Ike Boruchow of Wells Fargo. Please proceed.

Ike Boruchow, Analyst

Thank you very much. Robert, I have two questions. First, should we expect the inverse relationship between take rate and average order value to continue at least through the first half of the year? I'm curious if the take rate will keep declining, even if the average order value increases. My second question relates to what Anna asked. I understand that in Q4, it represented about 14% of net merchandise value or a third of revenue. Can you clarify where we should expect that to land for this fiscal year based on your guidance? What are your targets for fiscal '24? It seems significantly inflated compared to the past, and I'm not clear on how you plan for it to resolve. Any insights would be appreciated.

Robert Julian, CFO

Sure. So Ike, on your first question, certainly, there will be a continued inverse relationship between average selling price or higher value items and the take rate. We take a smaller percentage of those items. This relationship is primarily determined competitively by the market in terms of what the take rate is by category. When you see changes in take rate in our results, it is primarily due to changes in mix. It is just a question of, are we selling higher value items at lower take rates or lower value items at higher take rates. So I wouldn't necessarily associate that with good news or bad news necessarily. Because on a gross profit basis or a gross profit per order basis, which we like to focus on in the past, these lower take rate, higher value items are very important to our business and our path to profitability. But primarily, the changes in take rate are mix, and it's not necessarily a good or bad thing as they fluctuate up and down. There are some cases, actually, by the way, where we have increased our take rate on some items, particularly items less than $100. There are small movements in our take rate on an item basis, where we have increased our take rate when it seems appropriate or makes sense. So that's the take rate question. And did that answer your question before I move on to the...

Ike Boruchow, Analyst

Yeah. I guess it was a long-winded way for me to say, should the take rate start to stabilize and maybe even improve from where it is? I understand the mix. I understand what's driving it. I guess I'm asking, is that mix dynamic likely to continue in the near term? Or could we start to see the inverse happen, if that makes sense?

Robert Julian, CFO

I say that's fairly stable in my model. I see this stability persisting. It might fluctuate up and down a little bit, but more or less I anticipate stability at this level.

Julie Wainwright, CEO

Just to add, average order value has consistently gone up and stayed up at this point. We do believe we are gaining a bigger share of the wallet, and the average order value is largely driven by more high-value, lower take rate items.

Robert Julian, CFO

On the direct piece, and we talked about Q4, and I gave a figure that direct was 31.5% of total revenue in Q4, which was a bit inflated. On a full-year basis, direct revenue was about a little over 26% of total revenue. I am projecting and expecting that to decline in 2022 and to further decline as we reach towards the 2025 Vision numbers. Now, there is a part of direct business that will continue to grow. The part associated with auto policy returns in paid now. So there will always be some percentage of our business that is direct, where we will own the inventory. However, we will definitely deemphasize the part of our direct business where we are purchasing items to resell. As for where that ends up in the long-term, as I mentioned, it was 26% in 2021. I foresee it declining to 20% or less. And maybe in the long run, it could stabilize at 15% to 20% of our total revenue. However, we should expect to see an improvement. And of course, the improvement in our gross margins is projected due to mix alone, which is part of our 2022 average order value forecast and what we are going to share at our Vision 2025 numbers.

Ike Boruchow, Analyst

Great. Very helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from Marvin Fong of BTIG. Please proceed.

Marvin Fong, Analyst

Thanks. Good evening. Thanks for taking my questions. Most have been asked, so just one for me. The guidance on the adjusted EBITDA line implies pretty good improvement after the first quarter. Maybe you could just expand a little more on the cost efficiencies and the operating leverage you expect to realize, it looks like in the last two quarters of the year. But also, just comment on what might be some of the EBITDA pressures for the first quarter since it looked like a bit more than the street was expecting? Thanks.

Robert Julian, CFO

I will begin by noting that our full-year guidance and our forecast for the first quarter are not entirely balanced. There is some variability anticipated in Q1, particularly regarding throughput, as the Omicron variant affected our labor force. This resulted in a minor delay in processing products and getting them onto the website. The positive update is that the situation has improved, and I believe Rati can confirm that we are now more or less meeting our service-level agreements concerning throughput. However, we did experience a slower start, which is reflected in the Q1 results.

