Ladies and gentlemen, thank you for standing by, and welcome to The RealReal Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host, Head of Investor Relations, Mr. Paul Bieber. Please go ahead.

Thank you, Chris. Good afternoon, and welcome to The RealReal’s earnings call for the quarter ended December 31, 2020. I am Paul Bieber, Head of Investor Relations at The RealReal. Joining me today to discuss our results are Founder and CEO, Julie Wainwright; and Chief Financial Officer, Matt Gustke. Hopefully, you have had a chance to read our press release and stockholder letter that we distributed earlier today both of which are also available on our Investor Relations website. Before we begin, I’d like to remind you that we will make forward-looking statements during the course of this call. These forward-looking statements involve known and unknown risks and uncertainties and our actual results could differ materially. You can find more information about these risks, uncertainties and other factors that could affect our operating results in our most recent periodic report on Form 10-K, subsequent quarterly reports on Form 10-Q and in our earnings release from earlier today. In addition, our presentation will include certain non-GAAP financial measures, for which we have provided reconciliations to the most comparable GAAP measures in our earnings press release. With that, I will hand the call over to Julie for introductory remarks and then we will go straight to Q&A. Julie?

Thanks, Paul, and good afternoon, and thank you all for joining us today to discuss our Q4 2020 results. Obviously, 2020 was a very challenging year, but we were resilient and found ways to innovate. We are seeing encouraging signs of recovery with December GMV back to growth and quarter-to-date trends even stronger. Overall, we are well positioned to emerge a stronger company. We are tremendously thankful to our employees for their dedication during these unprecedented times. We would especially like to recognize the teams on the frontline in our authentication centers and retail locations. Thank you for your tireless work and commitment. We believe that as we come out of COVID, the tailwinds that have given the outperformance of many of the e-commerce companies will slow. In contrast, we could see an increasing tailwind as major markets return to normal, which could drive acceleration in our business. This growth would help us realize efficiencies in our operations, leverage across our cost structure as we march toward profitability. Last year, we embarked on several strategic initiatives that will position us to capitalize on the large opportunity ahead. The most significant initiatives include neighborhood stores. We plan to operate to open approximately 10 of these by the end of Q2. Given our early results, we are optimistic this strategy will allow us to further engage with our most valuable customers and significantly unlock supply more efficiently than marketing efforts alone. Our vendor program is number two. This has improved our ability to source high-value supply and we continue -- we will continue to invest in people, processes and technology to support its growth. Q4 - the Q4 vendor channel GMV increased 80% year-on-year, our third consecutive quarter of acceleration. Lastly, our Arizona authentication center, we accelerated the timeline for opening our…

[Operator Instructions] Your first question comes from Oliver Chen from Cowen. Your line is open.

Hi, Julie and Matt. Thank you. Regarding supply, what do you see ahead for the New York, LA markets? You did a really great job with growing supply in the other markets and also you are managing a lot of innovation in the B2B vendor program? But what should be on our mind for Q1 and beyond with supply gathering and all the different regional pieces may mix?

I will take this one. Right now, we are not going to make a prediction by region. But overall, we expect our supply continue to grow and that really is - it was already double digits before going into this quarter and supply growth and that will be aided by our new retail neighborhood stores and vendor. So we feel as if we have reached a turning point on our supply coming in, we are very excited about but the fact that we are now in the third month of growth.

Okay. And you had encouraging commentary on women’s apparel returning to growth. I would love your thoughts on what that means and if that may or may not be volatile and how the customer is behaving? And the really encouraging growth on new buyers, what’s the data saying for new buyer retention and new buyer behavior and the platform?

So lot of questions in there is normal. Number one, apparel is returned to growth. We expect it to continue to actually grow given lockdowns are easing. So we expect that to continue to grow and it’s exciting. It’s the first time women’s apparel has grown for us since we had the lockdowns. As we stated previously, we are – well, our average unit selling price has really been driven by our high handbag sales and fine jewelry and watches. So right now, our ALBs are up, our ASPs are up, overall the ASPs are up. And it appears that our new buyers are behaving like our old new buyers at pre-COVID, but they are spending a little bit more money. In terms of their repeat rate back to the site, they look pretty similar at this point.

Yes. That’s helpful. Last one, neighborhood store sounds really innovative and you have good reads from the newest ones. Why was now the right time for that in this dynamic environment we are facing where physical retail is really having to change quickly?

