ThredUp Inc.
Q4 2021 Earnings Call Transcript

Published: 7 Mar 2022

[Unidentified Company Representative:]

Good afternoon, and thank you for joining us on today's conference call to discuss thredUP's Fourth quarter and full year 2021 financial results. With us are James Reinhart, thredUp's CEO and Co-Founder; and Sean Sobers, CFO. 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 site 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 and 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 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 of 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 fourth quarter 2021 and fiscal year 2021 earnings call. We're excited to share another quarter of strong financial results and business highlights. In addition to our financial results, we will offer some perspective on the performance of Remix, the European resale company we acquired last year as well as progress in our Resale-as-a-Service, RaaS offering. Beyond our results, given we're 1 year in to being a public company, I thought it would also be useful to remind investors of our strategy, sustainable competitive advantages, and the investments we're making to widen our moat and strengthen our leadership position in the still nascent retail market. To conclude today's call, Sean Sobers, our Chief Financial Officer, will talk through our fourth quarter and fiscal year 2021 financials in more detail and provide our outlook for the first quarter and full year 2022. We'll close out today's call with a question-and-answer session. Let me start by acknowledging that since we last reported earnings in November, the world and investor sentiment have changed significantly. I want you to know that we get it. We are operating in a different macro context. And while volatility like this can stress a young public company, we welcome this increased . I believe great companies with winning strategies in high-growth markets with strong management teams always outperform when times are difficult. We at thredUP are committed to being the kind of team you can count on for predictability and transparency. I also want to make it clear that we are on a mission to build a generation-defining company that changes the way the world shops and offers in a new era of sustainable shopping. We will always aim to balance the demands of near-term scrutiny with our commitment to investing for long-term value creation. Now to the results. For the fourth consecutive quarter, we achieved record revenue, record gross profit, record active buyers and record orders. Our revenue of $72.9 million is an increase of 68% year-over-year. This is our fourth consecutive quarter of accelerating revenue growth. We finished the quarter with active buyers and orders increasing 36% and 69% year-over-year, respectively. We also expanded year-over-year EBITDA margin by a record 1,400 basis points in Q4, shrinking our EBITDA loss from minus 28% to minus 14% in a quarter that still included heavy operations investments. Now let me talk about Remix. In Q4, we closed the agreement to acquire Remix, one of Europe's leading fashion resale companies. Since the acquisition, we have moved swiftly to consolidate all of our thredUP earnings in support of Remix's growth and margin expansion. Dan DeMeyere, one of thredUP’s first employees and formerly our SVP of Engineering and Chief Product Officer, now leads our international effort alongside Lyubo Klenov, Remix's Founder and CEO. Rebecca Oman, who reported to me while leading thredUP's new ventures department and who helped incubate our Resale-as-a-Service business here in the U.S., is supporting Dan and Remix as we drive supply growth and expand further into Western Europe or early next year. To expand beyond Remix’s current operations in 9 Central and Eastern European countries, we are building a new facility in the EU with processing and storage capacity to sustain broader European growth. We remain confident our acquisition of Remix will accelerate thredUP's European growth plans and enable us to capture share in the emerging European resale market, a market that global data estimates will grow to $39 billion by 2025. Turning to thredUP's Resale-as-a-Service or RaaS business, we recently launched a number of new resale shops and Clean Out Kit programs, bringing our total number of RaaS brand clients to 28, making us by far the leading provider of resale services to brands in the U.S. We have visibility to adding as many as a dozen more brand clients by year-end with some very prominent and large brands moving on to our platform. Keep in mind, our RaaS platform enables us to power white label enterprise solutions for global brands like Walmart and Adidas as well as lightweight solutions for smaller brands like Madewell and heritage brands like Michael Stars. With RaaS, brands and retailers are empowered to deliver quality and seamless resale experiences to their customers across 3 main service modules, our Clean Out service, our Cash Out Marketplace, and our full-service resale shops. This suite of offerings is called Resale 360 and our new core offering now allows brands to get started in resale for free, in some cases, within 30 days. RaaS enables brands to drive revenue, drive customer growth and circularity in ways that were previously not possible. RaaS has also begun to exhibit the flywheel network effect that we expected would come over time. As more brands join our platform, we gain access to a greater share of closet cleanup happening across America. This supply that comes in from our varied RaaS clients can then be sorted and used to power the growth of branded resale shops of other clients, which is to say the more RaaS clients, the wider the sources of supply and the larger the potential growth of each client's resale shop. Recall that threat or benefits from RaaS not only because it amplifies our ongoing supply advantage, but also because it increases our sell-through and our return on assets. In addition, our premium and enterprise platform solutions are designed to support the expansion of our long-term profitability metrics by creating a recurring high-margin revenue stream. We continue to believe that every brand will have a resale strategy, and thredUP will be the leading provider of end-to-end resale solutions for the retail industry. This brings me to the next topic I'd like to review, which is thredUP sources of ongoing competitive advantage