The RealReal Earnings: Shaving our Fair Value by 60% as Forward Prospects Look Really Challenging

Ouch. No-moat The RealReal posted forgettable first-quarter earnings, with 4% annualized gross merchandise volume growth and a 17% annual decline in orders per buyer leaving beleaguered investors in the luxury consignment marketplace feeling ill. While the firm's $142 million in sales and $0.46 EPS loss aligned with our $145 million and $0.45 loss estimates, respectively, a $36 million restructuring charge (representing more than 25% of the firm's current market cap) and guidance for GMV declines during 2023 severely shook our confidence in the firm's long-term prospects. We expect to lower our fair value estimate by about 60% on slower-than-expected near-term GMV growth and the proportionately lower long-term operating margins that sales deleverage espouses, concurrently lowering our Capital Allocation Rating to Poor from Standard.