Julie Wainwright, CEO

To put it another way, the loss in EBITDA is also a reflection of a top-line that we didn't expect to be at this level, we expected to continue the growth rate. We are effectively leveraging our hiring in the fixed cost area. This is the first quarter where we didn't achieve variable leverage. Due to Omicron, we had many call-outs and then hired temporary staff, but we expect that to normalize moving forward.

Robert Julian, CFO

In terms of the pattern of adjusted EBITDA as you go through the year towards our full-year guidance, we project growth every quarter throughout the year. We will continue to see the productivity that we've generated in the past. The leverage on fixed costs will only become more pronounced as we progress through the year. As we grow every quarter towards the fourth quarter, which is typically our highest GMV and revenue quarter, and we maintain this fixed cost base, you'll notice an acceleration of the leverage on the fixed cost and the improvement in productivity. In essence, each quarter gets a little better as we progress through the end of the year, corresponding to our full-year adjusted EBITDA forecast.

Marvin Fong, Analyst

That’s great color. Thanks everyone.

Operator, Operator

Thank you. Our next question comes from Michael McGovern of Bank of America. Please proceed.

Michael McGovern, Analyst

Hey, thanks for taking my question. I have two. First off, I just want to ask about the underlying 2022 EBITDA guidance. Could you speak to some of the bigger investment areas for 2022? And what do you expect to be spending on? And then secondly, I wanted to ask about shipping expense in Q4. I think last quarter, you noted it was a pretty big headwind. So I just wanted to ask where that stood in Q4. And what are some of the initiatives to improve on that shipping expense over time? Thank you.

Rati Levesque, President

Yeah. This is Rati. I can start and let Robert and Julie chime in. Regarding our significant investment areas in 2022 to improve EBITDA, it's all about technology, as Julie previously mentioned. Our focus is optimizing automation in terms of pricing and authentication, as well as scaling our labor, particularly within our facilities and authentication centers. As Robert indicated, we will continue to see gains in both our variable and fixed cost side thanks to these significant investments. We've mapped that all out, and over the next few years, we feel confident about our technology and product roadmap. Regarding shipping expenses, we did experience challenges last year due to COVID and associated surcharges. However, we implemented measures to mitigate that risk and make adjustments in late last year. Some of those adjustments involved passing a portion of the inflation costs to our customers, which did not result in a reduction in our conversion rates within our cart. We have also diversified through UPS Carrier SurePost for smaller packages, which is assisting us. Furthermore, by utilizing our in-house vans and networks, we are also managing to mitigate some of those shipping charges this year.

Robert Julian, CFO

Yes. And Michael, just to add to what Rati mentioned, if you look at Q4 shipping expense compared to the prior year, it was actually more or less a wash in terms of the impact on our total gross profit and gross margin. We did see increased shipping costs, but we also saw an increase in shipping revenue that effectively offset it.

Operator, Operator

Thank you. Our next question comes from Oliver Chen of Cowen. Please proceed.

Oliver Chen, Analyst

Hi. The GMV momentum has been really solid. You mentioned in your letter you'll be profitable on an adjusted EBITDA basis in 2024. What are your thoughts on profitability sooner and/or by quarter, just thinking about the momentum you're seeing? Additionally, if you could add any comments or thoughts on variable and fixed cost leverage. Second question, it sounds like you're quite encouraged by supply. Could you share your thoughts regionally on whether you're content with categories and how that's progressing? In the past, New York and LA were quite sensitive markets. Finally, just a modeling question. Regarding units per transaction versus average selling price, would you anticipate growth in units per transaction to be double digits or outsized relative to average selling prices moving forward? Thank you.

Robert Julian, CFO

Oliver, this is Robert. I'll take the first one in the multipart question. In terms of our path to profitability in 2024, as the year unfolds, I feel highly confident that we will be able to achieve that. I'm not going to commit to a number sooner than that. And frankly, I'm not really going to box ourselves into a specific quarter. We feel very comfortable and confident about 2024, but I'm not thinking about it in a nearer timeframe or specifying a quarter. We will offer more details at our Investor Day concerning our path to profitability, what success looks like, and what our key metrics will entail in 2025, which will give a much greater detailed explanation about our cost structure as well as our fixed and variable expenses at that time.

