ThredUp Inc.
Q3 2021 Earnings Call Transcript

Published: 8 Nov 2021

[Operator:]

Good day. And welcome to the thredUP Q3, 2021 Earnings Call. Today's call is being recorded. At this time, I’d like to turn the call over to Lauren Frasch, Senior Director of Investor Relations. Please go ahead, ma’am.

[Lauren Frasch:]

Good afternoon. And thank you for joining us on today's conference call to discuss thredUP's third quarter 2021 financial results. With us are James Reinhart, thredUP's Chief Executive Officer and Co-Founder; and Sean Sobers, Chief Financial Officer. We posted our press release and supplemental financial information on our Investor Relations website at ir.thredup.com. This call is also being webcast on our IR website, and a replay of this call will be available on the website shortly. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call including, but not limited to, statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans. These forward-looking statements involve known and unknown risks and uncertainties and our actual results could differ materially. Words such as anticipate, believe, estimate and expect as well as similar expressions are intended to identify forward-looking statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in our SEC filings, earnings press release and supplemental information posted on our IR website. In addition, during the call, we will present certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP measures, in our earnings release. Now I'd like to turn the call over to James Reinhart.

[James Reinhart:]

Good afternoon, everyone. I'm James Reinhart, CEO and Co-Founder of thredUP. Thank you for joining us for thredUP's third quarter 2021 earnings call. As we head into the final quarter of the year, we're excited to share our financial results and key business highlights from our third quarter. I'll start with some perspective on what we're seeing in the broader retail environment and how our strategy is evolving. I'll then discuss our marketplace dynamics and progress with our Resale-as-a-Service offering. And finally, I'll touch on changes in our product experience, how we're scaling our operations and what we're doing internationally. Sean Sobers, our Chief Financial Officer, will follow with a review of our financials in more detail and provide our outlook for the fourth quarter and fiscal year 2021. We'll then close out today's call with a question-and-answer session. Let's start with the results. For the third consecutive quarter, we achieved record revenue, record gross profit, record active buyers and record orders. Our revenue of $63 million is an increase of 35% year-over-year while gross profits grew 41% to $46 million. This is our third quarter of accelerating revenue and gross profit growth. Active buyers and orders increased 14% and 28%, respectively. These growth metrics underscore thredUP's resilience to the headwinds we faced throughout the pandemic and indicate that our long-term investment strategy will lead to sustainable growth over time. Let me first address what we've been seeing in the broader retail sector. We concur with consensus that there was a dip in consumer spending at the beginning of the third quarter amidst Delta variant concerns. But that overall consumer sentiment was robust into September with a significant rise in retail sales. Now having said that, supply shortages, labor costs and logistics surcharges has continued to take a toll, and we see inflationary pressure and higher prices for the consumer as structural changes rather than temporary changes. And how this impacts thredUP is unique. While many retailers have been forced to raise prices due to inflation or supply chain pressure, we do not have the same level of exposure. thredUp's U.S. business is entirely domestically sourced from our sellers, and we do not rely on direct manufacturing for supply. This means that consumers can always find a vast and ever-fresh selection of second hand items on our site, 100% of which are already in stock and ready to ship. As a result, we see a compelling customer acquisition and wallet share opportunity in the near term. We have chosen to strategically lower prices in order to engage as many customers as possible during a time when consumers are feeling price pressure in many other parts of their life. You can see this clearly in our average listed prices. They were 15% lower on average in Q3 of this year compared to the same time period last year. We expect to continue this strategy of providing the most competitive prices possible in the quarters ahead, leveraging our unrivaled access to high-quality wholly domestic supply. If I dive deeper into recent demand trends we've seen an uptick in sales for colder weather items on our site, including a 26% month-over-month increase in sales for both boots and trench coats and a 20% jump in sales for puffer jackets over the same period. There are also early indicators that consumers are looking to dress up this holiday season. Cocktail dresses experienced 14% month-over-month growth in October. Heels saw a 16% increase during the same time period, and handbag saw a 10% lift in sales last month. Last week, we launched A Holiday Shop with festive outfits, winter wear, gift ideas and our always popular gift cards. I'd also like to take a moment to give a shout-out to a few brands who have built loyal resale followings on thredUP by making great products with important stories and missions. Brands like Tek, Vori and SmartWool, Birkenstock, Rotie's, Aviator Nation, Crocs, Christy Don, Arteris and Icebreaker are all brands where 90% of the items that we listed in Q3 sold within 30 days. It's just remarkable sell-through of these brands. We love to see these types of brands to resonate so strongly with retail customers. Let me turn to supply. On the supply side, we continue to see strong demand for our cleanout service. We are processing more bags than ever and yet still managing to keep bag processing times around 12 weeks on average across our distribution center network. As we continue to invest in processing capacity and automation, we expect lead times to come down in 2022. In September, we announced the lease signing of our new $10 million item flagship distribution center just south of Dallas, Texas. This facility will be nearly 600,000 square feet and will be our largest and most automated distribution center. When fully scaled, this 4-level facility will increase our total network-wide capacity by more than 150% to 16.5 million items. We expect to begin processing items in Q2 2022 with demand fulfillment to begin in Q3 2022. In addition, we have secured our first dedicated processing center in Grapevine, Texas. This facility will focus exclusively on Clean Out Kit processing and will become an immediate feeder to our new Dallas facility. We expect to begin processing items in the new Grapevine facility in Q1 2022. As you might expect, bringing our Dallas distribution center online, our great line processing center online and investments in technology, data science and automation will all pressure operating expenses in the near term. However, our history shows that these J-curve-like expenses ultimately drive up overall processing rates and thus our potential revenue in future quarters. Now let's talk about RaaS. I'd like to share some progress in our Resale-as-a-Service business. We recently launched new RaaS programs with adidas, Crocs and Michael Stars, bringing our total number of paying RaaS clients to more than 2 dozen. Brands and retailers are turning to RaaS to support not just their business strategy, but also to improve their sustainability footprint. As a reminder, our RaaS platform enables brands to offer a quality and seamless resale experience for their customers across 3 main areas

