Earnings Call Transcript - REAL Q1 2025

Operator, Operator

Good day and thank you for standing by. Welcome to the RealReal First Quarter 2025 Financial Results 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, Senior Vice President of Finance. Please go ahead.

Caitlin Howe, Senior Vice President of Finance

Thank you, operator. Joining me today to discuss our results for the period ended March 31st, 2025, are our Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal. 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. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website. I would now like to turn the call over to Rati Levesque, Chief Executive Officer of the RealReal.

Rati Sahi Levesque, CEO

Thank you, Caitlin. Good afternoon, everyone, and welcome to the RealReal's first quarter earnings conference call. Today, I'm pleased to report strong Q1 results and reaffirm our full year 2025 outlook. The RealReal, founded on trust and authenticity, is leading the evolution of luxury resale. Our commitment to expertise and a frictionless experience is changing the way people shop for the better. Before getting into results, I'd like to address what we're seeing in the overall environment. Despite the uncertainties from tariffs and a less predictable backdrop, our performance has been strong and our focus remains steadfast. We occupy a unique position at the intersection of luxury and value. And we source our supply primarily from domestic closets. So there is a potential to realize benefits in the current environment. Our strategy is working. Our brand is strong and we have built flexibility into our operations that enables us to effectively navigate a range of conditions. We continue to build on the foundational changes we made to reshape our business. In 2024, we delivered our first-ever full year of positive adjusted EBITDA and we continued this momentum in 2025. Through our growth playbook, we're generating strong and, importantly, consistent supply growth. We're also driving operational efficiency throughout the organization, building true win-win capabilities that harness the power of AI and automation. For instance, Athena, our AI-enabled product intake process, reduces costs and improves the experience for our buyers and consignors. We are driving results that compound and expand our profitability. We believe the RealReal has a stronger, more profitable, and more sustainable business model today than ever before. We are driving top-line growth by unlocking profitable supply through our multichannel frictionless approach to consignment. The elements of our growth playbook, sales, marketing, and stores came together in the first quarter to drive healthy supply trends. Ajay will review our financial results later in the call, but I'd like to note a few key highlights from the quarter. Looking at growth, GMV increased 9% and revenue increased 11% year-over-year, which aligns with our goal of high-single-digit to low-double-digit growth. Active buyers also increased, up 7% on a trailing 12-month basis. In Q1, average order value was $564, up 5% year-over-year. Turning to margins and profitability, gross margin improved 40 basis points year-over-year after an improvement of 1,100 basis points in Q1 of 2024. Adjusted EBITDA increased to positive $4 million, an increase of $6 million versus Q1 of last year. And we delivered our highest number of new consignors in over two years. Today, I'll discuss how our three strategic pillars, unlocking supply through our growth playbook, driving operational efficiencies, and obsessing over service, are fueling our strong results and progress. Let's start with the growth playbook. We often mention that we are a supply-focused business, as our lifetime sell-through rate is over 90%. Success in executing against our growth playbook relies on driving supply through three key areas: sales, marketing, and our retail stores. Our sales team works alongside our merchandising department to curate our platform's unique assortment. We leverage search and trend data, as well as historical purchase information to identify in-demand brands and categories. Then we mobilize our sales team to proactively pursue it. These capabilities allow the RealReal to quickly pivot and influence our diverse product mix as we aim to successfully address changes in customer tastes and behaviors. Notably, our sales team drove strong consignor growth this past quarter as a result of our revamped incentive structure and a focused approach on consignor acquisition. Turning to marketing. Our teams are constantly working to reinforce our position as the leader in luxury resale, known for authenticity and expertise. We've worked to drive effectiveness in our marketing investments and through increased focus on social media and influencer partnerships. Our brand awareness increased versus last year. In addition to awareness, marketing efforts directly drive consignor and buyer engagement and generate leads for our sales and retail team. For us, stores offer a curated experience and provide consignors with access to our experts for valuations for fine jewelry and watches. Similar to our approach with the sales team, we measure success in our retail locations through the lens of supply generation and new consignor acquisition. In Q1, stores contributed a quarter of all new consignors. Our stores and sales team are highly integrated, working together on in-store and off-site events, consignor referrals, and expert appointments, which drive high-value supply. In the first quarter, the elements of our growth playbook combined to unlock supply through enhanced