Rati Levesque, President

Yeah. To address your second part about the supply side regionally, you're right, New York and LA have been larger markets for us. But with our stores and our virtual offerings, we have diversified our regional mix more than you've seen in the past. Additionally, our categories are also healthy in terms of incoming value, including ready-to-wear, fine jewelry, and watches, that looks quite positive, and that allows us to monitor the health of supply regionally. Both New York and LA have returned to normal and are showing high growth as well. Thus, we are optimistic about that. Regarding your third question concerning units per transaction versus average selling price, we anticipate our average selling price will continue to grow, as Julie mentioned, as will our units per transaction. We believe this is a new trend based on improved supply and our growing market share. Our marketing efforts in terms of optimization and personalization are making significant progress in connecting buyers and consignors to the suitable products, allowing us to enhance our overall performance. Hence, we believe this is a newly established trend moving forward. If we review 2019, our unit per transaction has surpassed two, which we have built into our expectations moving ahead. As for average order value, I believe our AOV assumptions are quite logical. We are still witnessing a higher AOV this quarter-to-date, but I think our AOV forecast for the year remains reasonable based on historical trends.

Robert Julian, CFO

In terms of modeling, Oliver, I don't think you have to build in extraordinary improvement in units per transaction beyond the two or where we've witnessed some improvement. Additionally, I'm not planning for exceptional increases in average order value. I expect both metrics to continue trending positively, but from a modeling standpoint, it doesn't require significant increases in units per transaction or average selling price.

Julie Wainwright, CEO

To clarify, for modeling purposes.

Oliver Chen, Analyst

Okay, great. Very helpful. Thanks. Best regards.

Julie Wainwright, CEO

Thanks, Oliver.

Operator, Operator

Thank you. Our next question comes from Tom Nikic of Wedbush Securities. Please proceed.

Tom Nikic, Analyst

Hi, everybody. Thanks for taking the question. I wanted to follow up on some of the earlier questions about the stores. I know you've mentioned that it's a highly effective source of supply. And I think you mentioned that a high number of your new consignors are driven by the store channel. Is it safe to say that from a return on investment perspective, the store initiatives are a higher ROI supply acquisition vehicle than perhaps some of your traditional supply sources? Or are there any other efficiencies from a store perspective that we should consider?

Julie Wainwright, CEO

Well, yes, the ROI is still highest at the in-home visit, primarily because we acquire more units per pickup. Therefore, we gain more value per pickup. So that's critical. The store units are now second in terms of store drop-offs. To put things into perspective, prior to our opening stores, most of our consignors were sourced from in-home visits, direct shipping through free shipping labels, and luxury consignment offices without a retail-facing store. Since establishing the stores, we've observed a significant increase in the number of consignors visiting our retail locations. Retail, particularly in neighborhood stores with smaller footprints, is performing very well. Although I would say that the ROI on stores is clearly evident, we want to provide more time to analyze because, as Rati mentioned, we still have nine stores that haven't been open for a year. Additionally, stores opened before COVID, like our West Madison Street location, are back to normal and performing exceptionally well. Overall, the stores appear to be accretive across all metrics, but it remains early days, and the outlook is looking good. The neighborhood stores, in particular, have rapidly achieved profitability.

Tom Nikic, Analyst

That's very helpful. And if I could squeeze one more in. You've discussed your expectations for a 30% plus top-line growth to reach your profitability target in 2024. How should we view the investment in marketing necessary to drive that growth? Historically, the year-over-year increase in dollars has varied in the $5 million to $10 million range. Do you think you'll need to ramp up your marketing expenses?

Julie Wainwright, CEO

This is one of the advantages of our business. Our repeat customer rate is 84%, with most of the same customers and consignors returning. We've consistently managed to reduce our variable marketing cost for acquiring new customers without sacrificing our growth in new customer acquisition. We anticipate this trend will continue, meaning our variable marketing expenses will continue to become more efficient. We concluded the year with favorable metrics, which we did not include in our release, demonstrating that we achieved a notably lower customer acquisition cost than in 2019. Our marketing efforts will become progressively more efficient over time, and we don't expect a significant increase in our fixed marketing costs. Ultimately, our marketing strategy will continue to focus on optimizing based on variable costs, which looks promising.

