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All right. Morning, everyone. So my name is Ike Borchow, Softlines Analyst at Wells Fargo. We're here in Laguna Beach again for our consumer conference, talking about the discretionary space. A lot of our companies, we have one of those companies with us this morning, ThredUp. I have the CEO and co-founder, James Reinhart, Sean Sobers, CFO. I'd like to talk about, you know, recent, you two results I want to talk About. I want To talk about the value consumer. I wantTo talk about The low end. I want to talk about AI and agentic. So we're going to kind of go through a, you know, a litany of topics here. But maybe just start with Q2, James. Yeah. Revs, I think we're up 17. Buyers up 20 plus. Orders up 20 Plus. So a lot of healthy demand. Talk about the drivers that you have been seeing to demand the sustainability of those drivers. Yeah, sure. Thanks for having us. Yeah, Q2 was like a record quarter for us across all those dimensions. buyers sellers orders uh revenue and um i think it was the result of you know six plus quarters of sort of record new buyer growth so we had we've been very successful acquiring new buyers you know turning them into repeat buyers and you know a lot of that was going well and um you know all the work that we did on you know improving the customer experience conversion rates uh you know were strong um prices were strong so there was like a number of things i think that were all you know going quite well in q2 it was also the seventh quarter for us of you know record uh record top line and expanding ebita right and um and generating free cash flow so in general q2 was was strong across the board i think i mean yeah no i think it i think if you just looked at q2 you'd be like everything's awesome yeah but at the point of where you're looking forward or you look back at what we we did through q2 just got harder and i know we're going to talk about the consumer and all that too but the numbers for q2 record across the board yeah before we get to the the go forward which we will go through i mean you know it's interesting you guys have attended this event for years and you know ebada had been negative free cash flows been negative balance sheet questions and you look at the business now positive eboda generating free cash 60 million in cash in the balance sheet um how did you kind of get there and what do we think about the future just thinking about the capital structure the balance sheet like how do we think about the feature from here yeah I mean I think the catalyst was really q4 of 24 so in q4 for those of you who are not haven't followed it over the last few years we went public in 2021 at the end of 2020 we bought a business in Europe end of 21 and called remix we'd own that business for a number of years but in 22 when interest rates um and inflation you know went up in the u.s it was equally bad or worse in europe and so um our remix business really struggled and so we tried to turn that business around over a couple of years um the net of it was that our u.S business was actually like reasonably healthy um during that period but it had to effectively cover up the challenges we were having in europe um so eventually got rid of the european business in um we announced that we were going to get rid of it in the summer of 24 and then we closed that transaction in november of 24 uh and i think like that was really the like the turning point where i was like okay we were the business was simpler we were u.s only uh we could turn all of our investments our best people back to the u.S. so beginning in 24 in q4 of 24 you saw the business just rapidly accelerate growth and you know it was plus 10 to plus 12 to plus 16 to plus 33 to plus 18 um so 25 was really like a nice run of growth um you know all driven by improvements in both new customer acquisition and then the product experience which we invested a ton of in 24 really rebuilding the fundamentals of the business and so once you had the fundamental kind of funnel in much better shape and then you're able to add new buyers that was the healthy healthy growth and so um and now right now in the second half of this year we're comping 23 24 growth in the second half last year and so we always knew that comps in the second half would be challenging and here we are yeah and before we go to the go forward Or just, it might be a silly question, but just with the cash on the balance sheet and the fact that you're still growing and still have good visibility of the model works, thoughts on uses of cash? I mean, is it just continued reinvestment? Would you ever, you know, think about the idea of a buyback or anything that we haven't kind of done since you've been public? I know. Not right now. I mean I think we think the market is too big in secondhand. Opportunity is too great. It's too big. Customer acquisition is, you now, efficient. And so I think the best thing to do with the cash is to invest it and grow the business. The business is still $350 million, right? It's still modest size. And so, I think we've got a long way to run before that. So, I wouldn't say never, right, but it's probably not the best use of it. Don't model the buybacks. Don't modelo the buyback. So, you shouldn't ask M&A. um so the main question i wanted to get to uh is you're i always really find your perspective helpful um your business is relatively small but i feel like you you have your arms around that value consumer in the u.s pretty well you know kind of been uh you guys report usually typically early and you kind of are sometimes a canary in the coal mine yeah um kind of feels like that's what happened on your q2 call can you talk to us about how you view the state of let's call it the value consumer um maybe the transition of q2 to q3 what you kind of saw in those months and just the biggest changes you saw in behavior yeah um yeah being