and the investments we're making to extend our leadership in the resale industry. The power of our competitive advantage comes from the compounding effects of 3 hard problems we solved. First, we've built a reverse logistics supply chain that has created a massive supply advantage in the resale market. Remember, thredUP has still never spent any direct marketing dollars acquiring sellers, and yet we have seemingly endless supply in our marketplace. Second, we have built world-class infrastructure, technology and software to process single SKU apparel at scale. When our Dallas, Texas facility is complete, thredUP will have network capacity to hold up to 16.5 million unique items in the U.S. alone. Third, we have built a data-driven, managed marketplace that connects buyers and sellers on our platform. Our managed marketplace removes friction between buyers and sellers, enabling us to significantly grow the number of customers we serve over time and to increase the number of orders they place. Importantly, the success of our marketplace is built on the foundation of the proprietary resale data that we've selected over the past decade. We ingest millions of data points on the items we process, sell and reject, the items that are added or removed from carts and so forth. It's this vast trove of data, combined with the algorithms and the models that sit on top of that data, that help us improve our acceptance rate, merchandising, photography, pricing and marketing capabilities with the goal of consistently growing our active buyers, expanding our margins and driving increased sell-through. Of course, the not so secret, but I think often misunderstood economic engine that underlies our model is that most of our clothing is listed on consignment. This means we have little inventory risk and we boasted negative working capital cycle measured in months, not weeks. As I have said from our very first public filing, our strategy has been developed with a deeply calculated approach about what it takes to build and sustain competitive advantage over time. We believe that every day, our supply advantage increases, our infrastructure moat widens and the network effects of our marketplace grow. Given this context in my earlier remarks about the greater scrutiny on young companies regarding capital allocation and task to profitability, I want to specifically call out the investments we're making in service of our strategy. First, our 3 U.S. infrastructure investments. As we discussed last quarter and earlier in my remarks, our flagship distribution center just south of Dallas, Texas is coming online later this year. We have been making steady progress since commencing the build-out in Q4 '21. The facility is nearly 600,000 square feet, will be our largest and most automated distribution center. When fully scaled, we expect our 4-level facility will increase our total network live capacity by more than 150%. We expect to begin processing items towards the end of Q2 this year or early Q3, with demand fulfillment to begin sometime in Q3. Beyond our flagship distribution center, we opened 2 processing centers, one in Grapevine, Texas and one in Lebanon, Tennessee. Both of these facilities focus exclusively on Clean Out Kit processing and will serve as immediate feeders to our larger facilities in Dallas and Atlanta. As a result of this increased capacity, we are exiting Q1 hitting our internal processing targets after facing some headwinds from Omicron earlier in the quarter. Our bag backlog is trending down nicely and now sits at 8 weeks from 12 weeks just a quarter ago. We expect these 3 U.S. infrastructure investments, Dallas, Grapevine and Lebanon, will negatively impact our EBITDA by approximately $6 million in 2022. Note that these investments are all in service of growth in 2023 and beyond as only a small percentage of revenue will flow through our Dallas, Texas facility this year. Importantly, given our expectations for improvements in automation and total throughput capacity, we do not expect to add any new distribution centers to our network until 2025. Second, we will continue to invest in Remix's growth in Europe. Our European investments include a new larger processing facility in Sofia, Bulgaria that comes online later this year, in addition to growing the headcount to scale our broader business in Europe. We believe these expenses are essential as we grow thredUP's European opportunity. Third, we are investing in research, development and data science capabilities across our network. We believe these investments in new systems, new technologies and added headcount will yield several benefits. First, we will be able to lower our per unit processing costs. Second, we'll be able to improve our pricing and payout systems to further expand margins. And third, we can upgrade our marketing, merchandising and direct response capabilities such that we can acquire customers at lower costs, while at the same time, increasing lifetime value. Fourth and finally, anticipated headcount growth from 2021 to 2022 is highly concentrated in areas that support being a new public company, like HR, legal, finance and accounting. We expect these incremental costs to total $3.1 million in 2022. We expect meaningful leverage in SG&A as we digest these costs over time. In conclusion, as I wrap up, let me speak to a bright spot of the last few months, the New York Fashion Act. At its core, this bill aims to hold major retailers accountable for their environmental and social impact. I think this is an important milestone. To me, it indicates that government and policymakers are starting to understand the critical role they play in reducing the fashion industry's environmental impact. Consider this the opening salvo in what is likely to evolve into emission standards for fashion. Whether pushed by governments or pulled by consumers, I believe every brand will look to resale as a way to reduce their impact on the environment and to drive fashion circularity. thredUp's platform will be well positioned to serve these emerging interests over time. In the meantime, we're going to stay focused on doing what we do best, unlocking high-quality supply, building increasingly automated infrastructure and leveraging our technology, software and data to serve our growing base of buyers, sellers and RaaS clients. With that, I'll now turn it over to Sean to walk through our financial results and our guidance. Sean?