Tom Nikic, Analyst

Got it. Thanks, Julie, and best of luck this year. Looking forward to seeing you at the Analyst Day.

Julie Wainwright, CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from Michael Binetti of Credit Suisse. Please proceed.

Michael Binetti, Analyst

Hey, guys. Thanks for all the help there. You answered a lot of our questions, but I want to ask one at a higher level. You previewed for us that you see the path to EBITDA breakeven at 2024, with a starting point this year of down $80 million to $100 million. We go back and walk back in time a little bit to the IPO; we were targeting breakeven in 2022, but pushed it out about two years with a pandemic in between. In 2020, you had about negative $70 million of EBITDA. The transition to breakeven appears to require a more significant climb from the expected down $80 to $100 million this year. However, you project GMV will reach $2 billion this year, which is where you previously anticipated you needed to be for breakeven. I think you previously targeted take rates at about 36%. However, due to various factors, they are now lower than expected, likely due to the mix of goods. Can you help us understand a few of the significant swing factors that can lead to a steeper climb towards adjusted EBITDA profitability than initially projected?

Robert Julian, CFO

Certainly, I can clarify the inputs and assumptions concerning how we improve to a profitable year in 2024. However, I cannot discuss too much about the previous modeling and projections, as a lot has shifted between now and then, particularly due to the pandemic. In terms of the path to profitability by 2024, the main elements are a modest improvement in gross margin, which I project should arrive mainly from mix effects as the proportion of direct revenue decreases, resulting in an estimated 200-300 basis point improvement in gross margin over that timeframe. On the operating expense side, I prefer looking at operating expenses in various categories. For clarity, I categorize them into two main groups: support operating expenses (which are relatively fixed and include areas like HR, finance, and IT) and sales and operational expenses (which are mostly variable). The assumptions in how we achieve profitability in 2024 rely on three factors: continued growth of 30% plus, relatively modest productivity gains in our variable cost base (low to mid-single digit gains), and strict controls over fixed/support expenses that may increase only at the rate of inflation or in a low to mid-single-digit range. If you run this through your model as I do, I believe we can achieve profitability and bridge the gap from our current position, estimated at minus $126-127 million in 2021, to a positive figure in 2024.

Julie Wainwright, CEO

Michael, it’s worth noting that despite the challenges faced between 2020 and 2021, we made significant investments to come out stronger post-COVID. Two major investments include retail expansion into neighborhood stores to provide better access for consignors and consumers, and enhanced technology investments, particularly in data science and data scientists that have streamlined our operations and allowed us to scale effectively with great results. While we may be cautious about certain short-term targets, all key indicators show we are moving in a very positive direction. Interestingly, even after significant disruptions throughout that period, we now find ourselves in a better position overall. Our average order value, units per transaction, and repeat customer rates have all enhanced during this time, enhancing our overall growth trajectory.

Robert Julian, CFO

I would also want to clarify something, and this may relate to terminology, but I want to be precise. I didn't claim we would be breakeven in 2024. I stated we would achieve positive adjusted EBITDA. While your next inquiry will be about profitability, I'm not providing that number now. Our projection for 2024 anticipates positive adjusted EBITDA, not simply breakeven.

Michael Binetti, Analyst

Interesting. Can I follow that? Maybe better for Julie, given the history here. But coming into 2020, I think it's easily forgotten because COVID hit right after you guys reported in the fourth quarter of 2019. However, you were on a path to a very significant year in 2020 before the pandemic arrived. At one point, you stated gross margins would increase by 500 basis points, bringing us to 69%. There was supposed to be substantial leverage in your model—are comments like those still relevant given the fundamentals that could propel gross margins back towards the projections you had back then?

Julie Wainwright, CEO

It's crucial to remember that in January and February, even the first 10 days of March in 2020, we were up over 40% compared to the previous year. However, very swiftly, we saw a decline of 45% due to the shutdowns, causing an 85-point swing in revenue. We've been through a lot of changes, and our primary goal was to maintain customer engagement on the site as a way to keep the business solid and the customer cohorts stable. During this period, we resorted to purchasing inventory partially to ensure product availability for our engaged site users. Fortunately, now that we have returned to a more normalized environment, the indicators suggest we are indeed operating at a higher average order value and units per transaction than ever before. Furthermore, our supply acquisition channels are now better diversified. By investing in both technology and retail effectively, we are set on a path to continued progress without necessitating substantial further investments in the future. Therefore, in terms of our projections, our base has evolved positively. We are now fine-tuning productivity, managing fixed costs, and celebrating strong top-line growth.