a canary is not always not not always a good thing um you know the canaries die right so um so we can maybe we can stop using that um no but uh but the reason i think that we are in like a useful indicator is you know despite you know 350 million and in sort of you know net revenue we'll sell 25 million units this year across 35 000 brands 100 categories so it's a pretty it's pretty wide indicator right of what's happening and so we can see across the brands and the categories and the price points what is happening um i think in some ways maybe earlier than a lot of other folks um and so what we saw you know beginning in really after memorial day you know kind of early june early mid-june uh we just saw the consumer being much more um picky and so uh this was primarily you know customers who were you know i would consider budget shoppers but tv like an illustrative example it would be An item that a budget shopper might have bought for $20 last year, there was no demand curve at $20. And so because of our technology, we're able to probe, okay, well, what is willingness to pay for that unique item? And it turns out, and I'm sort of making these examples up, instead of wanting to pay $20, they're like, ah, actually, the clearing price is $18. And for this brand, it used to be $22, and now it's $19. and because of the breadth of our assortment and we're putting you know a hundred thousand new items online every day you know very quickly the data science can be like oh there's actually a mismatch among segments of the demand curve that show that um there's some weakening there and we started to see it in june and i think you know we were able to react to it in June um and but it just you know it got a little harder right and so as we got into july all those things we were seeing um you know were materializing we just knew sean i was just like look it's it's going to be tough for the next uh few months and so we made the conscious decision to focus on meeting the customer where they were like so from a strategy perspective you know our point of view is your it's a vastly superior strategy to uh maintain customer engagement even at lower prices than it is to say oh we're going to protect unit margins and abandon the demand curve because you know what it's a lot more expensive to go out and acquire all those customers again than it Is to inflect price 50 cents a dollar right as things get better so the way I would like think about the business is um the and this is like where I think people get a little bit lost in the plot is we guided that the second half would be about seven million dollars less we're going to sell 14 million items roughly in the second half so we're talking about 50 cents right that that is like because you know where there's so many you know dials to turn in the business so i would much rather trade that 50 cents and have very strong and engaged buyer cohorts and then whenever this resolves itself we don't know when i feel extremely confident we can get that 50 cents back or 60 cents or 70 cents or a dollar and so i think the business has the real like snapback opportunity but that snapback opportunities are the ones that are opportunity only comes when you've got lots of buyers um otherwise you've gotta grade you're gonna come out and then you gotta you're at the you're the whim of meta and pinterest and google we can go back and acquire you know half a million buyers you lost so we were very disciplined like thinking through the strategy and um you know i have a lot of confidence like uh we're we really understand what's going on and we just have to navigate through it what's the line that you know gets crossed when the out when the outlook you're kind of giving ships a bit and you start to talk about more um you Know margin versus demand like like what has to happen is it a certain amount is it duration or is it step down further yeah two things can happen which is in a world where your demand curve is um so let's just say that the world doesn't change at all right so gas prices are where they are and you know consumer uncertainty is the same way there's basically two things that you can do that change this uh independent of that one is you expand the surface areas in which you sell so right now we're primarily like a direct to consumer online business but you could you could launch new ways to sell that product like for example um our direct listings business right or you know we're talking actively about what to do with live selling right as an example so you expand the services which increases the overall demand curve and then that gives you some ability to inflect price so that's sort of one and then the second is just your mix of goods and so that same item that you could sell for 20 that you need to sell for 18 maybe that item was an athletic pair of leggings maybe that leisure isn't the way we should talk about this maybe that was a $20 j crew dress right um but now like instead of that j crew address because of your improvements in your in your premium mix which is what we're working on that's now not a $20 J crew dress that's a $38 reformation dress and there are superior unit economics on a reformation $38 dress and a J crew address so we're basically taking two approaches expand surface areas and improve the mix um and i think those are things that can help us um inflect irrespective of the demand environment how how do you kind of separate i mean i i clearly since you guys reported there's been other every day it feels like yeah so so i think that's fair but you know before that i feel like you were more alone on the idea um how did you kind to know or how do you know that this is macro versus micro that that the underlying model still works like how do what gives you that confidence i mean you can just see it in the like the the visit rates of customers you can see it the um you know like buyers are there