[Sean Sobers:]

Thanks, James, and again, thanks, everyone, for joining us on our fourth quarter and full year 2021 earnings call. I'll begin with an overview of our results and follow with guidance for the first 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 our upcoming 10-K filing. We are extremely proud of our Q4 results, especially delivering our fourth consecutive quarter of accelerating revenue and gross profit dollar growth on both an organic and consolidated basis. One of the most exciting Q4 developments was our acquisition of Remix. While we plan to report and guide on a consolidated basis going forward, in some cases, we will speak more specifically about thredUP U.S. and Remix individually during the transitional period. For the fourth quarter of 2021, revenue exceeded our expectations, driven by the acquisition of Remix and growth in thredUP U.S. Revenue totaled $72.9 million, an increase of 68% year-over-year. Consignment revenue increased 31% year-over-year, while product revenue grew 205%. Product revenues outsized growth is largely due to our Q4 acquisition of Remix, a business that currently derives the majority of its revenue from direct sales model. For the full year, we are proud to deliver revenue of $251.8 million, an increase of 35% year-over-year. Active buyers and orders are amongst the most important KPIs that we used to track the business and we finished 2021 achieving record levels for both. For the trailing 12 months, active buyers rose 36% to 1.7 million. We ended the fourth quarter and full year reaching 1.7 million and 5.3 million orders, increasing 69% and 34% year-over-year, respectively. Since we believe that gross profit improvement is the best way to measure our progress, we will provide additional details this quarter in order to illustrate the strength and opportunities in both of our individual businesses. For the fourth quarter of '21, thredUP U.S. gross margins expanded to 71.3%, a 280 bps increase over 68.5% for the same quarter last year. thredUP U.S. gross profit in the fourth quarter of 2021 totaled $44.1 million, representing growth of 48% year-over-year. Offsetting a $6 million increase in freight, gross margin expansion came as a result of expanded automation, larger distribution centers and more items per order. Remix gross margins were 37.2%. Remix's structurally lower gross margin profile is primarily due to their direct sales model, wholesale outsourcing and the lower level of automation. Over time, we plan to migrate the business towards higher-margin consignment away from wholesale supply and invest in increased automation in order to be more in line with the current thredUP business model. Driven by our fourth quarter acquisition of Remix, consolidated gross margin was 66.1%, a 240 basis point decline over the same quarter last year. Gross profit in the fourth quarter of 2021 totaled $48.2 million, representing growth of 62% year-over-year. For the fourth quarter of '21, GAAP net loss was $17.9 million compared to a GAAP net loss of $17 million for the fourth quarter. Adjusted EBITDA loss was $10.5 million or 14.5% of revenue for the fourth quarter of '21 and approximately 1,400 basis point improvement compared to the adjusted EBITDA loss of $12.2 million or 28.2% of revenue in the fourth quarter of 2020. This improvement was largely driven by operating leverage at thredUp U.S. Q4 GAAP operating expenses increased by $20.5 million or 45% year-over-year. Approximately half of this increase is related to higher operations, product and technology costs, while the remaining is split equally between marketing and SG&A. Of the total increase, 1/4 was related to the addition of Remix. 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 fourth quarter with $266.9 million in cash and investments and ended the quarter with $213.1 million. Keep in mind that the acquisition of Remix reduced our cash by approximately $30 million. In addition, we spent about $5 million related to CapEx in Q4. Next, I would like to provide some thoughts on our commitment to top line growth while walking through our path to profitability. We remain focused on our belief that investing ahead of growth not only fuels our top line and future quarters and years, but it's also an investment in our ever-widening competitive moat. The combination of which are the foundation for strong growth and increasing profits over time. Our business model necessitates this approach. In order to grow sales, we must first have the processing and storage capacity in place to support future listings growth and accelerated turns. We believe the investments in technology, data science and automations will further strengthen our advantages, which we expect to be the drivers for strong top line growth and profit improvements over the long term. To illustrate that we build out our infrastructure to support our future, not our current demand, I'd highlight the fact that we ended 2021 with a DC network capacity utilization rate of 77% among our 3 operational DCs. Put another way, by the end of 2021, we were using only 5 million or so slots of our fully scaled 6.5 million unit total capacity. This includes our 3.5 million unit capacity Atlanta, D.C., currently our most automated DC, which opened in 2020. This is to say that in 2021, we were carrying the cost of a 6.5 million unit DC network, but only using 77% of it. By the end of 2022, when our Texas DC is included in our DC network, we expect to be utilizing less than 7 million slots of our ultimate 16.5 million unit total capacity, representing a utilization rate of less than 50%. But we will be