service and new consignment offerings. First, we reduced friction in the consignment process by offering a walk-in on-demand valuation experience in stores. This provides sellers with flexibility, convenience, and access to our experts, resulting in an increase in consignment appointments and higher customer satisfaction. Another area that is driving results is our Real Partners program. Our referral program focuses on building relationships with key partners like stylists, closet organizers, and real estate agents to expand our reach and supply network. These partnerships are crucial for sourcing high-value items and expanding our access to desirable inventory. Our referral programs are now driving over 1 million in incremental supply per month. The next highlight within supply is our Get Paid Now program. Get Paid Now is an offering for consignors on a select list of high-end, in-demand brands in just three categories: watches, handbags, and fine jewelry. Through Get Paid Now, we purchase inventory, and these sales flow into our direct revenue, which, to be clear, is an entirely different and significantly more profitable business than it was a year ago. Today, we've reimagined the direct business, and this revenue is driven by high-value supply from consignors and select vendors. Average selling prices for this merchandise we acquired through Get Paid Now are more than 10 times higher than our average selling price. And the final growth playbook initiative I'll highlight today is drop ship. Drop ship continued to evolve throughout the first quarter. Building on our success in watches, we expanded drop ship into handbags and we are seeing good traction so far. This is an important next step in building new and innovative capabilities to unlock supply. Moving to our next strategic pillar, operational efficiencies. We continue to leverage our robust proprietary data and AI capabilities to build trust and improve the customer experience. For years, the RealReal has been a leader in authentication with proprietary tools like Vision and Shield helping build customer trust. Last year, through increased automation, we reduced processing time by over 10% while keeping headcount steady and supporting top-line growth. On our last call, I reviewed in detail our new AI-enabled product intake process, Athena. This initiative was launched in Q1 of this year, and now more than 10% of items are processed via Athena. Units managed by Athena are processed faster. Early indications are that we can significantly reduce launch-to-site times, and in this initial phase, we cut processing times by an estimated 20%. Athena is currently focused on ready-to-wear units, and we plan to expand to shoes and handbags later this year. A key differentiator for the RealReal is our expertise in item pricing. Our well-developed approach leverages both human expertise, along with data and AI, to find optimal market prices for our consignors. The algorithms are dynamic and incorporate near real-time signals from internal and external sources. Like page views, obsession count, primary market pricing, and search trends. As of the end of last year, the majority of our units are launched with algorithmic pricing. The next step in our development is applying our AI expertise and increased precision to our discounting cadence. The current rules-based approach to discounting is largely manual, so we see significant opportunity to apply our powerful pricing algorithms to this use case. Early test results indicate that we can drive a better balance between price and sell-through using algorithmic discounting. We are leveraging AI and technology to improve speed, reduce human intervention, and drive operational efficiency. Turning to our third strategic pillar, obsess over service. We provide best-in-class service to our buyers and consignors. Our modern luxury experience, enabled by technology, is grounded in expertise, trust, and authenticity. We obsess over service by understanding what type of user experience and feature set our buyers and consignors want from our platform. Our members spend a lot of time with us, many clocking more than 40 hours per year on our app. Here are just a few examples of how we're enhancing engagement and fostering a sense of community. In Q1, we added obsession counts, similar to the count of likes or hearts on other platforms, to our product listings, allowing buyers to easily see which items are trending. This creates deeper engagement with the platform, and because each item is unique on our site, it creates more urgency and gamification. We are also building community through initiatives like our successful Substack strategy, which provides valuable fashion content and fosters connection among our users and fans. We regularly implement user experience updates to improve navigation and search on our platform, making it easier for buyers to find what they are looking for. And we are enhancing buyer personalization to show the most relevant items, driving faster sell-through and lower discounting. In closing, our Q1 was a solid start to the year, and we're encouraged by the momentum we're seeing in supply. The RealReal is positioned as the leader in a market with lots of room to scale. I'm excited about the future, and right now we are heads down focused on execution for 2025. I'd like to thank the team for their hard work throughout the first quarter. Our unrelenting focus on our strategic pillars is working, and we remain confident in our ability to deliver on our 2025 objectives. With that, I'll turn the call over to Ajay to discuss our operational results and financial outlook.