[Sean Sobers:]

Thanks, James. And again, thanks, everyone, for joining us on our third quarter earnings call. I'll begin with an overview of our results and follow with guidance for the fourth quarter and full year. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between GAAP and non-GAAP are found in our earnings release, supplemental financials and on our 10-Q. We are extremely proud of our Q3 results especially delivering our third consecutive quarter of accelerating revenue and gross profit dollar growth. For the third quarter of 2021, revenue exceeded our expectations totaling $63.3 million, an increase of 34.8% year-over-year. Consignment revenue increased 42.8% year-over-year, while product revenue grew 14.5%. Active buyers and orders are amongst the most important KPIs that we use to track our business. For the trailing 12 months, active buyers rose 14% to 1.4 million. Third quarter orders reached $1.3 million, increasing 28% as compared to the same period last year. Gross margin expanded to 72.8%. This is a 300 basis point improvement over a 69.8% gross margin for the same quarter last year. Gross profit totaled $46.1 million representing growth of 41% year-over-year. Gross margin expansion has come as a result of expanded automation, larger distribution centers and more items per order, offset by continuing headwind from wage inflation and increasing logistics and shipping costs. We believe gross profit dollar growth is the best way to measure our business growth as we continue to transition to a mostly consignment-based business. For the third quarter of 2021, GAAP net loss was $14.7 million compared to a GAAP net loss of $11 million for the third quarter of 2020. Adjusted EBITDA loss was $7.8 million or 12.4% of revenue a 350 basis point improvement compared to the adjusted EBITDA loss of $7.5 million or 15.9% of revenue for the third quarter of 2020. Q3 GAAP operating expenses increased $18.2 million or 42% year-over-year. This includes $3 million of stock-based compensation. We continue to invest in the expansion of processing capacity, marketing efforts and technology infrastructure to support our growth. Turning to the balance sheet. We began the third quarter with $233.5 million in cash and investments and ended the quarter with $266.9 million. The Q3 ending balance includes $45.5 million of net proceeds from our follow on offering that closed in August. Third quarter basic and weighted average shares were 97.3 million shares, included 2 million shares issued by us in our August follow on offering. We closed our acquisition of Remix in October. Remix provides the platform to accelerate our international expansion into the European resale market that is predicted to be $39 billion in 2025. We funded the Remix acquisition with a mix of cash from our balance sheet and shares. Total cash paid at closing was approximately $19.2 million. Shortly after closing, we also paid approximately $6.2 million of other Remix liabilities, bringing the total payment to $25.4 million. Subject to customary purchase price adjustments, we will pay approximately $3.5 million in the form of 131,000 shares of newly issued Class A common stock to be issued 18 months following the closing of the Remix acquisition. Remix operates in 9 countries with Bulgaria and Romania representing approximately 70% of revenue. Remix has a smaller footprint in Austria and Germany, which we view as a longer-term opportunity. Remix sells both second hand apparel and slightly worn returns from brands and retailers plus Remix also operates in the men's category. At Remix, gross margins are in line with thredUP margins of about 5 years ago leading us to believe that there is ample runway to leverage the thredUP model and expertise to generate meaningful profitability improvements over the long term. For example, historically, a significant portion of the Remix business has been direct sale in which they own their own inventory. This is lower-margin than consignment. In addition, a significant portion of their supply has been from wholesalers, which is also lower-margin than individual sellers. Over time, we plan to migrate the business towards higher-margin consignment and