carrying many of the cost of a 16.5 million unit network in the near term, we will have ample runway to leverage these costs as we grow into our capacity and expand our utilization over time. This investing for growth dynamic is a prominent theme this year as we take on a number of significant infrastructure investments in both the U.S. and in Europe that will impact our margins before they contribute to the top line growth. The largest of these is our Texas DC, which will more than double our current capacity and eventually be our largest and most automated facility. It is currently in the process of being built out, will begin processing midway through the year and will ramp toward peak efficiency over time. We also recently opened 2 processing centers, which can open faster with fewer costs and DCs while also diversifying the geography of our labor needs. They will be entirely dedicated to processing Clean Out Kits, which will help us further make progress on our supply backlog, facilitate new listings and accelerate turns. We are also investing in our European business by expanding the team and building out larger and more automated distribution center in Sofia, Bulgaria. With all this in mind, I would like to now share our financial outlook for the first quarter '22. We expect revenue in the range of $70 million to $72 million, gross margin in the range of 65% to 67%, an adjusted EBITDA loss of 19% to 17% of revenue and basic weighted average shares outstanding of approximately 99.4 million. For the full year of 2022, we expect revenue in the range of $330 million to $340 million, gross margin in the range of 64% to 66%, an adjusted EBITDA loss of 15.5% to 13.5% of revenue, and basic weighted average shares outstanding of approximately 100.5 million. In addition to lapping stimulus-driven growth, from Q1 of '21, we also expect COVID-related staffing disruptions to pressure in Q1 as well. As you know, listings are a key driver of future revenue in our business. When COVID surged in December of '21 and January of '22, we experienced unprecedented levels of personal leave among our DC team, slowing down processing and thus listings growth, a dynamic that negatively impacted revenue in early Q1. Since then, as the surge has subsided, we have returned to expected processing capacity and plan to exit Q1 processing Clean Out Kit at record rates. As discussed, we have a number of investments this year that will pressure EBITDA. In Q1, our ramp-up of our Texas DC and processing centers will account for approximately an extra $1.5 million in operations, product and technology expenses. Finally, we anticipate an incremental $1 million negative impact year-over-year as a result of higher freight costs. For the full year of 2022, we expect revenue growth to be driven both by thredUP U.S. and Remix. While we continue to expect thredUP U.S. gross margins to improve in '22 as we have done consistently over the past several years, we expect consolidated gross margins to contract year-over-year due to Remix's structurally lower margin profile. We would expect consolidated gross margins to be broadly stable this year, though Remix offsetting impact will increase throughout the year as it grows as a percentage of sales. We are planning to thoughtfully transition Remix towards a mostly consignment model over the next 2 to 3 years, which we would expect to improve gross margin performance over the longer term. We are expecting 2022 EBITDA margin to show a slight improvement year-over-year as we digest a number of expenses associated with our Texas DC build-out, processing investments and European expansion. We expect that the DC and processing centers will impact EBITDA by approximately $6 million, weighted towards the first half of the year. Additionally, we expect a $6 million negative impact from elevated rate costs, which we will partially offset as we expand our automation, scale into larger DCs and innovate on shipping logistics. We are planning to spend approximately $35 million to $40 million in CapEx this year of an estimated $80 million to $85 million to support our U.S. infrastructure growth. Given the scale of our 22 investments, we believe this year's capital expenditures and expenses are laying the groundwork for commensurate future revenue growth and ultimately, profit growth. As a result, we expect that the step-up change in capacity that we are building out this year should push out the need for another similar capital-intensive distribution center until 2025. In closing, I want to reiterate that we remain focused on the same strategy we have discussed since our IPO a year ago. We continue to invest in infrastructure that supports our future revenue growth and widens our competitive moat while at the same time making planned progress towards our long-term margin goals. In line with this, we are making several outside investments in our infrastructure this year. These will result in incremental expenses that will pressure our P&L primarily in the first half of '22, but we look forward to leveraging those assets as we drive up our capacity utilization rate over time. Finally, our commitment to growing our capacity by 150% with our Texas DC reflects how firmly we believe in the magnitude of the global resale opportunity and should support our planned growth until 2025 before we need to build an additional distribution center in the U.S. We remain confident that we are laying the foundation for steady growth and ultimately increasing profits and are excited for the year ahead. James and I are now ready for your questions. Operator, please open the line.