Ajay Gopal, CFO

Thank you, Rati. In the first quarter, we made further progress executing on our strategic pillars. Our focus on unlocking supply through our growth playbook, driving operational efficiencies, and obsessing over service resulted in strong top-line growth and margin expansion. For the third consecutive quarter, we delivered positive adjusted EBITDA, demonstrating our ability to drive profitable growth. We are laying the foundation for consistent execution and delivering on our 2025 goals. Now turning to our detailed Q1 results, beginning with top-line. Q1 GMV of $490 million increased 9% compared to last year. Our growth playbook initiatives drove strong top-line growth and we also recorded our highest new consignor growth in over two years. In Q1, active buyers increased 7% on a trailing 12-month basis to 985,000, demonstrating our reach and leadership position within luxury resale. Q1 revenue of $160 million increased 11% year-over-year. Consignment revenue increased 7%, and direct revenue increased 61% compared to Q1 of 2024. We expect direct revenue to remain in the range of 10% to 15% of total revenues going forward. I'd like to take a moment to discuss the trajectory and enhance unit economics of our reimagined overall direct business. As we've highlighted in the past, our direct revenue consists of out-of-policy returns and select vendor supply. In addition, as Rati mentioned, we launched an offering for consignors aimed at unlocking incremental supply through Get Paid Now. We offer this option on a selective basis on marquee brands in high-value categories, and we are enthusiastic about the program's potential to contribute to market share gains over time. The profitability profile of our direct revenue has improved dramatically. For the first quarter of 2025, direct gross margins were 25.5% compared to 3.3% in the first quarter of last year, a substantial improvement. We're committed to maintaining a disciplined inventory strategy focused on sell-through and margins. Continuing with our first quarter results. First quarter gross profit of $120 million increased 12% year-over-year, resulting in gross margin of 75%, an increase of 40 basis points compared to the prior year, driven by operational efficiencies in our fulfillment centers and customer support functions. First quarter operating expenses of $133 million increased 6% year-over-year. As a percent of total revenue, operating expenses improved by 410 basis points. Excluding stock-based compensation, operating expenses improved by 370 basis points, driven by AI-led efficiency efforts like Athena and SmartSales, improvements in marketing ROI, and increased automation. First quarter adjusted EBITDA of $4.1 million or 2.6% of total revenue increased $6.4 million versus prior year. Adjusted EBITDA margins increased over 400 basis points year-over-year. Operating cash flow for the first quarter was negative $28 million. Due to the timing of incentive payments and working capital seasonality, we expect operating cash flow and free cash flow to be back-half weighted. As a reminder, the remaining $27 million stub of our 2025 convertible note will mature in June of this year. We ended the quarter with $154 million in cash, cash equivalents and restricted cash. Turning to guidance. Today, we are reaffirming our full year guidance, which we provided earlier this year. We expect full year GMV in the range of $1.96 billion to $1.99 billion for the year, up 8% year-over-year at the midpoint of our guidance range. We expect revenue in the range of $645 million to $660 million, up 9% year-over-year at the midpoint of our guidance. We continue to expect adjusted EBITDA in the range of $20 million to $30 million, with adjusted EBITDA margin expansion driven by strong top-line growth and operating expense leverage. In the current environment, our ability to reaffirm our guidance stems from our consistent execution and the inherent flexibility in our marketplace business model. As a resale platform, our supply primarily comes from domestic closets and is therefore unaffected by tariffs. Furthermore, we believe we are well-positioned to realize benefits from consumers seeking value in the face of price increases or from customers being more motivated to monetize their closets. We acknowledge the potential for challenges arising from a more uncertain macroeconomic environment and maintain a balanced perspective in our expectations for the rest of the year. Moving to our outlook for the second quarter. GMV is expected in the range of $476 million to $486 million, which represents 9% growth compared to the prior year at the midpoint of our guidance range. Second quarter revenue is expected in the range of $157 million to $161 million. This reflects 10% growth compared to last year at the midpoint of our guidance range. We continue to expect the direct channel to contribute between 10% and 15% of total revenue. Second quarter adjusted EBITDA is expected to be between $3 million and $4 million, which represents 350 basis points of margin expansion year-over-year at the midpoint of our range. To be helpful, I will provide some additional detail regarding the quarterly cadence of 2025. Last year, we were still making changes to the business and saw significant quarterly variation in adjusted EBITDA margin from Q1 through Q3. This year, we expect a more consistent rate across the first three quarters of the year and a typical seasonal step-up in both top-line volume and adjusted EBITDA margin in Q4. In closing, I am pleased to see the progress our teams made in the first quarter. Our success in unlocking supply and acquiring new consignors gives us confidence that the RealReal is well-positioned to deliver on our 2025 objectives. With that, I will turn the call back over to the operator to begin Q&A.

