REAL: A Misunderstood Tariff Beneficiary Hiding in Plain Sight

Why we've decided to look at this opportunity after an >50% drawdown from recent highs

Paul Cerro

Apr 17, 2025

∙ Paid

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Hello everyone,

We apologize for not sending out reports sooner. As you can imagine, with the recent volatility, it’s becoming increasingly difficult to get to new ideas while trying to actively hedge your portfolio from getting smoked.

But now that some dust has settled with the 90-day pause, we’re happy to share with you a new idea that we are long, which we disclosed to subs in the chat a bit ago.

First and foremost, we’re not going to get the timing right on this investment. Flat out.

With so much uncertainty in the markets that can rip or dip with a single tweet, we can’t gauge a “perfect time” to hop in this or size up. However, that doesn’t mean that presenting the idea to you all won’t be valuable, as you determine for yourselves if it makes sense.

For us, we liked the idea before tariffs were put in place, and believe it’s gotten quite interesting now that tariffs are in place. Given that nearly everything is collateral damage these days, we think that the market hitting the name hard leaves a better starting opportunity for investors than even a mere month ago.

If you’re new here, don’t forget to check our table of contents to see all our ideas in one succinct place.

With that, let’s get into it.

The RealReal (REAL) has done well to implement a turnaround strategy for its business ever since bottoming out in 2022, and continues to implement those changes today which has led to an >60% return in the last year.
Improvements in cost efficiencies (take-rates, restructuring, technology, etc) have led to gross margin improvement of +1,675 bps (FY’22 → FY’24) and achieving positive adj. EBITDA and FCF in the most recent year.
A restructuring of their convertible notes has reduced overall debt and extended the majority to at least 2029, allowing for a better runway for turnaround improvements.
Further investments in technology (AI) and revenue mix to higher-margin consignment revenue will help increase operating leverage over time.
Second-hand luxury market is growing >2x as fast as the traditional luxury market (11.6% vs 5.2%), leading to stronger, natural tailwinds.
ZERO tariff exposure to products; inventory is directly sourced from domestic suppliers (consignors) and sold in the U.S. → No international sourcing exposure.
Luxury market tends to be more recession resilient than regular retail during downturns, which could help REAL benefit from those looking to offload supply and others to buy “value-based” second-hand luxury goods.
We see that over time, post the Trump tariff war, REAL could fetch >$10/share, supported by strong tailwinds and continued operational leverage improvements.

Quick Company Overview

The RealReal (REAL), or “TRR”, is a very simple business to understand. They are a marketplace (both online and in-store) for secondhand luxury goods to be sold. The keywords there are luxury and secondhand. This is so that the business model is not to be confused with any secondhand merchandise or brand new (fresh from the factory) items.

For conducting business, TRR sources its supply (consignors) by various options (online consignment, in-store, or manager pick-up) that agree to a 365 agreement for the inventory to be on the platform.

Once the product has arrived at their facility, it is then authenticated (not fake), deemed sellable (if not, it’s sent back), and then placed online or in-store to be sold to value-oriented luxury shoppers.

If the item sells, the company takes a fee (take-rate) for its services and immensely negates any shipping costs from both the consignor and buyer.

This has allowed TRR to establish itself as a premier second-hand luxury marketplace that connects consignors looking to sell their gently used or vintage luxury goods to buyers who are either looking for older, unique pieces or just don’t want to pay the full price of a brand new luxury item and will pay for past collections.

Reflected in TRR becoming a second-hand luxury marketplace is its overall GMV they’ve sold on the platform. Since 2017, the company has grown GMV at a 24.2% CAGR through the end of 2024, which would fall to a 22% CAGR over 8 years if they end up hitting their midpoint GMV target for FY’25.

Before we dive into the opportunity presented to us, we need to understand what went wrong in the first place and how its turnaround strategy is currently unfolding since its Q3’24 earnings that returned ~3x in two months.

The Turnaround

Since going public back in June of 2019, the company has had a hard time justifying its business model and its valuation since coming out of COVID.

The stock has sold off significantly once the pandemic ended and has more or less been treading water within the $1 - $3/share range for quite some time. However, there were reasons for this, and the steps the company has taken to right the ship have started to become realized in the bottom line.

Let us first tell you what went wrong and then highlight the changes that they made, which will be further supported by natural tailwinds and even possibly under the new Trump tariffs.

Cedar Grove Capital Management