away from the wholesale supply in order to be more in line with the current thredUP business model. At the same time, while the acquisition is modestly accretive to EBITDA, as previously disclosed, we plan to aggressively invest in the business to accelerate top line growth and gain share in the European market. Including these near-term investments in Remix, we remain confident we will achieve our previously discussed long-term financial targets. Since this is our first Q4 as a public company, I would like to note some unique aspects regarding the seasonality of our business. Seasonality and resale purchasing differs from traditional retail. This is particularly true in the back half of the quarter as resale is not leaned on for holiday gift giving. As a result, Q4 is not typically our strongest sales quarter. Furthermore, we actually tend to pull back on marketing as a percentage of sales due to its high cost during Q4 and reallocate those dollars towards our processing efforts. In December, we tend to shift our associates to aggressively process bags and build selection in advance of Q1 and Q2 of the next year. This acceleration of inbound processing tends to increase our operating expenses in Q4, which pressures EBITDA. I think in this quarter, I would also remind you of what James said earlier in that we decided to discontinue our Goody Box program in late August and expedited this whole wind-down by mid-October. We estimate Goody Boxes would have contributed approximately $2.5 million in revenue in Q4 with minimal impact to EBITDA. As we look ahead to Q4 2021 and next year, we are actively investing in the business both here in the U.S. and in Europe. We've begun building out our Dallas DC as well as continuing to invest in additional processing capacity to process our backlog of supply and facilitate new listings. As we bring on our Dallas DC, investments in technology, data science and automation in the near term will drive long-term value in this facility and eventually across our global network. While we expect Dallas to eventually be our largest and most automated DC yet, we know from experience that the build-out process tends to be less cost-efficient as we ramp to scale. We expect to see this dynamic play out in particular in the early part of next year, but we'd also expect the additional processing capacity to accelerate sales growth in the second half. We are also expanding Remix processing infrastructure, investing in its technology and data science stack and spending marketing dollars as we seek to capitalize on the large opportunity in Europe. Additionally, like other U.S. companies, we are dealing with the ongoing wage inflation and competitive labor markets as well as rising freight costs. In Q4, we anticipate an incremental $4 million negative impact to EBITDA versus Q3 as a result of higher labor and freight expenses. While we are planning for these quarter-over-quarter increases to moderate from Q4, we continue to expect elevated levels on both the labor and freight front for the foreseeable future. However, we plan to continue to offset the rising labor rates and shipping costs as we expand our DC automation, scale into larger DCs and innovate on shipping logistics. Now I'd like to share our financial outlook for the fourth quarter, including Remix since the acquisition closed in October of 2021. For the fourth quarter of 2021, we expect revenue in the range of $69 million to $71 million, gross margins in the range of 65% to 67% and adjusted EBITDA loss of 17% to 15% of revenue, and basic weighted average shares outstanding of approximately 98 million. For the full year of 2021, we now expect revenue in the range of $248 million to $250 million, gross margin of approximately 71%, an adjusted EBITDA loss of approximately 15% of revenue and basic weighted average shares outstanding of approximately 77 million. In closing, we are very pleased with our third quarter performance. We remain highly confident that we can continue to execute on our model and make our planned progress towards achieving steady growth aligned with our long-term targets. James and I are now ready to take your questions. Operator, please open the line.