Operator, Operator

Thank you. Please stand by while we compile the Q&A roster. And our first question comes from Ashley Owens of KeyBanc Capital Markets. Your line is open.

Ashley Owens, Analyst

Great. Thanks so much. So maybe if we could just start on direct. I know you mentioned the meaningful improvements to gross margin there. Could you just provide some context around some of the key drivers and how sustainable the levels are we saw in the quarter? Are the mid-20s kind of a reasonable range for that area of the business, or what other levels can you pull to further optimize it? Thank you.

Ajay Gopal, CFO

Thank you for the question, Ashley. As we have mentioned previously, our direct revenues consist of out-of-policy returns, which are items we accept back from customers, effectively acquiring ownership. Additionally, we have vendor purchases of specific items. Rati discussed our Get Paid Now initiative, which we began scaling last quarter. This allows consignors to receive payment upfront for an item instead of consigning it. These aspects are central to how we've revamped our direct business, significantly enhancing its profitability. We recently reported a margin of 25.5% on that revenue stream, a considerable increase from last year's margin of about 3%. We are optimistic about the improvements we've implemented and believe this margin will continue to stay around 20%. However, the margin may vary slightly based on the mix of direct sales.

Ashley Owens, Analyst

Okay, great. I appreciate the color there. And then additionally, given the ongoing macro uncertainty and some of the potential strain we're hearing about discretionary spending, what signals, if any, are you observing in consumer behavior quarter-to-date, both on buying and selling? And then, additionally, just how much visibility would you say you have into future supply as it stands today?

Rati Sahi Levesque, CEO

Yes. Hi, Ashley. Thanks for the question. As far as consumer health goes, it's been pretty consistent, I would say, if not resilient on the buyer side. We're seeing strength in top of the funnel all the way to conversion, and that's been consistent since Q4, especially and going into Q2, hence the guide that we gave for Q2. The supply side as well, we talk a lot about our growth playbook. The strategy is working. It's all about creating less friction with the consignor, that $200 billion in people's closets, things like reconsign, our new stores, on-demand appointments. Again, that trifecta of sales, marketing, and retail were really working together. So that strategy, like I said, causes less friction and builds trust with the consumer. I think we've never seen a more consistent growth pattern in new consignors. So we're really excited about the results and the highest number of new seller growth that we've seen in over two years, actually.

Ashley Owens, Analyst

Okay, great. I'll pass it along. Best of luck for the rest of the year.

Operator, Operator

Thank you. And our next question comes from Ike Boruchow of Wells Fargo. Your line is open.