There are so many reasons why we know this is the right way to go. Number one, we have one test case in Madison, which has done phenomenally well even with the ability to have limited capacity in the store during the COVID time. Number two, the rents in the neighborhoods have dropped precipitously and the willingness of landlords to do shorter-term leases also critical to our decision making. And number three, as you know, we are always looking to remove friction from the process for the consignors. In a study, we did about six months ago, this was a way that they also wanted to participate more neighborhood drop-offs. So the combination, sometimes the stars align, meant that it made sense for us to go ahead and open 10 as fast as possible. This year, with short-term leases with an eye to measuring both demand and supply, they are primarily for supply. And then we will decide if we are going to open more, but right now there are favorable terms for driving those smaller neighborhood stores to faster profitability than they were before COVID.

Thank you very much. Best regards.

Thank you.

Your next question comes from Eric Sheridan of UBS. Your line is open.

Thank you so much for taking the question. Maybe I could touch upon some of the initiatives you have with the brands harkening back to some of the announcements that you made last year. Obviously, one of the big goals you have talked about as a company is sustainability and going after some of the broader goals the industry is trying to also accomplish around making sure luxury continues along this path in forward years and the role you play. Can you talk a little bit as we update turning out of 2020 into 2021 about the relationships with the brands and then more importantly, how it feeds into some of the sustainability narrative you’ve talked about the company? Thank you.

Sure. I mean, as you know, we have Stella McCartney, that’s a long-term partner then the first one to join in and actually has been always echoing the importance of the circular economy and its role in a more sustainable supply chain and fashion world. And Burberry is still with us. Gucci, we are still in discussions with. Gucci’s relationships with The RealReal was different than any other prior relationship, because not only did they encourage people to participate in the circular economy via consigning, they also encouraged them to buy. So we are -- Stella and Burberry continuing. We are in conversations with Gucci and there will be more partnerships announced later in the year, and it will be along the lines of reinforcing sustainability. So slowly but surely, we are about ready to celebrate our 10-year birthday this year, slowly but surely the message is coming through and the time is right for this. I also think that with the administration shift in the U.S., I do think there is going to be a greater emphasis on environmental impact of each industry and I don’t think that’s lost in the brands that we are working with The RealReal and other people that do resale makes sense in order to hit -- have them hit their own sustainability numbers.

Thanks so much.

Your next question comes from Michael Binetti of Credit Suisse. Your line is open.

Hey, guys, thanks for all the detail in the shareholder letter today and thanks for taking our questions. I guess, can you speak to the first quarter GMV guidance? I don’t mean to be short-term, but 17% to 20% GMV growth with 14% in the quarter-to-date and then obviously in March it’s about 45 points easier just based on the monthly reporting you provided. So is it -- I am wondering if there’s something in the flow of supply that would cause the multi-year to slow? Or is it just an abundance of caution on your part until we go around the bend here? I will start there and I have a follow-up.

Yes. So like everything with GMV, it always starts with supply, supply has been doing well, been building progressively, we are happy with how that’s trending. And you are right, so if you -- but if you check track the progress, December was our first month of getting back to positive growth at plus 6%, quarter-to-date 14%, which, of course, implies over the balance of the quarter that there is some acceleration. Listen, we are still in the middle of COVID, so there is an abundance of caution here. This is the first time we have been comfortable enough to put anything resembling guidance on paper. So I think coming out of the gate this is a positive step forward in terms that we have some visibility, but more importantly, increasing confidence in the trajectory of our recovery. So we are happy with it. And, of course, we are going to look to overshoot.

Great. Okay. Thanks, Matt. And then, I guess, can you - you mentioned in the shareholder letter some of the image recognition software is something that can help you on the inbound supply. I’d love to hear some thinking on that. We have seen some interesting stuff on that from competitors in the space? And then, Matt, if you wouldn’t mind just walking me through, I just saw at the back of the shareholder letter you commented that gross profit per order in first quarter, I think, to be flat year over year and I think that was down a bit in fourth quarter? So maybe just what was driving that in the fourth quarter? And what’s different in the mix in the first quarter, please?

