Bear of the Day: The RealReal (REAL)

Original post

Based in San Francisco, The RealReal Inc. (REAL) is an online marketplace for consigned luxury goods. It offers many kinds of resale product categories, like women’s, men’s, and kid’s clothing and accessories; jewelry and watches; and home and art goods.

Shares Sink After Q3 Earnings

REAL lost as much as 13.5% after the high-end consignment retailer reported third quarter earnings results.

Total revenue fell 4% year-over-year to $78.1 million but did improve 16% sequentially, while consignment and service revenue fell 7% year-over-year.

GAAP loss per share was $0.49 compared to a loss of $0.30 in the prior-year quarter.

Gross merchandise volume (GMV) dropped 3% compared to Q3 2019, and GMV from repeat buyers was 82.9%. Average order value grew 2% to $446.

The company ended the quarter with $395.2 million in cash, cash equivalents, and short-term investments.

“We are laser focused on making the operational changes and strategic investments that will position us to emerge from COVID a stronger, more agile company prepared to capitalize on the significant luxury resale market opportunity in front of us,” said CEO Julie Wainwright.

Bottom Line

REAL is now a Zacks Rank #5 (Strong Sell).

Six analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 15 cents to a loss of $1.59 per share; earnings, however, are still expected to grow over 12% for the current fiscal year.

Shares are actually up since the March lows, rising about 75%, which is more than the S&P 500’s rebound during the same time frame.

Even though shares have run up over the past few months, The RealReal will still have a hard road ahead of it, especially as coronavirus cases are on the rise once again and the company is one of the few online retailers that hasn’t experienced a sales boost related to the pandemic.

It’s hard to say exactly what’s the key issue with The RealReal’s business, but it could be as simple as consumers just aren’t interested in buying resale luxury product right now.

The good news for the company is that there will likely be broad immunization available next year against the coronavirus. Once things get back to “normal,” the desire for luxury consignment may return.

Investors who are interested in adding a similar online retail stock to their portfolio could consider Farfetch (FTCH). FTCH is a #3 (Hold) on the Zacks Rank, and shares have soared over 500% since mid-March.

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