[Operator:]

Thank you. We'll take our first question from Erinn Murphy of Piper Sandler.

[Erinn Murphy:]

Great. Good afternoon. A couple of questions for me. First, James, I was curious if you could share a little bit more about your strategy of lowering prices here as a competitive advantage. How are you marketing this change to the consumer? Have you seen kind of a new consumer come into the top of the funnel? And then maybe for Sean, what is this doing potentially to the margin structure in the near term? And then I've got one follow-up.

[James Reinhart:]

Sure. Erinn. I think customers come to us for predictable, particularly low prices and great deals. And so I think what we've tried to do with our messaging and the storytelling we've done on site and in e-mail and our app is just let people know the great deals that they're getting. And I think the sort of broader sense that people aren't getting promotions and aren't getting discounts at other places they're shopping at, we just keep hitting hard that like thredUP is the place where you can find the best prices on the brands that you love in a sustainable way. And so I think it's more of us just doubling down on the idea of how great our prices are and reminding people that while they're feeling the pinch in other parts of their life, we're going to kind of be there to support them. And I'll let Sean kind of talk about the margins.

[Sean Sobers:]

Yeah, Erinn. Yeah, on the lower prices, I think some of the dynamics there that work with it is the fact that with lower prices, we're going to discount less. So we have less discounts, we'll be less promotional. So you have less sales happening at the same time so you don't end up with kind of a lower overall pricing charge. You also get returns coming down as well because we know there's a direct correlation between the ASP and then returns happening. I think generically, if you think longer term, what I think this drives is more new customers, which drives better growth and more revenue over time. So we think that all works together really well.

[James Reinhart:]

And you're definitely seeing it, Erinn, in the conversion rates and sort of how new customers are coming on to the platform. And I think we feel like the whole strategy really holds together with that in mind.

[Erinn Murphy:]

Great. Super encouraging. And then my second question is one thing we noted during the quarter is the seller could no longer request a cleanout bay. And I'm sure it's just given the backlog you have at 12 weeks now. But should we expect that 12-week processing time to continue until the new Dallas DC ramps? Or just help us think about the interplay there between what you're attempting to do to reprioritize labor into processing bags with that new DC opening up. Just curious on expectations there. Thank you so much.

[James Reinhart:]

Yeah. We're also -- keep in mind that we're also scaling out our RaaS partnerships, Erinn. So there's a lot of demand coming from what we've launched with adidas and Crocs and Michael Stars. So there are a lot of sort of bags out in the ether that are coming back to us. But as you know, not everyone can request on online. And yes, the idea is that we're opening our new processing center in Dallas. Those will both come online Q1, Q2. And then we should start to make progress on driving that backlog down. But I would sort of be consistent with sort of what we said last quarter is the demand for our cleanout service continues to rise and as thredUP's presence becomes even better known in the market. So we're trying to get it down, but we don't have a time line to commit to as far as when that will happen.

[Erinn Murphy:]

Got it. Well, you’re going to get a new bag from me this week. So I’m going to track your time. All right, thank you so much. I’ll let someone else jump in.

[Operator:]

We'll take our next question from Ike Boruchow of Wells Fargo.

[Ike Boruchow:]

Hey. Congrats, James, Sean. And welcome, Lauren. 2 for me. I guess, James. I think you know we spent a lot of time thinking about the potential sales opportunity that RaaS could be for thredUp over the long term. But could you maybe help us all understand the most impactful ways that the RaaS can drive profitability for the business?