[Operator:]

We'll take our first question from Ike Boruchow with Wells Fargo.

[Ike Boruchow:]

Two from me. Within Europe, I think you guys gave the Remix gross margin for the quarter. Could you give the revenue contribution for fourth quarter as well? And then within the European business, any insight over the past week or 2 on consumer sentiment or behavior that you guys would call out? And then a second question for Sean. Just the EBITDA progression through the year, it seems like you're expecting things to kind of smooth out. Just anything we should keep in mind quarter-to-quarter would be great.

[Sean Sobers:]

Yes. Okay. This is Sean. Yes, from a Remix revenue perspective, I think the last kind of information we gave you guys was 2020 was about $34 million. They've been growing since then. We're not going to get real specific about what their revenue is, but you can assume that they're growing, we're growing to kind of do some math there. I'll let James give you a little view on kind of the sentiment in Europe.

[James Reinhart:]

Yes. I mean I think Europe has been under a lot of pressure, Eastern Europe, obviously. But nothing that would, I think, is changing our point of view on the broader kind of long-term European strategy, but obviously, we have a team in Ukraine. Our hearts go out to them. We've been monitoring them. But I don't think that we have any more information to provide at this point, but certainly something we're keeping a close eye on. And then I'll Sean talk about EBITDA progression over the rest of the year.

[Sean Sobers:]

Yes. And then from an EBITDA perspective, like the rate overall, we expect a slight improvement quarter-over-quarter as we go throughout the year. DC07 won't really come online for revenue until about Q3. So you have some headwinds as you go through the first half that we talked about in the prepared remarks. And you'll start to see that benefit more in Q4 as we get more up to speed in generating revenue out of DC07 or the Dallas DC.

[Operator:]

We'll take our next question from Ross Sandler with Barclays.

[Ross Sandler:]

Sean, just a little housekeeping on all those numbers you rattled out. But I think you said core thredUP gross profit was $44.1 million, which would make the Remix gross profit of $4.1 million and that a 37% margin revenue would be $11 million in the quarter. And if I annualize that, your gross profit for core thredUP in '22 based on the high end of your guidance is below 20% growth. So I guess the question is, are those numbers right? Or am I just way off? And why is the core growing less than 20%? What's going on with kind of core U.S. consignment? And then the second question is, how do we bridge from the mid-60s up to your long-term gross profit margin target of 75 to 78. Can you just help us get there given the Remix impact?

[Sean Sobers:]

Yes. From a gross margin perspective, I think you'll see the evolution from where we are today, consolidated to kind of migrate more towards what thredUP was stand-alone, pre Remix. So we'll get back into the 70s as we move towards more of a consignment base model throughout Europe. That will start to give us a little tailwind from where we are today, in addition to all the improvements that we'll be having from an automation perspective and the scale we'll get as we move into DC07 in the processing centers. I guess kind of the overall March as we go from where we are today, get back to where thredUP was stand-alone and then move towards the longer-term model that we laid out in front of you. And then from a thredUP versus Remix, I think you can kind of back your way into revenue. I think we gave enough of that. And I don't know on your percentage and growth for the full year. It looks -- it is a different number than that.

[Operator:]

We'll take our next question from Dylan Carden with William Blair.