and i think that's the thing is buyers were there right so you had buyers hanging around the hoop it's just that you weren't getting a supply demand curve right to match up so when you look you've got you know you've got people coming to the store you've got sellers coming right sellers and our premium mix was at an all-time high so you've Got sellers you've got buyers there and so to me that like suggested like fundamental health and I can mean you can see it pretty clearly. I mean we track this the daily weekly visitors unique visitors conversion rates and if I showed you kind of the chart you'd be like what happened there and be like, oh, that's like when consumers started to be like I've gorged on my Memorial Day sale and now summer gas prices are starting to creep up on me and um and so we saw it and we responded to it and i think it feels great actually as a business to be able to see it in the data so clearly be ableto respond because for all the reasons that we were able to respond on the downside we can also respond just as quickly on the upside and um man we plan to well i think we were just add to that too it's like i think we fought really hard not to assume it was the macro yes absolutely James is always like, okay, if it's not the macro, what is it? We spent a good week plus trying to prove that it wasn't the macro. Yeah. And it was the macro? Yeah. I told the demo, you're not allowed to say that word. If I hear that word again, right? But at some point, you've like ruled out all the things. And the only thing that we could not rule out was, you know, some consumer softening. When was the last time, because again, this has happened a few times where you've been able to pinpoint this. Yeah. When was the last time this happened? Are the learnings helping you in terms of how you're kind of combating it at this time? Kind of walk us through your thought process as you kind of become a bigger business. Yeah, I mean, I think past results don't predict the future. I mean I think we've lived through various volatile times in the past, But I think just generally, like, our data and the way we were able to look at the business is far superior to anything we had, you know, five, seven years ago. I think 2017, 2018, you Know, there was something in consumer softness that I remember seeing. But now, I mean, the business almost is a victim of, like – we almost have too much data at times, right, that you get so micro. but we can see we can see everything and yeah I mean we're we're confident we can navigate through it and so at this point you know you you have a new guide for the back half you have you have a view of the consumer can you just remind us like what what is your expectation how do you expect this to kind of play out when would you hope to get to a more normalized environment where margins and demand are back to more healthier levels tell me what I mess jump in or you go ahead go ahead no but no i i think that i think james kind of hit it is like we lowered the back half by like seven million dollars not very significant still growing still leave it up positive still cash flow generative and i think you probably take a better shot at how does it recover when does it recovery i think there's a lot tied up in the consumer and gas prices that we can't say um because we just don't know it's not like we have secret answer and i think you know from the time we did earnings to now it's not like it's gotten better so i think i think we are where we are until something changes um and i think i'm i'm a little more positive on when there's resolution in the straight that that lack of uncertainty will help it's not even a gas price change it's just the fact that we know it's going to change so i think you probably get a lot more activity at that point and then it should be a slow burn in a good way over a long period of time because i do think it's gonna take months to come back yeah and i think as customers start to feel a little bit better you know i do think that the strategy of maintaining customer engagement you know and having cohorts be um visiting the site you know maybe they're purchasing a little less frequently than than they did before or they you know uh needed a better deal right but i think having them on the on the sideline ready to go i think is is valuable as even if things to sean's point just normalize a little bet um we can start to really you know press there and the nice thing is like we can probe on price and mix not you know a lot of brands are thinking about these in in dollars or ten right like we're just everybody like we probe at like the penny like at any at any moment in time there are half a dozen to ten pricing experiments running where we are probing different mixes to different customers trying to find like the right way to drive you know top line and margin and um they're all named after vegetables right like you know so like when i look at a dashboard it's like here's like here's how carrot is performing against i mean i kid you not like carrot versus tomato versus right and so we're constantly probing these things and what they do is that the same way they caught the signal on that on the way down like oh actually there is actually greater willingness to pay in this with this setup right which drives better contribution better net revenue and so right now we're just you know managing the dials to deliver what we think is appropriate cash flows and appropriate top line um but i think we'll be able to see as things change you know over the next couple quarters how do you think holiday plays out from a pricing demand perspective within the value space i mean generally holiday is not like a big quarter for second hand um you know people don't often buy secondhand for for gifts and so forth it'll be interesting this year like i don't i honestly don't know i mean maybe in a world where consumers are more