Operator, Operator

Thank you. Our next question comes from Edward Yruma of KeyBanc.

Edward Yruma, Analyst

Hi, thanks for taking the question. Firstly, you mentioned how you were opportunistic with the store strategy related to real estate. I am curious about the length of the leases you're pursuing? Moreover, are the economics changing, such as with these short-term arrangements or pop-ups? And as a follow-up, Robert, I know you'll probably give us more details at the Analyst Day. But given your background, what are some straightforward methods you see in the post-COVID landscape to manage variable costs?

Julie Wainwright, CEO

In our store strategy, we didn't pursue pop-ups primarily for short-term leases. We are focusing on opportunities within neighborhoods that are suitable for us, for example, the store we just opened a couple of weeks ago in California. These stores might have shorter leases, usually under ten years, but they aren't necessarily considered pop-up stores. We feel confident about their potential.

Robert Julian, CFO

Concerning cost structures, Ed, my previous experience with lean manufacturing and principles like Six Sigma has provided valuable insights. In terms of our variable cost base, we have observed meaningful productivity improvements and are committed to continue that focus. There are no significant tricks or instant wins; rather, this is about ongoing dedication to continuous improvement. In contrast, the true leverage will come from effective management of fixed costs. That's an area where we've made necessary investments that were valid, yet the real performance leverage for our profitability trajectory comes from that aspect, which accounts for about two-thirds of our operating expense. As we continue to grow at a rate over 30% on the top-line while managing growth in support costs to inflation or low to mid-single-digit growth, that's where we achieve substantial leverage going forward. More details will be provided shortly.

Edward Yruma, Analyst

Got it. Thanks so much.

Operator, Operator

Thank you. Our next question comes from Susan Anderson of B. Riley.

Susan Anderson, Analyst

Hi, good evening. Thanks for taking my question. I'm curious just on the take rate, how you're thinking about that looking over the next couple of years. Are you facing any competitive pressures?

Julie Wainwright, CEO

Yes. The unique aspect of our business is that we operate across multiple categories. As a result, we maintain a take rate premium because we manage all the logistics involved, which allows us to be less susceptible to competitive pressures affecting our overall take rates. We've found we can positively influence our take rates, particularly for certain categories, without negatively impacting our competitiveness. To illustrate, we have maintained a take rate of 15% on specific watches. The flexibility offered by our mixed inventory enables us to compete in preferred categories without sacrificing our overall take rate. Changes occurring in our take rate are typically driven by product sold rather than changes in our pricing structure.

Rati Levesque, President

Additionally, we have almost 26 million luxury shoppers. Our focus remains on ensuring that sellers are compensated well for their items and enhancing our sellers' experience more than simply monitoring the take rate. We conduct ongoing competitive analyses to guarantee that our sellers continuously earn more with us compared to the competition.

Susan Anderson, Analyst

Great. And just a follow-up. It appears that there have been notable industry tailwinds in luxury items, like handbags and watches, with robust resale values for particular brands and styles. What are your views on the sustainability of this trend? Do you feel we're in a heightened growth mode for those items right now that may be subject to fluctuation?

Julie Wainwright, CEO

Indeed, handbags have remained strong throughout COVID and continue this upward trend. The same applies to name brand fine jewelry, as well as unbranded fine jewelry. Therefore, we anticipate continued growth in these segments. Additionally, we believe there will be a migration of consumers transitioning from the primary retail market back to resale as pricing differentials widen due to luxury brands raising their prices. Thank you all for joining us today. We owe immense gratitude to our dedicated team at the RealReal for their unwavering commitment and hard work throughout 2021. We look forward to an exciting 2022 as we maintain our growth trajectory and progress towards profitability. Importantly, we now boast over 25 million members who share our mission of extending the life of luxury and making fashion sustainable. A heartfelt thank you to all, and we'll be in touch with the small group. This concludes our call.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.