[Dylan Carden:]

Just curious, the utilization rate for Atlanta specifically, I would imagine it's below that 77% number you gave. And then the not needing distribution capacity until 2025, I think -- I thought that you've said to around the IPO to your sort of 18 to 24 months build-out cycle. Just curious if I had that right, if there's a change there, maybe balancing profitability in tandem with growth investment? And then -- sorry, just to add to it, just on distribution. The new Clean Out Kit processing centers, can you just speak to the strategy there, what that allows for from maybe a speed lead time standpoint in sort of any sort of economic or margin implications of expanding that?

[James Reinhart:]

Yes. Dylan, it's James. Yes, I mean, I think when we went public, I think we were planning on every 18 to 24 months for these distribution centers because that had been the historical trend. But we did not anticipate at that point the opportunity to build a bigger facility in Dallas. So the facility in Dallas is 3x -- more than 3x the size of Atlanta, right, which was more than 2.5x the size of our previous facility. And so I think as we probably signaled previously, we were sort of evaluating whether we would need to continue building facilities of that scale at that rate. And I think what we've been able to see with our pricing strategies and our turnover, right, that we can maintain strong growth rates within the constraints of that facility, which makes us think we don't really need to start biting off a new one until 2025. So I think that gives us a lot of confidence in how the business leverages over the next year or 2. And then I think that's a natural segue into your question about processing centers, because those are much more of a lightweight facility build-out and they operate near our bigger hubs. We can turn those on, access more processing power, shorter lease durations, but ways that I think really diversify our ability to process bags over time. And I think as you might have caught in my remarks, because of that, we're seeing the bag backlog processing times come down. So we think the whole recipe for how ops is scaling and leveraging, I think, is in a really good place.

[Operator:]

We'll take our next question from Anna Andreeva with Needham & Company.

[Anna Andreeva:]

Two questions. First, really strong growth in buyers. Can you talk about what drove that? And how are you thinking about buyer growth implied in guidance either for 1Q or for the full year? And then secondly, just looking at the gross margins, the low end of the guide, I think you're implying a bigger decline for the year versus what you expect for 1Q despite the new DCs coming online, I think you said in 3Q. I just wanted to make sure what's driving that.

[James Reinhart:]

Yes, Anna, it's James. I think just on both of those points, it's really the Remix contribution. So the growth in active buyers in Q4 because we consolidated Remix in Q4, closed the deal in October. So that showed kind of outsized growth relative to where we would have been thredUP standalone. And so -- but I think you can probably think about the next year at sort of more steady growth rates across both of our businesses. And that -- and Remix consolidation in 2022 is actually what drives the gross margin number because remember, their business is totally direct product revenue, and that business operates at much lower gross margins than thredUP does as a consignment business. And so as Remix continues to grow, right, it's a much smaller business than thredUP is today, it will make up a slightly larger portion of our revenue as we grow throughout the year. And so that will just from the math structurally bring down margins. And then the plan, obviously, is the transition Remix to consignment as the thredUP business is on consignment. That's just going to take a couple of years. We obviously don't want to do anything that would shake that business up in a negative way. But that transition will happen. And so I think we feel very confident in the long-term gross margins of the business and a combined entity, but we're going to have to digest Remix in the near term.

[Sean Sobers:]

Yes. And Anna, just to be clear that we expect active buyers as a thredUP standalone U.S. business to grow throughout '22 as well.

[Operator:]

We'll take our next question from Lauren Schenk with Morgan Stanley.

[Nathan Feather:]

This is Nathan Feather on for Lauren. Just looking at your guidance implies a bit of an acceleration from 1Q to the rest of the year. Was that just due to the processing limitations due to Omicron? Or any other puts or takes you can talk to there? And then obviously, an investment year in fiscal '22 kind of laying the groundwork for future leverage. Can you talk through how that changes the path to profitability versus what you had laid out about yet?

[James Reinhart:]

Nathan, yes, I mean, I think on the first quarter, I think as Sean and I mentioned, we definitely had real processing headwinds in December or into January with Omicron. And so that, obviously, as we've been consistent, hurt our ability to put those items online and drive that revenue. And our new -- both of our processing centers that we mentioned in Lebanon and then in Grapevine, Texas, both of those have come on just in the last month or so. And so that adds a lot of processing capacity to our business as we move throughout the year. And so again, as our business, as we process more goods that allows us to grow even faster. And so I think that's part of why the numbers that you see suggests an acceleration throughout the year. And as it relates to path to profitability, I think we remain consistent, which is we want to make these investments to drive sustainable growth and profits over time. And I think we're making the right ones right now to take advantage of what we believe is a massive market. And so -- but I think, importantly, those infrastructure investments leverage over the next couple of years, that I think will make it very clear to investors how profits come over time.

