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Why RH, The RealReal, and Capri Holdings Stocks Soared in April

By John Rosevear – May 10, 2020 at 2:32PM

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Optimism is growing about the upscale retailers' post-pandemic prospects.

What happened

Shares of many apparel and home-goods stores did very well in April, as investors grew more upbeat about their cash situations and ability to withstand store-closures amid the coronavirus pandemic — and, later in the month, about the growing likelihood of seeing stores reopen in May.

Here's how shares of these three upscale consumer-discretionary retailers performed in April, according to data from S&P Global Market Intelligence.

  • Capri Holdings (CPRI -1.94%) was up 41.3%.
  • RH (RH -1.77%) rose 43.1%.
  • The RealReal (REAL -0.66%) gained 67.5%.

CPRI Chart

CPRI data by YCharts

So what

Before we dive into specifics, here's some context for those big April gains. All three of these companies' shares were hammered in March, along with many other retail stocks, as stores began closing for what it the time seemed likely to be an indefinite period. 

The April chart looks like great news. But it's a different story if we look at the three stocks' performance from the beginning of March through the end of April.

CPRI Chart

CPRI data by YCharts

These three stocks share a basic story, but the companies differ in some significant details — and those details affected their stocks' performance during April. 

Capri Holdings

Capri Holdings is the parent company of several luxury fashion brands, including Michael Kors and Versace. It sells apparel and accessories through its own brick-and-mortar and online stores as well as through department stores that carry its brands. 

A Michael Kors store in a mall.

Capri Holdings' U.S. stores have been closed since mid-March. Image source: Capri Holdings.

Capri opened April on a rough note when Fitch Ratings cut its bond rating from investment-grade to a speculative, or "junk bond," level. Fitch's analysts said that while Capri had plenty of cash (about $800 million at the end of March, it estimated), it expected the company's revenue to fall by as much as 25% in 2020 from 2019.

But shares recovered nicely over the course of the month, getting a boost on April 7 when Capri said that it furloughed employees, cut executive pay, canceled orders for later in the year, and drew down $300 million from its line of credit. 

CEO John Idol said on April 7 that he expected stores to remain closed until June; the company hasn't yet updated that statement.

RH

RH is the company formerly known as Restoration Hardware. It sells upscale home goods and furnishings and interior-design services through its own stores.

A display of fabrics inside an RH store.

RH's "galleries," as it calls its stores, generate most of its revenue. Image source: RH.

RH also got a boost early in the month, on April 6, when it said it had furloughed about 2,300 store employees, cut 440 jobs, reduced salaries, and made other cost cuts totaling about $280 million for 2020. 

In that statement, CEO Gary Friedman said the the company was tentatively assuming that its stores will reopen in June, but he was clear that the date was far from certain at that time. 

RH hasn't issued an update since. 

The RealReal

The RealReal is a luxury consignment store. It has four brick-and-mortar retail locations, but it makes most of its sales via its online storefronts. 

The inside of The RealReal's store in the SoHo neighborhood of New York City.

The RealReal's four physical stores closed in March, but online sales recovered in April. Image source: The RealReal.

The company gave investors an update on April 14, when it released preliminary first-quarter results. At that time, it said that its gross merchandise volume had dropped 40% to 45% since March 17, when it closed its retail stores and reduced activity at its online fulfillment centers. It cut 10% of staff and furloughed another 15%, it said, in a bid to save cash until it could return to normal.

That wasn't exactly an upbeat update, but the stock didn't seem to mind much: It continued more or less upward for the remainder of April. (And it boomed again on May 7, when The RealReal reported earnings that beat Wall Street's estimates and said that sales recovered to pre-COVID levels in the second half of April.)

Now what

Investors heard from The RealReal when it reported earnings last week, but Capri Holdings and RH haven't given updates since early in April. Neither has yet announced a date for its next earnings release, but it seems likely that both will release updates for investors within a few weeks. In the past, Capri Holdings has reported its fiscal fourth-quarter results in late May; RH has historically reported its fiscal first-quarter results in early June.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Capri Holdings Limited Stock Quote
Capri Holdings Limited
CPRI
$38.44 (-1.94%) $0.76
RH Stock Quote
RH
RH
$246.07 (-1.77%) $-4.44
The RealReal, Inc. Stock Quote
The RealReal, Inc.
REAL
$1.50 (-0.66%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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