Ike Boruchow, Analyst

Good afternoon. I'm interested in the direct revenue segment. Ajay, do you expect any seasonality in the direct revenue as a percentage of total revenue? I noticed it was around 12.5% in Q1. Are there factors that might cause it to increase or decrease in the upcoming quarters? Should we anticipate consistency in that figure? Additionally, if this channel proves to be more profitable—even though not as profitable as consignment—how does that affect your ability to maintain last year's gross margin of 74.5%? Should we expect the overall gross margin to stabilize based on this channel? I'm curious about your insights on these variables.

Ajay Gopal, CFO

Yes, thank you for the question, Ike. There’s quite a bit to cover. To start, we expect direct sales to account for 10% to 15% of our total revenues, which translates to about 5% to 6% of our total gross merchandise volume. This is a relatively small segment of our business. We don’t anticipate any inherent seasonality in that percentage; it will remain within that range, dependent on the purchasing mix of our buyers. From the buyer's perspective, they don’t notice or care about differences; they simply choose from the great supply available. That’s how you should view it moving forward. I believe you also asked about the impact on margins.

Ike Boruchow, Analyst

Yes. Does it impact your ability to keep expanding the consolidated gross margin based on pushing a little bit further on direct now that you've got like a little bit more special sauce there versus what you had the past couple of years?

Ajay Gopal, CFO

Yes, no, I wouldn't say. I mean, it's too small, and we expect it to be consistent in the 10% to 15% range. So where we are today is where I expected to be in terms of proportion of the total. The other thing I would point out is we are being very selective with our Get Paid Now offering. We were excited about how it represents our ability to capture incremental supply, and through that gain market share in the luxury resale space. But we offer it to select consignors, a marquee list of brands, and even though the margin when you look at it through the lens of how it gets accounted for on our financial statements is different. On a like-to-like basis, we are positioned to make more money, more contribution dollars when we have an item going through this channel versus consignment. So I wouldn't expect it to be dilutive or put any pressure on our gross margin rate. It's at the right level and we expect it to stay at this level going forward.

Ike Boruchow, Analyst

Thanks, Ajay.

Ajay Gopal, CFO

Thanks.

Operator, Operator

Thank you. And our next question comes from Marvin Fong of BTIG. Your line is open.

Marvin Fong, Analyst

Thank you for taking my questions. I'd like to ask about the average order value and its components. It seems that the average order value is doing well, but could you share any insights into what you're observing between units per transaction and average selling price? I have a follow-up after that.

Rati Sahi Levesque, CEO

Yes. Hi, Marvin. AOV is up. It's up about 5% year-over-year, and this goes back to what I was saying earlier around the resiliency of the buyer and that trust we've built with that side of the marketplace. Sometimes we'll see this inverse reaction between UPT (units per transaction), AOV, but it stayed pretty consistent sequentially. I will say that we are seeing higher levels of fine jewelry sales, especially, actually branded and unbranded. And so that's the kind of great thing about having a diverse or the advantage of having a diverse marketplace as far as categories go. And if something is out of favor, other things are very much in favor. So we are seeing that with fine jewelry. Handbags are doing especially well right now. So we're excited to see both average selling price and average order value consistently up.

Marvin Fong, Analyst

Great. And I guess I'll have a question also about direct margins. Just between those three channels, out-of-policy, direct from vendor, and Get Paid Now, is there a difference in margins between those three channels? I would imagine maybe Get Paid Now is a higher margin just by virtue of the motivation of the consignor or the seller, but we just love a little granularity there.

Ajay Gopal, CFO

Yes, thank you for your question. Get Paid Now is structured to work effectively. For instance, if you consider a handbag priced between $1,500 and $5,000, someone opting for that would receive about 55% of the anticipated resale value. On the other hand, a consignor would earn closer to 70%. This creates a 15-point margin difference between the two options. With this setup, we observe better margins on a comparable basis. However, it's important to note that this is not the largest segment of our direct sales. The primary contributor to direct sales remains our out-of-policy returns. We treat returns similarly to original sales since all our items are resold. When a consumer returns an item, we can easily relist it and sell it for a comparable price, resulting in consistent margin structures.

