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Why The RealReal's Stock Is Up So Much Today

By Jon Quast – Apr 27, 2020 at 2:45PM

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As investors warm to the retail sector, is The RealReal among the better positioned for a rebound?

What happened

Shares of The RealReal (REAL -0.66%) are going up a lot on Monday. As of 2 p.m. EDT, shares were up 18% as they continue their climb from March lows. The stock bottomed at $5 per share in late March but has now rallied around 140%.

Retail stocks are trading higher today in general as investors are seemingly optimistic about the imminent reopening of the U.S. economy. But there's no news today to directly explain The RealReal's outperformance. However, there are recent developments investors should know if they're considering buying a stock that's still down 60% from 52-week highs.

A dollar bill folded into the shape of an upward arrow.

Image source: Getty Images.

So what

The RealReal filed with the Securities and Exchange Commission on Friday, but it's not the kind of news that investors typically favor. Four insiders disposed (sold) an average of over 1,100 shares each. These insiders were the chief technology officer, chief operating officer, chief financial officer, and even the founder and CEO, Julie Wainwright. 

Before panicking, this is nothing close to "dumping shares." Wainwright, for example, still owns over 4 million shares. Insiders sell stock for personal financial reasons, and relatively small sales like these are nothing to worry about.

The meatier news came out on April 14 when The RealReal posted preliminary first-quarter results. Quarterly gross merchandise volume was up 15% year over year, but Q1 only reflected two weeks of COVID-19 impact. Since March 17, GMV has plummeted 40% to 45% as the company closed its retail locations and reduced activity at e-commerce centers. This development led the company to lay off 10% of its staff and furlough another 15%, as well as make other cash-saving moves.

Even with these cost cuts, The RealReal expects a net loss of nearly $40 million when it reports official Q1 results in May.

Now what

From a balance sheet perspective, The RealReal is one of the better-positioned retailers for a rebound. It has $303 million and no debt, giving it a strong starting point. It will take some retailers years to deleverage their balance sheets after taking on debt to survive this economic crisis. By contrast, The RealReal will immediately be able to return attention to growth. Perhaps that's what investors see today as they hope for a recovery in retail spending.

Furthermore, an important part of a long-term investing thesis in The RealReal is its loyal customer base. And on that, there was encouraging news in the preliminary Q1 report. Repeat buyers accounted for 84% of GMV, up both sequentially and year over year, a signal that the company still has a "really" engaged audience. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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