I will take the first part and then Matt can take the back part. We have made tremendous progress in automating our ops centers by -- it wasn’t just image recognition, but recognition played a part in it. It’s really machine learning and computer vision, along with some image recognition. So now in copywriting, price automation, photo editing, in particular, we are up to about almost 80% in all of those of automation, which means that the people we employ are doing more QC work and QA work. So we continue to accelerate that. We also have -- unlike most of the people in this business, we also have a huge fine jewelry and watch components. So we have been able to further our automation of measuring the depth of diamonds within the setting without having humans recalculate it twice in the old way, which we still do for all other types of stones, because we would never remove the stones from a jewelry. So our automation continues fairly regularly and a little ahead of schedule in our op centers, which is, actually, to be honest, that is where we have been focusing, but that technology can be applied across multiple channels later on. I would just say, we are really pleased with the progress and these are the key things we needed to feel comfortable to support our growth and decrease our unit economics in our op centers.

Yes. And I will take the second one on the overview on gross profit drivers. So you are right, we are comfortable to guide to flat gross profit per order in the first quarter. Dynamics underneath there, one, is always -- growth drives leverage all throughout the P&L so that’s helpful. We have been seeing to Julie’s earlier comments, improvements in our average order value driven by good contributions from high value categories. We are also seeing nice year-over-year improvements in our shipping expenses. So all adding up to the good things kind of offsetting the little bit of work we have left to do recovery on AOV and take rate which continues to be correlated with those high value products. Going back to Q4, a little bit of that as well, so AOV first was down 6% year-over-year, almost exclusively due to units per transaction yet to climb back to historical norms. In addition, we had a few other things going on. Take rate was down 50 basis points year-over-year due to the strong performance from high ASP categories, handbags and jewelry in particular, as well as more consignors earning higher take rates that means a higher contribution from our existing repeat consigners. Second, we did see elevated levels of buyer incentives in Q4. We used buyer incentives as a tactic to garner both new buyers and consigners. And it has had an immediate impact and it’s really just kind of a shift out of traditional marketing to be more immediate impact. So we use it as a way to stimulate buyer and consignor activity during COVID as our growth recovers and supply growth in particular recovers. We expect to see that decrease over time. And finally, there was a $2.2 million onetime adjustment in Q4 that’s described in detail in the stockholder letter.

Okay. Thanks a lot Matt.

Your next question comes from Erinn Murphy of Piper Sandler. Your line is open.

Great. Thanks. Good afternoon and nice to see the recovering growth. Julie, I guess, my question for you is on, the 30% of new consignors that are coming from stores I think that was just for the month of December. Can you share a little bit more about what you are learning about this new consigner versus maybe other new cohorts in the past? And then, a follow up for Matt on the new D.C. and Arizona can you just talk about how new or how shipping times, excuse me, will look when you are up and running there and your plans for the Brisbane D.C. once that -- once Arizona is up? Thank you.

Hi. So, well, first of all, we are excited about our new neighborhood stores. Obviously since we have committed to opening 10 in the first six months and that’s based on some early results. Now all of this data’s leather preliminary outside the Madison store. But the consigners who actually consigned at a retail location tend to consign 1.5 times more in value than consigners that consigned to other venues for us. They also tend to have a higher NPS score. So early days on that for the retail stores but we are pretty excited about the early results. The interesting thing right now these results are based on a limited capacity constraints that we have in our stores due to COVID. So when you look at it given all the constraints that are put on our business and including, for example, in Palo Alto, we could only have four people in the store at one time beyond f the sales team. It shows that there is a pent-up demand for a frictionless consignment in neighborhood. So we are excited about our early results but very promising.

Yes. So a little bit more detail on Arizona. So this is purely about us focusing on the next phase of growth. This is our largest facility in our portfolio and just set us up for a few if not several years’ worth of growth. In terms of shipping, right now it’s not like -- in the early days it’s not going to be much of a difference because we do have some capacity in both costs to sort of load balance, but as we continue to grow it would max out our capacity here in Brisbane and then have to start shipping things larger distances. So it’s really as we start to grow it allows us to keep optimizing our shipping distances, cost, and managing service levels to customers and consigners by the way in terms of products coming in. So we are really excited about this to give us the capacity to grow over the next several years and by a wide margin is our lowest cost location. So it’s going to drive a lot of expense leverage as we scale on the fixed cost per order basis.

Got it. And if I could just add a follow-up Matt for you on the shipping contract that you negotiated at the end of 2019. I know on this call last year you talked about originally planning 500 basis points of gross margin improvement and then obviously COVID hit. So curious have you looked forward into this year, GMV is clearly accelerating. Like how do you think about kind of the gross margin opportunity once we -- now that we are seeing that topline inflect from specifically to shipping contract renegotiations?