stretched than buying the secondhand handbag as a gift becomes more more um popular uh so i think our strategy is to probe that and figure out where uh leather goods tend to be like an area for us um around the holiday that can be that can me good and so we're trying to make sure we've got the right assortment can We talk about innovations around AI, what you've been leaning into, what's interesting. I know you're at the forefront of it. You talk, you know, what do you think is going on overall high level with an AI? But then more specifically, how have you been using that in your business? And then what are more opportunities that are kind of early innings or not, you know, game hasn't started? Yeah, I mean, I think like agentic commerce broadly is like the next wave that I think is similar to online. So I think, like, you know, if you went from offline to online, I think we're going from online to agentic. And the reason I sort of think about it like that, because when businesses moved online, people still shopped in stores. And I think even as agentic commerce takes off, people are still going to shop online. People are still gonna shop in stores, and so I think businesses need to be prepared for the shift of what their agentic strategy is, right? what their online strategy is you know what their physical you know if you have physical stores so i've been thinking a lot about that transition i think fashion and retail is probably going to be a later adopter to this because i think about fashion as a more considered purchase and so i think um maybe for men it comes a little quicker because i thank you know men tend to be a simpler tend to b simpler in our fashion purchases uh but i'm not convinced that like agents are going to be wildly successful um shopping for women like out of the gate and uh so there's gonna be a lot of innovation here i think it's like actually a really exciting space so the way we think about it is we need to do three things one we needto make sure that in um all of the any chat client right uh that the way way we used to think about seo we thinkabout you know agentic optimization so somebody says i want to clean out my closet or i wantto sell some items into chat gpt we to make sure we're we're right there um uh whether that's yeah whether whether that s perplexity or or it's chat gbt or it s called like with the nail agentic um optimization the second is we need to and we are like develop mcps to make sure that any of the agents that do want to shop for second hand that our data is structured in the back end to serve you know whether it's the npc from instinct or it s from muse however that like or town or ones that haven't been invented yet but are likely coming um so you're gonna nail that and then the third is what does our agent experience look like for customers on the buying and selling side and so um you can imagine building an agent experience that for sellers right that's like quite valuable that helps index their closets and things like that so we're thinking about it both as a from a consumer angle um like an agent level and then um opt-in uh ael where do you think the biggest opportunity for you lies potentially yeah i mean i think um i i'm like a believer that um agents are going to like if you if you if you were to ask for those of you who played with instinct or or if you played with muse lately if you would ask them to go out and like acquire you know find me a just use reformation right so like find me uh like a reformation dress size four um you know and i want it to be used So let's imagine that that customer is like, and I want it to be used. I think ThredUp has like a really powerful right to win there because we've got this broad selection. And the way agents are going to evaluate businesses when they go to shop is based on the structure of the data. And ThredUP's data structure, I think, is as clean as it gets in secondhand. So we've Got all the metadata because we're doing it versus in like an eBay, for example, right? It's all peer-to-peer or Poshmark, right. So peer-to-peer data, if you've ever looked at the data set, it's much messier. So the pictures are lower quality, the consistency with which the data is actually put together. Our data is structurated and quite clean. And so it's a long way of saying, I actually think the agent, the machine, will be like, oh, that data is clean. Oh, that image is nice. Oh, these guys have a return policy. Like, there's actually, like, trust quality of the data that I actually think puts ThredUp in a superior position relative to other secondhand companies. And so we're spending a lot of time nailing that because when the agent comes back and says, hey, Ike, I found your size for a Reformation dress, or I found multiple size for Reformation dresses, They're going to return a very clean experience on ThredUp or Cindy Liu in St. Louis with a dress that's, like, shot on her bed who has shipping fees potentially and doesn't take returns and you have to negotiate with or this buy it now option through ThredUP, right? And so I do think there's actually some real advantage for us here, and we're going lean into that. So it sounds like the way you started, you wouldn't put fashion or soft lines in the risky bucket when it comes to agentic. I think it's going to be much harder to crack. Yeah, I really do. I think for the same reason that people still love to shop in stores, right? Like if you believe when online launched that stores went to 10% and online went to 90%, then I'd be much more confident that agentic would get to that. But I think still people, women in particular, it's a considered purchase. AI or any of the new innovations that are hitting, has it affected your go-to-market strategies to acquire new consumers? Has anything kind of shifted in that front of late? No, but I think what it does, it has accelerated, I think, the setting up the