[Sean Sobers:]

Yes. Keep in mind that, that statement we said we won't need another distribution center like Dallas until the earliest like 2025. So all that investment now is going to continue to pay off through '23, '24 until it gets to '25.

[Operator:]

We'll take our next question from Mike Ng with Goldman Sachs.

[Michael Ng:]

I just have 2. First, could you just talk a little bit about the parallel that you see for Remix in Europe relative to thredUP in the U.S.? And what gives you confidence about the opportunities for Remix to follow on that thredUP maturity curve? And then second, I just wondered if you could talk about what you view as the constraints on growth. I think it historically has been a supply side constraint and on that supply side, it seems like labor is the biggest constraint now. Is that right? And how do you see that evolving throughout 2022?

[James Reinhart:]

Yes. Michael, I think on Remix, I think as we said last quarter, it looks a lot like thredUP did 6, 7 years ago from a revenue and growth profile. And so I think our ability to run a similar playbook as we have in front of over the last few years, but deployed that with all of the things that we've learned. To me, it feels like we have a lot of confidence that Remix can end up on a very similar track to thredUP, not just in its sustainable growth, but also just its ability to kind of capture this ongoing expanding TAM and be able to do that in a consignment margin profile that looks very similar to thredUP, but I think we said that that's going to take 2 to 3 years as we transition that business from when we closed the deal in October. So I think we continue to feel confident in Remix looking a lot like thredUP over the next few years. As for like constraint to growth, yes, I mean, it's often in 2-sided markets like this one. It's supply that drives that. And for us, it's really about supply processing power. And so part of our investments in bringing on a new DC in Dallas and adding the processing centers is to really accelerate that processing. And I think that gets back to Nathan's questions earlier, right? That's what really drives acceleration as we move through the year is our ability to process more and more goods. So I think that story is very consistent to how it's been at thredUP over the last few years.

[Operator:]

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

[Tom Nikic:]

I wanted to ask about, I guess, the building blocks for EBITDA for 2022. I think based on the margin rates and revenues you gave, the actual loss in dollars should be about $10 million to $15 million more 2022 versus '21. I think you said $6 million comes from the DCs and the processing centers. I think you said of incremental public company costs. Is the remainder just losses from Remix? Or is there anything else that the source of investment that we should be thinking about?

[Sean Sobers:]

You have a piece related to the increased costs and logistics as well. That's kind of the missing piece, I think you have.

[Tom Nikic:]

Okay. Got it.

[Sean Sobers:]

That alone in Q1 was $1 million.

[Tom Nikic:]

Okay. Got it. And is there any way we should think about like what the core sort of improvement would kind of be without these investments?

[Sean Sobers:]

Well, I think you can take those out. I mean in Q1 alone, the $1.5 million related to DC07 is about 2% of EBITDA. If you look at the $6 million for that, it's approximately 2% for the full year as well. That's going to be front-end loaded. So you're going to have similar numbers, maybe 2.5% that would impact Q2, so if you're thinking it through that way, just related to the DCs. But I think this is great because it's investment for the long-term future and then the impacts of some of the things we're doing in SG&A as well as just kind of increased logistics.

[Operator:]

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

[Dana Telsey:]

I think in the last quarter, you had mentioned strategically lowering prices and it was, I think, around 15% in the third quarter. What does it look like in the fourth quarter? And how do you think about your go-forward game plan?

[James Reinhart:]

Yes. Dana, it's James. Yes, I mean, I think as I said last quarter, we really let the data help dictate for us where the pricing opportunities are. And as I said, I don't think -- not all prices that thredUP went down 15%. It was -- it's on average across 35,000 brands that we sell. And I would say right now, we're doing the same calculation. So I don't think we have any new news to break on pricing. I think we're going to let the data point to the best way to drive performance in our business and serve the customer. And I think that's the thing we've always been doing, we'll continue to do.

[Dana Telsey:]

Got it. And it's nice processing times. What is your expectation as we go through 2022 in terms of what it looks like?