Yes. Yes. So the shipping contract itself is doing what it’s supposed to do. So as we get growth back we are going to get all of the leverage that we anticipated out of shipping. Gross margin itself is a bit of a tricky number for us, because we have this mix of direct and consignment revenues with inherently different gross margin profiles. So that’s sort of the unknown risk. We think that the direct revenue mix will increase somewhat as we lean in to the vendor opportunity including selectively purchasing inventory upfront, which we have seen is yielding higher prices and better margin profiles for us. So to the extent that we continue to see that happening we are going to keep doing that, so that’s going to keep mixing direct up. So hence we just keep trying to encourage people to focus back on gross profit per order as the metric to track how we are progressing in our overall productivity and path to profitability. And we see the opportunity to get from that roughly $80 level that we were at most recently to about $100, nearly $100 in the next 12 months to 18 months.

Great. Thank you so much.

Your next question comes from Edward Yruma of KeyBanc Capital Markets. Your line is open.

Hey. Good evening, guys. Thanks for taking the questions. I guess, first, I am trying to understand a little bit on the supply side promotions you have been running. It seems like some of your competitors are kind of driving take rate down in an effort to jump start their businesses. Just kind of stepping back, do you think there has been any impact or do you think that this is a period of kind of pronounced promotion on that side? And then, second, with Arizona plus neighborhood stores is there some we should think about from like near- to medium-term expense build perspective? And it just kind of one final question, on the vendor relationships, I guess, any sense of whether that is negative to the relationships that you have been so successful at building with the brands? Thank you.

All right. Ed, this is Julie. I am going to take some and turn over to Matt. So let’s just talk about the last one first. The vendor relationships, some of the vendor relationships we have been studying with the brands are the same brands that are working with also another capacity. So actually to me they work hand in glove. And our vendors are a little more diverse than just the luxury brands that deal in fashion because we do have other categories with fine jewelry and art and home that we also sourced from. And those have been just the art and home vendors have been very good press during COVID times. But we do have a variety of vendors that are in the fashion world. But, yes, some of the vendors that we work with strategically are also vendors that we work with on our vendor side of the business for overstock or other types of products. Sometimes they are running tests. So that is -- that’s what’s going on with the vendor. And Matt, do you want to take the other …

Yes. Yes. Edward, I …

That’s a three part…

I was going from that’s a question today.

Yes. That is a three part question…

Just to test our memory. So I think the second question is around just basically around store financials and what does that mean for the P&L and the balance sheet over the near-term. The good news with these stores is that because their small footprint with short-term leases and favorable environment for getting lease terms for retailing as you might imagine. These things are particularly expensive. So we think, I don’t want to be overly precise here because we don’t really have much data. But we are hopeful that these things can become sources of profit plus or minus a year from opening them and they really don’t take much capital to open. We get them open in four weeks to six weeks after we sign a lease, spend $200,000 to $300,000 in capital, right. So rolling out 10 of these is a handful of million dollars of capital this year and once we kind of get sort of the back end of this year we start to get close to the tipping point where it becomes neutral to those the P&L. In the short-term it’s a bit of a drag but really not that much. And then I think the other question is around us to take rate environment and pressure we are seeing…

We are not.

I know we are not seeing any...

And I can say, look, we have at least seen in the press what the take rate is that it’s on sneakers and watches, and our watches take rate has always been competitive within that space and the watch resale market is always being competitive. So that really hasn’t put any damp on it. Our sneakers, it’s not a big component of our mix. We are still getting amazingly high quality sneakers and without changing our take rate. So this is the beauty of being a multi-category multi-brand business, where if someone decides to bring the take rate down to zero for sneakers it really doesn’t impact us. Our take great shift and our panel is mostly due to us selling more high value things, because enduring COVID in particular it was handbags and fine jewelry and then watches in that order and then men’s. And so those first three already have what we would consider a really good competitive take rate that didn’t change. They -- now we are adding apparel this quarter, apparels coming back to life and selling so that will change the gross margin again in terms of percentage more on the positive side.

Great. Thanks for answering all the questions, guys.

Your next question comes from Justin Post of Bank of America. Your line is open.

Justin, I can’t hear you.

Sorry about that. Thanks for taking my question. Two, I guess, the first, can you, maybe Julie, compare the vendor program economics to the core of sourced inventory. Any big differences we should be aware of? And then, the second one is for, Matt, maybe you could help us just, I know you get incentives in Q4, buyer incentives, extra marketing, which makes sense. Help us think about how to frame an EBITDA outlook for the first quarter? Thank you.