data infrastructure to communicate with all of these folks. And so we knew this was coming and had been building stuff on our own, but I think we've accelerated making sure that our protocols, right, are set for those. But I think there's other innovations, like I think live shopping is quite interesting. Like I, you know, what eBay is doing, eBay Live, whatnot. And I think consumers are, I think this year is really a breakout moment for live selling. And so I think we're thinking a lot about that, right, which is AI enabled, right? Because I think a lot of what we will have to do to do that well will require using our technology to efficiently kind of scale, you know, one-on-one items. Those parts of the business that are younger and you're thinking about them, so like direct or live selling, can you talk about some of those and what you're seeing? and i mean yeah on our direct business so direct listings um you know continues to go like well um i think uh we you know we don't have any like we only we didn't put out much uh public around like the that business but like it's continuing to you know drive um engagement sellers buyers and i think just to remind everyone so direct selling is direct yeah it's different than our core marketplace so you as a seller um can list your own item um on thread up but with like certain constraints um and it's really designed for casual sellers so somebody who has has a history of sending thread up their um clean out kits right or on our core marketplace um if there's a few items that maybe you used to sell on ebay um and we want to consolidate all that selling on thread up and so it's designed to really consolidate uh and really own the supply chain is that more for high ticket more premium product yes so the the direct selling items typically are twice the price of our core uh marketplace um but yeah so direct selling and then um uh yeah we talked a little bit about live selling is something like we're we're exploring um i think agentic and sort of you know agent-based commerce uh we're spending a lot of time thinking about how social creators drive awareness and so if you're familiar with businesses like a shop my right or an ltk these are these tend to be pretty hands-on for creators uh because they have to tag product we've been thinking a lot about what is a an ai driven approach to help them you know build second-hand affiliate stores uh so yeah so we're you know to kind of where we started we're thinking about all the various surface areas um that we you know been planning to build into i think we probably accelerated our time on on some of those anything changing on resale overall your view of the market market growth rates just as you think about the you know the industry at a big picture i think the industry you know when when typically like so that i think that the challenge in the economy is um going to accelerate resale like over time like i think um again like despite the um you know our business selling items at slightly lower prices we're selling more units than ever and so more people are shopping resale i think than ever you can see it um with when you invented coming into the u.s you can See with with um depop and what ebay is doing there so i think whole industry is is growing as well as it is it has um how that industry ultimately like generates flow through um i think is um because a lot of you know like when you read the resale reports those are all gmv we all know you don't pay your you know can't pay our bills at gmd um and so uh i think how businesses monetize um these these this growing category i think it's the area to watch i'm gonna end uh with my last question i was actually listening to a podcast at the gym this morning about having the best conversations okay i was giving you the best questions and the worst questions you can ask for small talk yeah i'm going to use the one that basically sound like the best one so feel free to use this so your next i can't wait i'm all about it what are you most excited about i like it can i give you a better one than that wow wow so there's a quote from there's an oliver wendell holmes former spring court no he's dead springport justice um who said and i learned this from from al gore so this is is um what have you come to know lately which is what have what have we learned what have learned but i'll answer your question if we have time um i think i'll have to push down like i mean i'm most uh look i'm most excited by the fact that the like our the structure of our business like the fundamentals are as good as they've been in a long time the economy is challenging right it's not we're not going to be permanently like in this state right it might be longer than any of us would like this level of uncertainty but it will end and we're going to have more customers more great supply more product services than ever and so we just kind of have to navigate through it and so it's it's a feeling of knowing that we're working on all the right stuff and um we have a real competitive advantage and moat in our business right nobody is trying to do what we're trying to do because we've built infrastructure you know over the last you know 10 years it makes it very hard to do or do so when you have a real like defensible um advantage and you believe the macro stuff is temporary and the fundamentals are good you just kind of have to keep executing so i'm excited about like the idea that like we'll get through this and you know nothing like a little pain pain as an as a founder like pain and constraint breeds creativity it breeds speed And so, like, I think that the way that as an organization we've responded to this is great, right? I think people are like, yeah, how do we punch through it, right, and so I think that makes me excited. Great. All right, well, James, Sean, appreciate you guys. Thanks for coming. Thanks, Ike. Thanks, everyone. Thanks guys.