Marvin Fong, Analyst

Okay. That's great color. Thanks a lot.

Ajay Gopal, CFO

Thanks.

Operator, Operator

Thank you. And our next question comes from Bobby Brooks of Northland Capital Markets. Your line is open.

Bobby Brooks, Analyst

Good afternoon, everyone. Thank you for the question. You mentioned seeing the largest increase in new consignors in over two years, and I have two questions about that. First, could you provide some context to help us understand? Did you add 2,000 new consignors? Last year, you were averaging about 500 new consignors per quarter, correct? Secondly, what is the main reason driving this influx of new consignors? I know you indicated that a quarter of them came through the retail space, but what else is contributing to this growth?

Rati Sahi Levesque, CEO

Yes, I can take that. Hi, Bobby. So a couple of different things. So, yes, new sellers, we're very happy with the growth there on a number basis and even the retail value coming through new sellers. We're doing a better job targeting consignors with even higher value items and better products, that mid-to-high value product that we want. And this again goes back to that trifecta of sales, marketing, and retail really coming together, meeting the seller where they are, building that trust, that community with the seller. So we've talked about aligning, for example, the sales compensation plans better with the product that we need or better with the consignor acquisition strategy. New retail stores, like you mentioned, is a big chunk or percentage of that. Real Partners or Real Friends, our referral program is working better than ever. We had one in the past, but we really changed some of the framework around that to really juice that program. Another big initiative has been reconsigned. We made that way easier for the consignor. So now a consignor can come through the funnel. We know if you bought a handbag six, eight months ago, and we know, Bobby, that you'll be ready to consign it in eight months, right, or whatever your pattern or behavior looks like in the past. So we'll target you at that time to reconsign that item. So we're seeing many more opportunities come through that channel. And I'm really excited about that. So there's things like that. SmartSales is the last piece I will say, because think about tech tools that we're getting better with. So making the sales team able to get more consignors. So they're working on the relationships and the consignor growth versus the administrative tools, right, getting them to get more appointments in per day and back to meeting the consignor where they are, on-demand appointments. So being able to come into a store and drop off or need a gemologist same day versus two weeks later. So that on-demand kind of nature has really helped as well. And remember, the TAM is very big. There's lots of opportunity for us and we still have a lot of room to grow, which really gets the team and me very excited.

Bobby Brooks, Analyst

That's a great point. It's helpful to understand that partnership programs are playing a role in increasing supply. Can you elaborate on what this looks like in practice? Are we talking about partnerships with brands or consignors? It might also be insightful to compare this to how drop shipping operates.

Rati Sahi Levesque, CEO

Yes, there are two different programs I want to discuss, particularly the Real Partners program. We are emphasizing a product-first approach, focusing on items that have a strong market fit. We are collaborating with aggregators of supply, such as closet organizers and stylists, who work at a national level with consignors that refresh their closets seasonally. Through this program, we partner with stylists and closet organizers, who earn a percentage of each sale, making it sustainable for them. This creates a flywheel effect; they take the product, encourage their clients to consign with us, and then sell them new items as stylists in the primary market. We're really excited about the potential as this program is just beginning; we launched it in Q4 and are pleased with its progress. On the other hand, drop shipping represents a new channel for us that we started testing late last year, really taking off in October and November. We are now seeing this program gaining traction, and our optimism has grown since I last discussed it. We aim to scale this channel over the coming years. For those unfamiliar, drop shipping involves high-value products, specifically in categories like jewelry, watches, handbags, and higher-end ready-to-wear. Vendors can upload products directly to our site, which we authenticate after purchase before sending them to consumers. This means more excellent supply is available on our site. We tested it with watches late last year and observed significant progress. Ultimately, it's about having the right products available; when we curate unique, one-of-a-kind items, we see buyer interest follow.