So, vendor economics overall are good, but it is a supply that -- in fact it’s a net accretive to the business. However, it’s not -- we still have to be very careful on the supply. Our goal is not to become a riskfact.com, where its impact you, you would end up dropping prices on quite a few. So our approach to vendor is we wanted to increase our diversity of supply vendors that really sort of one that is there for the taking. We can have a good gross margin on it with a high price but that doesn’t mean it’s a free for all in the way we take in our products. So, and we also do have to invest in the platform, meaning getting a skewed depth on our platform to really optimize that along with invest in the team. But it is -- the unit economics are good arm vendor. The core stories, again too early to call they look pretty amazing. They have an added benefit of both getting supply for us and we do sell things there and we tend to sell things at a much higher AOV, which is accretive to the average overall AOV height, which makes sense. If you think about it, high value things sell faster in person, and perhaps, they do online. So, and they also have a marketing benefit. So those transcend just supply acquisition and we have got a lot of analysis to do on those as we get out of COVID to see how high is up with them but even in COVID times they look good for us.

Yes. One quick thing to add on vendor economics, it’s important to keep in mind that vendor and buying upfront for taking inventory are not synonymous. The majority of our vendor business comes in on regular consignment terms just like everybody else. It’s more about how it flexes our supply in the direction we want it. So we can be more strategic about adding high value supply. There is of course some direct inventory purchases there, but there is on the consignment side as well. So those are really two separate vectors, the focus of the vendor channels to bring an incremental high value supply and enrich our gross profit per order metric overall. On the other question, bottomline expectations for Q1, so obviously, we are too much of a period of uncertainty for me comfortable to be declarative about that. But we have done that we could and provided the transparency that we think is appropriate in terms of GMV, seeing GMV acceleration, gross profit for there being roughly flat and directional guidance on our operating expenses, namely marketing, which excludes the buyer incentives being down modestly quarter-over-quarter, our ops and tech up substantially quarter-over-quarter. We start realizing expenses in Arizona. We open a bunch of these core stores. We are investing in technology to support all of the above. So, that was going to be up a decent amount and then SG&A as we said kind of just up very, very modestly. So add it all together, growth that the extent to which we grow is going to be the real good determinant of whether the ultimate bottomline sort of shakes out. There’s still a fair amount of range that that could be in there.

Great. Thank you.

Oh! I didn’t mention -- I didn’t -- buy incentives, I guess. The answer to that was essentially embedded in the guidance of gross profit per order being flat year-over-year. Meaning, we already see that that’s going to start trending down hand-in-hand with our supply recovering now back to positive available inventory on a year-over-year basis. We hit that in January. So as we continue to grow supply, it’s just lessens our dependence on using those types of incentives. So we are seeing that.

Got it. Thank you. Thanks, Matt. Thanks, Julie.

Yes.

Thank you.

Your next question comes from Mark Altschwager of Baird. Your line is open.

Hi. Good afternoon. Thanks for taking my question. I was hoping you could give us an update on the trends you are seeing with the virtual appointments. How are some of your larger club clients adapting to this now that we are all getting a bit more used to the virtual interactions? And also curious how really the sales team productivity is trending with the move to virtual?

So we look at multiple channels and when you look at the ones that have some sales involvement with that. We still have a little bit of in-home, we have got virtual, we have shipped direct where people put it in a box and ship it directly to us and now we have stores. And I would say, virtual is closer to the stores than the previous white glove and we are starting to go back into people’s home upon request. So, for example, if we go into your home, we tend to pick up maybe 50% more items, than if we actually do a virtual appointment. So the productivity is almost breakeven in early days. Having said that, we think once we get out of COVID that virtual will get more productive and because we will get our -- it’s just going to be a mix between white glove and virtual depending on where people are. So the efficiencies have been almost it’s a wash, but it’s still a good tool -- it’s a great tool for us to have during COVID times.

Yes. It’s like longer term we don’t -- just we don’t know what the mix is going to look like. But we are going to let our consignors meet us and whatever they feel is the least amount of friction for them we are going to do it. So in-home definitely has a role, virtual does have a role, but how it ultimately shakes out remains to be seen.

Thank you. And then, Matt, just a quick follow-up on some of the vendor related commentary. Inventory looks like it’s up pretty significantly year-over-year. Could you maybe just give us a bit more color on what’s going on there the drivers, any implications as we look ahead?