[James Reinhart:]

Yes. I mean I think, look, we've made a huge progress since last quarter and the new processing centers coming online, DC07 coming online. So I think we're feeling confident that it's moving in the right direction. As I said last time, though, there's always this elasticity experience where, as our processing times come down, consumers, sellers pile into our business. So I think it's too soon to say, Dana, when it's going to be back down to our steady rate of 2 to 3 weeks. But I have a lot of confidence that the investments that we're making right now to drive processing are the right ones, meaning the customer is going to respond positively to that.

[Dana Telsey:]

Got it. And just lastly, last time you were seeing an uptick in terms of dress-up wear for the holiday season. Any new trends out there that you're seeing in terms of product sell-through categories?

[James Reinhart:]

Well, we're definitely seeing like consumers really seeing the shift to warm weather come earlier just like some vacation staples, like maxi dresses, for example, Dana, they were up 55% year-over-year in February. We saw shorts were up 68% year-over-year in February. Miniskirts were up 58% year-over-year in February. So I think a number of these categories that suggest consumers are ready to kind of get out in the world, like continue to be true. And so those are sort of a few of the trends that we saw.

[Operator:]

We'll take our next question from Matthew Egger with Piper Sandler.

[Matthew Egger:]

Just 2 quick ones from me. One, can you kind of explain to us the rationale in scaling international this early in the story and maybe speak to how you view kind of expansion -- category expansion versus geographic expansion? And then secondly, kind of in the -- when you all were going public and in your IPO models, I think you said RaaS was not a part of your forecast. Is that still not contemplated in your model or your guidance going forward?

[James Reinhart:]

Yes. Matt, look, I think we believe that the international opportunity in resale is massive. The European resale market is very large. And so we felt like it was a great opportunity with a business like Remix that was very similar to thredUP in lots of ways. We thought it was the right time to do that, we won’t comment on other categories at this point. But continue to feel very confident in the decision to buy Remix and expand into Europe, essentially doubles the TAM for thredUP. As for kind of the IPO modeling forecast...

[Sean Sobers:]

We're past that. So yes, anything that we know about RaaS is in our forecast.

[James Reinhart:]

Yes.

[Operator:]

. We'll take our next question from Brian McNamara with Berenberg Capital Market.

[Brian McNamara:]

Can you give me a little more color on your expectations for Europe in Q1 and this year and how that's perhaps changed over the last few weeks? If this call was a month ago, is your top line guidance for the year materially higher?

[James Reinhart:]

Brian, yes. I mean, look, we continue to think that Europe is a great opportunity for us. I think what's happening in the Russia and war in Ukraine, like -- we don't expect that to be a huge drag on the business over the course of the year. But look, we acknowledge that it's -- there is some uncertainty there. But look, I don't think that it's going to materially change our point of view that international growth is a big opportunity for us and that Remix is a great business that we have in Europe. So yes, I mean, I think we're watching it closely, but I don't think our point of view on the opportunity in Europe has really changed.

[Sean Sobers:]

Yes, specifically, Brian, just like -- we generate no revenue from Ukraine. We get no supply from the Ukraine. But obviously, the burden on what's happening in Europe is hanging on the consumer. So we're paying close attention to that.

[Brian McNamara:]

Got it. And just a quick follow-up. So the stock in your peers has had a tough few months here. What do you think you're not getting enough credit for? And what's your long-term investors be most excited about?

[James Reinhart:]

I think people fundamentally misunderstand like some of the competitive advantages that we're building in all the dollars that go into building infrastructure growth create real compounding returns over time. So I think as we've been consistent, we think when you're building infrastructure, you're widening your moat, you're deepening your advantage. And that really materializes over a number of years. And I always point to people that this is very much the same playbook that Amazon ran very early in its life, which was to build real infrastructure that really delivers for the consumer and then to be able to ride that out over time. And I'm a big believer that, that strategy pays off, but it takes some time to pay off. But we're not going to waver from making the right decisions on how to build those competitive advantages to serve the customer. And I think that's the thing, Brian, people often don't quite appreciate.

[Operator:]

And that does conclude today's question and answer session. I would like to turn the conference back over to management for any additional or closing remarks.

[James Reinhart:]

Thanks, everyone, for joining us for our conference call. Thank you for the great questions. Thank you to the thredUP team for all their hard work. And just to call out to acknowledge all the folks we have in the Ukraine that are suffering through a really difficult time, we want to give them a shout out and appreciate all their incredible hard work in service of our customers. So, with that, we'll wrap it up. Thank you.

[Operator:]

Thank you. That does conclude today's conference. We thank you all for your participation, and you may now disconnect.