Bobby Brooks, Analyst

That makes perfect sense. Thank you, guys. I'll return to the queue.

Operator, Operator

Thank you. And our next question comes from Mark Altschwager of Baird. Your line is open.

Mark Altschwager, Analyst

Thank you for taking my question. Good afternoon. First for Ajay, I wanted to ask on Q1 revenue, how did the mix, the revenue mix in terms of consignment versus direct versus services play out relative to your expectations? And then looking ahead, you're reiterating the revenue guide for the year, but wondering if there's been any changes to the underlying assumptions on the contribution from those pieces, given that this Get Paid Now initiative was just beginning to ramp, and now you're seeing some positive signals there. So curious how that's kind of changing again, your underlying view of the year?

Ajay Gopal, CFO

Thanks for the question, Mark. Maybe starting with Q1 revenue, we reported growth of 11% in revenue against GMV being up 9%. The mix of what comprised that was pretty consistent with where we expected it to be. We've always maintained that direct will be about 10% to 15% of our revenue mix, and we saw that land pretty much in the middle of that range. The Get Paid Now program is not that significant. It's a way for us to get incremental supply. I wouldn't expect it to create any fundamental change in sort of the mix of our revenues going forward.

Mark Altschwager, Analyst

Very helpful. Thank you. And then, Rati, just kind of bigger picture here. In the prepared remarks, you expressed some optimism regarding how the model has the potential to benefit from the current environment. I tend to agree with that sentiment. But curious if you view this as largely theoretical at this stage or are you beginning to see some shifts in buyer, seller behavior or even conversations your sales team is having with some high-value consignors that would support your confidence in that point?

Rati Sahi Levesque, CEO

Thank you for the question, Mark. Regarding sentiment, we discuss tariffs and their potential impact on our business or any unpredictable factors. Since all of our supply comes from domestic sources, we don't anticipate much effect there. Historically, when prices rise, our pricing tends to increase as well, which our algorithms quickly adjust to based on primary market trends. The market ultimately determines prices. Could this be beneficial for us? Perhaps. We believe we might actually gain from the tariffs. However, taking a step back, we have established a flexible business model and made significant foundational changes to better navigate various conditions. With the uncertainties surrounding potential tariffs, our focus remains firmly on our strategic priorities. Therefore, we are optimistic about our situation.

Ajay Gopal, CFO

Yes. And just to sort of add to that, clearly we think we can benefit from, if we end up in an environment where prices start to go up in the primary market, we think that potentially monetizes people to want to monetize their closets. So more supply for us. And we also think our value proposition at the intersection of value and luxury is even more powerful in those circumstances. So we would expect to see more buyers coming to our platform. We're keeping a close eye on these trends, and I think we feel really good about how we're positioned to capitalize on them if and when they develop.

Mark Altschwager, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Jay Sole of UBS. Your line is open.

Jay Sole, Analyst

Great. Thank you so much. Ajay, I guess, I'm just wondering about the second quarter revenue guidance. I think you talked about 9% at the midpoint. I think it was 11% in Q1 and 14% in Q4. I guess what does the guidance assume in terms of sort of macro and the impact of tariffs and all this noise that's out there in the marketplace?

Ajay Gopal, CFO

Thank you for the question, Jay. Regarding tariffs, as Rati mentioned earlier, we operate as a US-based business. Our inventory is already stored with consignors, so we are not directly affected by tariffs. The earlier points I made suggest that we view these as secondary effects. In that context, we are well positioned to take advantage of any price increases that may arise from tariffs. Referring back to your question about revenue guidance, looking at last year, we've seen revenue growth surpassing GMV growth due to the changes we've made, resulting in a more stable take rate. We anticipate that these two metrics will be much closer moving forward. For our Q2 guidance, with GMV and revenue both projected to increase by 9% at the midpoint, this reflects the consistency we expect in how these metrics will align in the future.

Jay Sole, Analyst

Understood. All right. Thank you so much.

Operator, Operator

This concludes our question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.