Yes. Our inventory is sort of a lot of small numbers here. So it’s like up in a percentage basis pretty substantially over the year, I think, 70-something-percent increase but that’s I think 70 something percent increase. But that’s still on in few tens of millions. The majority of that increase relates to a couple of large vendor transactions that we executed in the fourth quarter. So far we really like what we are seeing in terms of average selling price, the product margin that we are realizing and how quickly things are selling. So, slight small term use of cash for we think is going to be additive to gross profit per order ultimately flushing through the P&L as we go forward.

Yes. Thanks for all the detail.

Your next question comes from Ike Boruchow of Wells Fargo. Your line is open.

Hey, everyone. Let me add my congrats on the acceleration in the business. Matt, two questions for you, just first quick one on vendor direct, I think last quarter you said it was going to be around 10% of the business and it could get to 15% to 20% over the next 18 months. Is that kind of the way we should think about the upcoming fiscal year in terms of penetration?

Okay. So let me just aggregate this again. So vendor, the channel we call vendor, which is business sellers combined on a consignment basis on the direct inventory purchase basis. In aggregate, yes, I think, we are -- we would still say that tracking to 15% to 20% of total GMV is the right zone for that sort of progressively as we go through the year. The opportunity there is still quite substantial. There’s still a lot of inbound interest. We will continue to see very strong growth there.

Got it. And then second question, Matt, just bigger picture. So on profitability adjusted EBITDA positive outlook, I totally understand it’s not clear right now. But I guess the higher level question, I wanted to ask you would be I believe pre-COVID that the street was kind of expecting you to hit that mark around a little over $2 billion of GMV. I guess just the high level question I’d have for you is has the model evolved over the past 12 months. So much so that does that revenue or GMV number would change mean maybe you would need more GMV because of cost of the business or greater mix of lower margin revenue or maybe it’s come down, because of the better efficiencies in the model. Just high level, I know you don’t want to get into the details, but just holistically how would you kind of think about that?

You are right. I don’t want to get into the details and something that’s out there far. So obviously the further we go out the fuzzier things become. But sitting here, I am not going to update anything that we have talked about in the past. But fundamentally, there’s a lot of good that’s come during COVID and the thing that I think I am most encouraged by is having a more diverse set of supply channels that allows us to be more predictable in how we grow the business going forward and coming out of COVID, as well as the progress we have made in other areas. So at the very highest level sitting here and looking out that far in the future, I really don’t see anything that that’s a fundamental setback in terms of when ultimately we are going to hit that point of breakeven. Now between now and there, of course, a lot of things can happen. If we really level we are seeing from the neighborhood stores, we say hey we are going to do a lot more of those. They will continue to be a short-term drag. But we will balance that as we always have done and making sure we are getting the right amount of investment. We are focused on profitable growth going forward.

Very helpful. Thanks, Matt.

Your next question comes from Simeon Siegel of BMO Capital Markets. Your line is open.

Thanks. Good afternoon, everyone. Matt, sorry if I missed it, could you elaborate on what drove the buyer incentive contra rev items this quarter and in that $2.2 million reconciliation adjustment? And then just any help -- just given moving pieces any help on how you are thinking about returns and cancellations for Q1 and then whatever comfort you have into this year? Thank you.

Okay. Another three parter. I think I got it on returns adjustment and buyer incentives.

Okay.

Buyer incentive is because I think of them as sort of like couponing that are specific to individual buyers or consignors. And we have used with -- historically use that as a tactic to drive GMV and supply, new buyer growth, new consignor growth and that tends to run about a 1.5 percentage points maybe 2 percentage points of GMV in the fourth quarter that got us closer to about 3%. As we were -- we are encouraged with the trends we are seeing. We really wanted to drive it. It’s more of an immediate call to action than broad based marketing. So we are seeing good results from it on a short-term basis. We pivoted some of our marketing investments into buyer incentives. Don’t expect that to be the case on a sustained basis, because the supply is really what is the governor of how much we need to lean into that or not. So it’s a really short-term tactical thing. Returns and cancels continuing to be favorable versus where they were. But roughly flat on a quarter-over-quarter basis is how I’d be modeling it. We are going to see a reversion to the mean over time as we sort of come through COVID and product mix really starts to kind of come back to where it was. It’s almost sort of a U shaped recovery I guess or just kind of reverting to the -- that the mean. And then the adjustment, so as part of our audit in 2020, we discovered and corrected immaterial error that had been accumulating little by little over time. The error itself related to a subset of consigner payments that were made manually outside of our normal payment processes and some of these manual payments were incorrectly recorded in our financial statements. We have corrected the reconciliation process. So that’s good is going forward and we have flushed the adjustment back to the period that it belongs in when we present our quarterly results with the filing of our 10-K. So, again immaterial, one-time adjustment and really no meaningful impact on our go forward financial results. And for clarity and hopefully helpfulness, in the stockholder letter we presented Q4 both and with and without this that it doesn’t sort of muddy picture on a year-over-year basis.

