TDUP - THREDUP: FIRING UP THE RESALE APPAREL MARKET
THREDUP: FIRING UP THE RESALE APPAREL MARKET
ThredUp Inc. (NASDAQ: TDUP) is one of the largest online resale platforms for apparel, shoes, and accessories. Its custom-built operating platform comprises distributed processing infrastructure, proprietary software and systems, and data science expertise. According to a GlobalData market survey conducted in February 2022, this platform is powering the rapidly emerging resale economy, one of the fastest-growing sectors in retail.
The Company and its Business
ThredUp’s proprietary operating platform is the foundation for its managed marketplace, enabling buyers to browse and purchase resale items for primarily women’s and kids’ apparel, shoes, and accessories across various price points. Buyers get access to shopping value, premium, and luxury brands all in one place at up to 90% off estimated retail prices. Additionally, they can choose from a wide selection of 55K brands, more than 100 categories, and a fresh, ever-changing assortment of products.
ThredUp Inc. (NASDAQ: TDUP)
Market Cap: $333.16M; Current Share Price: $3.24
Data by YCharts
ThredUp makes it easy for sellers to clean out closets and unlock value for themselves or the charity of their choice while doing good for the planet. ThredUp’s sellers can order a Clean Out Kit, fill it out, and return it to the Company using a prepaid label. ThredUp then takes it from there and does the work to make those accepted items available for resale.
In addition to the core marketplace, some of the world’s leading brands and retailers are already taking advantage of ThredUp’s Resale-as-a-Service (RaaS) offering, which allows them to conveniently offer a scalable closet clean-out service and/or resale shop to their customers.
The Company generates revenue primarily from items sold to buyers on its websites and mobile app and from integration and service fees charged for RaaS offerings.
Below, we’ll discuss a few key factors that indicate a promising future for the Company.
- Large and growing market opportunity
ThredUp is in the early stages of capitalizing on a large market opportunity in second-hand clothing. Resale is the fastest-growing segment in the retail clothing market.
As of today, the U.S. Supply-Side Second-hand Total Addressable Market (TAM) consists of about 17 billion pounds of apparel thrown away that could be recycled and reused. This is the equivalent of about 1 billion ThredUp Clean Out Kits.
On the other hand, as shown above, U.S. Resale is projected to grow to $51 billion in 2026. Mass market TAM is six times larger than luxury, and ThredUp is fully equipped to take advantage of this upcoming opportunity. This is evident from the following –
Firstly, to cater to numerous buyers and sellers and their unique needs, the Company has already set up distribution centers in 5 strategic locations across the globe and has 9 million items in capacity. Out of the five distribution centers, the Dallas center (opened in December 2022) will ultimately increase capacity by 150%.
Additionally, in 2021, ThredUp acquired Remix Global AD, a fashion resale company headquartered in Sofia, Bulgaria, to expand its reach to the European customer. With this acquisition, the Company added a complementary operational infrastructure and an experienced management team to enable its expansion into Europe. Also, Remix’s product assortment extends ThredUp’s resale offering to include men’s items and items sourced from various supply channels, such as wholesale supply.
Besides the strategically placed distribution centers, the Company has also built a differentiated and defensible operating platform to enable resale at scale. This platform combines distributed processing infrastructure, proprietary software and systems, and data science expertise to provide optimum results and an edge over competitors.
Thus, ThredUp will be able to make a mark in the resale market and grab a significant share of the presented opportunity.
- Favorable impact on the environment
As explained, ThredUp provides end-to-end resale services for sellers and unlocks value for items with lower Average Selling Prices at scale while providing buyers access to high-quality items at great prices. In this process, the Company has built an effective environmental, social, and governance (ESG) proposition that has created higher value for ThredUp, its customers, and the planet.
As of December 31, 2022, it is estimated that the Company’s operations led to savings of at least 1.3B Pounds of carbon emissions, 2.6BkWH of energy, and 5.9B Gallons of water.
Overall, ThredUp’s impact on the planet to date has been significant. Other than processing 137 million unique second-hand items as of year-end 2021, the Company also completed the 2020-2021 Greenhouse Gas (GHG) inventory assessment (including Scope 1-3 emissions), improved solutions for products sold through after market program, and streamlined packaging to include sustainable, reusable, and recyclable materials.
In other words, ThredUp’s operations have been instrumental in combating disposable fashion’s harmful effect on the planet – and given the times that we live in, this is the greatest need of the hour.
- Financial performance
The Company ended FY22 with 42 client brands and continues to expand its RaaS roster in 2023, launching new programs with J. Crew, Kate Spade, New York, and Francesca’s.
For FY22, ThredUp reported total revenue of $288.4 million, an increase of 15% YoY. Gross profit totaled $192.3 million, representing an increase of 8% YoY.
The Company achieved record orders of 6.5 million for the full year 2022, growing 22% over 5.3 million for the full year 2021.
Adjusted EBITDA loss was $43.4 million, or a negative 15.0% of revenue, for FY22, compared to the Adjusted EBITDA loss of $36.5 million, or a negative 14.5% of revenue, for FY21. This was mainly due to significant operations, product, and technology expenses of $121.8 million in FY22, compared to $91.5 million in FY21.
However, over the long-term, the Company expects to bring down these expenses to about 30-35% of revenue, which should ultimately result in Non-GAAP Adjusted EBITDA of 20-25%.
More recently, for FY23, ThredUp has provided revenue guidance in the range of $310 million to $320 million, a gross margin of 66.0% to 68.0%, and an adjusted EBITDA loss margin in the range of 8.0% to 6.0%.
Although the Company operates in a highly competitive environment, its uniquely designed operating platform and proprietary technology give it an edge over its peers. Moreover, ThredUp continues to launch innovative strategies to cater to its clients’ unique needs, such as expanding existing relationships/ categories and launching new resale shops.
It seems that the management is well aware of the needs of the resale market and is constantly taking steps to fulfill them. Add to this the tools and technology at the Company’s disposal, and ThredUp becomes a stock to watch out for.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://ir.thredup.com/static-files/80ecfe7d-0b35-432e-af48-9ef575eefe83
https://www.sec.gov/ix?doc=/Archives/edgar/data/1484778/000148477823000057/tdup-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1484778/000148477822000187/tdup-20220930.htm