[James Reinhart:]

Yes. Sure, Mike. Yeah and I appreciate the note. I think you captured a lot of the sentiment correctly. I think the 2 ways to think about that are. One, all the ways that it amplifies our supply advantage allows us to leverage other people's supply chains to get supply in the door. And so that means on the backs of the distribution, whether it's in store or it's online and the way we work with our RaaS partners on the payouts to the supplier and what the RaaS partner contributes. So I think that really helps sort of lower our supply costs. And then of course, with our pro shops and our premium and our enterprise versions, the brands that we're working with are going to pay overtime SaaS-like fees, right? And so whether that's for the types of customizations that they want or the omnichannel experience they want. And so as I've joked, RaaS rhymes with SaaS for a reason. And so we think there's high-margin revenue to monetize on a client-by-client basis as well as just lower operating costs as RaaS partners work in our supply chain. So that's really the 2 ways that we think about it. And we're going to continue to try and give folks more information as we bring new clients onto the platform.

[Ike Boruchow:]

Got it. And then just one follow-up to follow Erinn's anecdote. I placed an order last week, and I got 3 bags in the mail today. I guess what I want to understand is how atypical is that to see that level of split shipment. Is that just because of what happened with COVID and opening up a new processing center? Like at this time next year, if someone places a bundle order like that, should it all come in one bag? Or can you just kind of help explain how that all should work?

[James Reinhart:]

Yeah. Ike, it depends a little bit on what you're buying and where you're buying it from. And we continue to kind of experiment with how we move goods around through our network. But certainly, there's an experience where you get things from multiple distribution centers. But ideally, over time, as we bring on a facility like Dallas that will hold 10 million items, our expectation is that the customer you for example, would be able to find a selection of items for your basket all out of that facility. And so instead of getting 3 packages, you would get 1. And sort of part of the strategy over time is to really reduce logistics costs by having people shop out of one facility and not 3. So that's sort of the plan, and we're excited to bring Dallas online middle part of next year.

[Ike Boruchow:]

Got it. Good luck.

[Operator:]

Our next question comes from Ross Sandler of Barclays.

[Ross Sandler:]

Hey, guys. Sean, so it sounded like the labor cost and the freight were most of the headwind from 3Q going into 4Q. Just can we confirm if that's the case? And then Remix, what's baked in, in terms of revenue gross margin impact and EBITDA margin impact for the 4Q guide? How should we think about Remix for next year as well? And then maybe one for James. On all these new RaaS partnerships, you've got a bunch of different strategies or different versions that you're offering. So for someone like adidas could you just give us a little color on like which one are they getting? And do you guys have the capability of having these partners send product into all your facilities? Or do you have to set up dedicated facilities like Dallas that can handle more as RaaS volume? Just any color on like how the bag processing works on that versus the regular business. Thanks a lot.

[James Reinhart:]

Sure. Ross, let me start with the RaaS one, and then I'll kick it over to Sean to talk labor freight and Remix. I mean on the resale side, there's really the 3 ways that we work with folks

[Sean Sobers:]

Yeah. Ross, on the labor and freight, yes, you're right. There's about $4 million impact to Q4 from Q3. So that's a big chunk there. And then I think the other piece is to not miss is that we are going to continue to process more focused. So you'll see that in the OPT line. So as we crank through Q4 to get more things online and process, you'll see some pick up there in that expense line. And again, think about that as investment for tomorrow's revenue. So it's a really good thing is what we'll continue to do as we go through our process. And then I think you asked about Remix. On the Remix side, I think you can give them some directional stuff on how big they were. They're about $33.5 million on last full year. So you can kind of figure out they weren't really investing a lot of growth dollars in. So the business probably hasn't changed that much. The gross margin itself has a pretty good headwind when you consolidate in. What I talked about in the prepared remarks is they’re all ons. There’s no consignment. They also have some wholesale, which is also a lower gross margin. But overall, they were operating the business at a more -- a relatively better EBITDA than us. So there’s a little bit of kind of a tailwind from EBITDA. But we’re going to turn around and invest pretty heavily on the marketing side and the infrastructure side as it relates to Remix to really capture that growth opportunity in Europe.

[Operator:]

Our next question comes from Anna Andreeva of Needham.