Great. Thanks a lot. Best of luck for the year ahead.

Thank you.

Your next question comes from Aaron Kessler of Raymond James. Your line is open.

Great. Thanks, guys. Just a couple of follow-up questions, maybe just on the operations and tech realize that in terms of the first half it sounds like that’s going to be increasing a healthy amount. Should we start to make expect some leverage in that line as we go into the second half of ‘21 and then into ‘22 obviously assuming kind of GMV ramps throughout the year as well? And then just mix on the vendor impact on take rates, can you just give us a sense for that, I assuming you are managing more to a gross profit per order that’s mostly the impact on take rates as well would be helpful? Thank you.

Okay. Then let me take -- vendor impact on take rates in like, somebody remind me that the question.

Ops and tech leverage.

Ops and tech leverage. All right. Thank you. Vendor impact on take rate. Overall it should be pretty modest because the -- again I can’t predict is the mix between consignments and direct purchasing. Those are just with the equation for now. On a like-for-like basis, all things equal, it’s virtually identical to an individual consignor. The main difference is the mix of products that are coming into that channel. It tends to be -- and on purpose it is skewed more toward higher value products and those inherently structurally in our commission structure have lower take rates. But, overall, it’s not going to really have a significant impact. Net-net positive in terms of gross profit per order be it whatever we give up in take rate is more than offset by higher AOVs and ultimately gross profit. In terms of ops and tech, I don’t want to get too precise, because I don’t know. So the investments that we are making in the short-term, core stores, we have kind of laid out what that looks like overall, technology is we will continue to invest alongside the growth in the business and to power a lot of these strategic initiatives, the vendor program, retail, Arizona, et cetera. And on a -- in a short-term basis, yes, that’s an increase. When it delivers leverage that’s tougher to say, it’s really what is our growth profile look like as we come out of COVID. The OpEx part is obviously more controllable. But to the extent that we kind of start lapping COVID, we see very strong growth rates and fundamentally the business is sort of in a steadier state of recovery, I would expect to see progressive operating leverage each quarter as we get through the year.

Got it. Great. That’s all folks. Thanks guys.

Your next question comes from Susan Anderson of B. Riley. Your line is open.

Hi. Good evening. Thanks for taking my question. I guess a quick follow-up on the neighborhood stores. Just curious if there’s any insight you could give into how much it cost to open them? And then also the timeframe to profitability and then if you are looking at specific cities or regions where you are planning on opening them? Thanks.

Go ahead.

Yes.

Go ahead.

I will start. I had talk a little bit about this earlier on. We will have about 10 of them open by the end of the second quarter. They range in footprint from a little over 2,000 square feet to a little more than 4,000. Brooklyn is on the higher end of that spectrum though, a little bit larger than the 4,000 neighborhood. But generally speaking we are looking at 2,500 square feet, two-year, three-year lease terms. About $300,000 call it in CapEx to get it open and it takes us six weeks to open. And then we are hopeful, we certain -- we don’t know because like the oldest ones are just a few months old. But we are hopeful that the on a four wall basis these days can look like approximating a breakeven in about a 12-month basis. So in the short-term…

Right.

…it’s a drag, right? But like then as we start -- then we let it go and then they continue to perform. This time next year there should be excess or some lower.

Right. They should be. And we didn’t model it based on continuing to have restrictions in the store with a number of people based on some COVID restrictions. And location was and the other thing you are talking about again this is coming as a surprise. Think of neighborhoods outside key urban areas. So for example, we opened in Palo Alto, we opened Brooklyn. We may open another one in New York City. Right now we only have two in New York in New York City right now, we only have two and New York’s a big place and people don’t like to leave their neighborhood. So you start thinking of Connecticut as sort of a natural place. Other places in California, we open Newport Beach and yet we have a store in West Hollywood. So it’s sort of a -- you can almost figure it out yourself by assuming here’s the big cities in the U.S. and here’s unbraided is where there’s huge pockets of people that most likely are going to travel that far to either buy consignment or drop off consignment, but would prefer a neighborhood store.