[Anna Andreeva:]

Hi. Good afternoon. Congrats, guys. Great results. I have 2 quick ones for James, another one on Ross for you. Can you talk about the economics of each structure versus your initial expectations? Maybe what have been some of the surprises? And how should we think about the cadence of these partnerships as we look into '22? And congrats also on the Texas DC. Just for the modeling purposes, I guess this is for Sean. As we look into next year, can you remind us how we should think about the incremental rent expense as part of ops and technology line, I guess, for 1Q and 2Q? Thanks so much.

[James Reinhart:]

Sure. Thanks for the question. I think on the -- thanks for the questions. I think on the RaaS side, we're not breaking out the discrete economics by partner. But what I would say is that we -- again, I think it provides us leverage on the supply side. And obviously, as we sell things in branded resale shops, it increases our sell-through and improve some of our return on assets. I think the other piece is, if you think about what retailers or brands are paying for SaaS vendors that are enabling new distribution channels, I would think about it like that. And so we think that these are large revenue opportunities that scale over time and that they are high margin. And so as for cadence, I mean, ultimately we think there are hundreds, if not thousands, of brands that could participate in our Resale-as-a-Service offerings. And so I think you should see us continue quarter after quarter to announce new ones and then deepen the relationships with those brands over time. Again, not just in the U.S., but as we think global with the scale of those opportunities.

[Sean Sobers:]

And then on the Dallas DC, and I would say throw in the Dallas PC, the processing center, as well. Those will build start impacting rent expense for the full facility starting in Q1. So we're going to -- if you think about it, it takes a while to ramp up, and we don't really even start processing in Dallas, the DC, until Q2. And that's going to be 500,000 items once we're in Q2, and then it'll ramp up quarter after quarter after quarter. So there's a decent level of headwind and inefficiency certainly through '22 and most -- probably more heavy weighted to the front end. So if you're thinking about modelling so 600,000 square foot building, eventually 2,000 employees 10 million items. But it starts off at 0.5 million and not getting processed until Q2. So there's a level of inefficiency there in the OpEx side as we kind of roll into and scale out that facility.

[Anna Andreeva:]

Okay, super helpful. I’ll take the rest offline. Good luck guys.

[James Reinhart:]

Thank you.

[Operator:]

Next question comes from Ed Yruma of KeyBanc.

[Ed Yruma:]

Hey, guys. Thanks for taking my question. I guess 2 questions. First, on the changes in pricing. Is it your intention that over time, the consignor is the one that's really bearing it, so it's margin-neutral, I guess, is a to Erinn's question? And second, I know you guys have been doing a lot of investment the unit economics and some of your more recent vintage DCs. I guess, relative to your expectations how are they trending? Thanks so much.

[James Reinhart:]

Yeah. Ed, on the pricing side, I mean, yes. I mean the supplier, I think, on the margin makes a few a few less pennies on the supply side. But ultimately, what it does is I think it creates predictable pricing for the buyer. And so unlike sort of the environment where it's promotional and customers are waiting for sale days, and that's what's really driving the magic. I think now we're in an experience where consumers are really seeing like, hey, these prices are just structurally lower. And so what we want to do is create that experience where buyers think, hey, I should just go to thredUP first because they have the best prices. I don't need to wait for stuff on sale. Every one -- every item we have is a snowflake. And so we do think that, ultimately the economics are -- that it's margin-neutral. But the key to that is we drive a lot more buyers into the funnel. So new buyers, retaining existing buyers at higher rates, more orders per buyer. So I think that's really part of the pricing strategy, at least in the near term. And I'll let Sean talk a little bit about the investment side.

[Sean Sobers:]

Yeah. On the unit economics piece, that's where your focus is, I think from what we put out early on when we were looking at ETO2 or Phoenix and mechanics for we're well past that with Atlanta coming on. So I think the overall order economics have gotten better than what you guys saw last. I do think there is that headwind that we've been talking about. Shipping as well as the labor costs. They are a bit of a headwind, but we're continuing to innovate our way around that. James talked about innovations where we can have more items coming from one DC that helps in shipping and then just general automation where we're less reliant on manpower and helping reduce the risk of the rising labor wages.

[Ed Yruma:]

Thanks so much, guys.

[Operator:]

We'll take our next question from Dana Telsey of Telsey Advisory Group.

[Dana Telsey:]

Good afternoon, everyone. Just to go back to the pricing one more time. The 15% lower average price, is that going to remain that way? Or how do you see the pricing architecture of how you maneuver with the lower prices? And then I see you made another acquisition in Latin America. What do you see is that opportunity? Is it as significant as Remix? Thank you.

[James Reinhart:]

Thanks, Dana. Yes. I mean, Dana, on the pricing side, like I think we've always believed that thredUP, because the product is high-quality used product that we can always provide the best prices on a relative basis when the consumer is looking to shop new versus used. And we've always tried to target prices up to 90% off. I think generally speaking what we want to try and do is that we're able to drive lower operating costs through automation through technology, through uses of our data. What can we -- what kind of price power can we pass on to the consumer so that we can provide an incredibly wide selection at always great prices? And so I think what's exciting for us now is when you open the newspaper every day, and it feels like prices are going up everywhere all around you. And we can say with confidence that that's not going to happen on thredUP and that you can count on us and you can trust us to do everything we can to create the best price as possible. I think you build a lot of trust with the consumer, and I think you leverage that trust over time. And so I want to be able to do that consistently. Switching to Latin America and Vopero. That was -- we did not acquire Vopero. It's a relatively new company that started in Uruguay, now operates in Mexico, a wonderful founding team. And we are a minority investor alongside Grupo Axo which is a great partner of ours in Latin America. And so together, we're minority shareholders. But I think what's exciting is that we see a lot of opportunities with the Latin American market and with Vopero and are interested in watching that business grow and flourish.

[Dana Telsey:]

Thank you. Operator

[Operator:]

We'll take our next question from Tom Nikic of Wedbush Securities.

[Tom Nikic:]

Hey everybody. Thanks for taking my questions. And congratulations, Lauren, on the new gig. So Sean, I want to ask, so the -- Sean or James. So the new distribution center, historically you've kind of opened a distribution center every like 2 years or so. But obviously, the scale of this one is far larger than anything other. I'm assuming it's safe to assume that you're not going to need another distribution center 2 years from now? Like how -- I guess, kind of like how many years of growth do you think the Dallas center can support?

[Sean Sobers:]

It's a good question. I think it's really interesting to think about it because we have a lot of data that talks about how much clothes are just ending up in landfills that could be reused. And I think the estimate that we've seen is something like the equivalent of billion thredUP Clean Out Kits on an annual basis. So if you think about that equivalent to 10 million items in the Dallas DC, we're going to have to open more DCs. But your question, I think, is very specific in what is the timing. And I think that's TBD here. So how fast can we process, how fast can we sell, how can we ramp -- how fast can we ramp up? So you're right, we've been doing one every 18 months. We'll just have to wait and see and see how fast Dallas actually comes up to speed.

[James Reinhart:]

But Tom, I think you're going to see us continue to invest a lot. I mean I just think we see the opportunity is so large. And I think you can see a little bit with the processing center, it feeds into Dallas. And you'll just see us continue to try and scale to attack the supply opportunity.

[Tom Nikic:]

Got it. And if I could also follow up. It sounds like 2022 will be a fairly heavy investment year between investing in the international business, the new DC and there's probably some cost inflation that rolls through the P&L next year as well. I mean, how do we think about like the EBITDA line next year? I mean, is it possible that the EBITDA kind of takes a step backwards before it starts going forward again? Or just is there any directional help you can give us?

[Sean Sobers:]

Yeah. I wouldn't think of it as a step-back period. I do think we're investing for what I called earlier tomorrow's growth, but it's not 4 quarters out. It's literally sometimes 1 quarter out or less. And I think we're going to really focus on continuing to drive the actual growth revenue and the rate at which revenue grows. But I don't think you should take away anything that we're not driving towards expansion of the EBITDA margins or closing of the EBITDA loss.

[Tom Nikic:]

Understood. All right. Thanks very much and good best of luck the rest of the year.

[James Reinhart:]

Thanks, Tom.

[Operator:]

Our next question comes from Brian McNamara of Berenberg Capital Markets.