Great. That’s helpful. That makes sense. And then, I guess, just a follow-up on the trends that you are seeing by product category in the February. Are you expecting I guess apparel to continue to increase and maybe, I guess, ship back to pre-COVID levels or should we think about first quarter being similar to fourth quarter in terms of the penetration of jewelry and handbags?

So already it’s shifting. So I don’t -- we don’t know obviously what’s going to happen, but everything besides kids and beauty is growing at a nice clip. So every category is growing without diminishing the jewelry and handbags and men and watches. That we are actually have a nice growth across everything, the nice bulk of our business is in women’s apparel. So it was good once that returns to growth and it is comping a non-COVID month right now and we are non-COVID two months, it looks -- it gives us a lot of hope.

Yes. That’s definitely very positive. Okay. Great. Thanks so much. Good luck next quarter.

Thank you.

Operator, I think, we can take one more, if there is anymore.

Your next question comes from Marvin Fong of BTIG. Your line is open.

Great. Thank you. Thanks for fitting me in here at the end. Just on the neighborhood stores, a follow-up question on that one has been looks already tremendously successful. I think, if we go back to some of the statements you have made in the past, Matt, that maybe you get to like 10 or 12 stores or so, is the second quarter going to kind of round out your store opening plan for that or do you see with the success you have been enjoying that maybe you could increase the number of stores ultimately? And then, I think you would also said in the past you were pretty be primarily drop off points and not points of where there will be a lot of retail activity, just curious if what you are seeing is maybe making you rethink that? And then just one last question on international something we really haven’t talked about a lot because of COVID and which you have had to do strategically to stabilize the business, just curious if you think international is something that you can make some progress in on -- in the FY ‘21? Thanks.

Okay. Matt?

Okay.

Three parter…

No. Four parter. So I think, let’s see how it goes.

Okay.

So with neighborhood stores, I think that, the question around roughly 10 stores. I hope that’s not where we stop, right? So if thing -- if the stores that we opened look like the ones that we have opened recently in Palo Alto and Brooklyn and Newport Beach. And those three continue to perform like they have or better frankly as capacity restrictions get loosened. We are going to probably want to open up a fair number of more of them because they look like they can be substantially more efficient at acquiring and unlocking supply than our marketing investments alone. Far more targeted, far more personalized local, it’s what consignors want to do. So I would not be shocked. I would actually be quite pleased if two quarters from now we are -- you are talking about a more aggressive rollout of these stores. That would be a fundamentally healthy thing for our business. In terms of our view on how the mix of supply versus demand, still I think we look at them as, from an incrementality perspective, they are more -- they are most powerful on the supply side. They acquire new consignors very efficiently and bring a lot of incremental supply to us. On the demand side, you can argue they are helpful. Yes, they make us -- it makes it easier to sell high value products. The return rates are exceptionally low, buyers love it. I mean, our NPS in the store is quite high. People who interact with our stores are far more active on both supply and demand than people who only do interact with us online. So very healthy. I think it’s a good question. I think we are finding that there is a lot of interest in people shopping in the store and those like across the Board see very good sales, not just supply.

Well, wait, they are smaller footprint. So if you just look at the sheer number of SKUs we have in the store and the smaller footprint by design, which means they get there, like, they are just the cost efficiency supports smaller footprint versus flagship. But they have about a third of the SKUs or less of what a flagship store would have. So by its nature, it’s up to the merchandising team. They have done a really good job of fine tuning that mix to maximize the dollars even in sales per square foot based on the local neighborhood. So that’s -- which means they are -- we have never said you can’t buy anything. It’s just the size alone dictates a certain level of success, because they will just buy their size restraints have less SKUs.

Do you want to talk about international?

International, we have international top peers. I do not expect to see any impacts from it this year, but I would assume that planning will begin for a launch next year sometime this year.

Planning this year for launch next year.

Right. So set another way do not expect to see incremental expenses or incremental GMV associated with international this year.

Great. Thank you so much.

Okay. Okay.

So, back to me. I want to thank you for your attention. I want to encourage you all to get vaccinations when your time comes up. And just leave you on the note, we are excited to be back to growth and we are looking forward to our next call of our Q1 results. Thank you very much.

Everyone else has left the call. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.