[Brian McNamara:]

Hey, thanks for taking my questions. Congrats on the strong results. So my Remix question was already answered. But I was also wondering if you're currently seeing any benefit or if you contemplate in your Q4 guidance. Any benefit as the primary apparel market deals with shortages driven by supply chain headwinds?

[James Reinhart:]

Yeah, Brian. I mean I think there's a lot of bluster out there around the supply chain markets -- or the supply chain in the traditional apparel markets. I think in a normal quarter we might see some tailwind from that. But again, I think in our prepared remarks, Q4 typically is not our strongest quarter because of the way gift giving trends around the holidays kind of play out. So I don't think that we're counting on benefiting from some macro trend at the moment. But I think if that -- if the supply chain challenges persist into Q1 and Q2 next year then yes I could imagine us benefiting from some of those macro tailwinds. Unidentified Analyst

[Brian McNamara:]

Got it. And then secondly, on RaaS, can you provide some color on your white-label offering and what common characteristics a white-label partner has relative to your more traditional RaaS partners?

[James Reinhart:]

Yeah. I mean I think it's a classic white-label distinction. So I think when the offerings are white label, I think thredUP sits in the background and you don't really see us in the partnership. So I think FARFETCH would be a good example of a white-label strategy where thredUP towers FARFETCH Clean Out Kit program, but you really wouldn't know it. You'd have to dig for it. Whereas I think in Crocs, for example, which we just announced, I think thredUp is really a key partner, and it's a thredUP up plus Crocs delivering you kind of the resale relationship. So that would probably be the distinction. And I think as brands want to be more white labeled, right, there's -- obviously, the fees go up. And so that's the way we think about sort of our role in fees and white label as it relates to sort of a more generic partnership.

[Brian McNamara:]

Great. Thank you. Best of luck.

[James Reinhart:]

Thanks.

[Operator:]

(Operator Instructions) We'll take our next question from Lauren Schenk of Morgan Stanley.

[Nathan Feather:]

This is Nathan Feather on for Lauren. As you've seen a pretty tight labor market, is that impacting your ability also to ramp up processing power? And then on the Europe side of the business, you noted you're really investing into Remix as a brand. What are the key areas of investments you're making in that business in '22? And then more from a logistics and infrastructure side, are you able to expand the RaaS partners Europe with just Remix' current infrastructure? Or do you need to take additional steps in order to really bring the RaaS platform there? Thank you.

[James Reinhart:]

Yeah. Nathan, I think with respect to the labor, I think as Sean noted, I think that the headwind in Q4 relative to Q3 of that $4 million. I think part of that is just overall increased cost to hire folks, hourly rates and so forth. So I think it's a combination of trying to get great people in the door, what it costs to do that on the recruiting and the retention side. So that is the tailwind -- I mean that is the headwind that we noted. I think on the Remix side, I think the infrastructure investments we're going to move them in -- likely into a new facility that can do more processing, faster outbound. So I think there'll be some costs there. We also think that the business can grow much faster than it's growing. And so on the marketing side, I think we'll invest dollars there. And I think similar to the way it works at thredUP in the U.S., as you process and have more supply coming online, you can spend more marketing dollars. And so those 2 things, we think, will ultimately drive nice growth from Remix in '22 and beyond. And then your last question is can you scale RaaS in Europe with Remix' existing infrastructure? The answer is no. I mean we have to continue to invest in their infrastructure to support the growth in the RaaS clients that we have in Europe. But I think we have some time to really focus then, at least in '22, on kind of core marketplace growth. And then we can layer and wrap clients over time in the back half of '22 or even into '23. But we see just an incredible amount of potential in the European business. But having said that we've owned Remix for like 30 days. So I think it's going to take some time, but I think we're excited.

[Nathan Feather:]

Appreciate it. Thank you.

[Operator:]

That concludes today's question-and-answer session. James Reinhart, at this time, I will turn the conference back to you for any closing remarks.

[James Reinhart:]

Yeah. Thanks, everyone, for tuning in to our call and for the great questions. Very excited about the quarter ahead and the year ahead. And I look forward to talking to all of you again in the New Year. Thanks.

[Operator:]

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