Rent the Runway’s losses narrow as company edges closer to profitability

Rent the Runway’s losses narrowed in its fiscal fourth-quarter earnings reported Wednesday as the digital retailer continues to streamline its costs and work toward profitability.

Despite the improvements, the company’s fiscal 2023 and first-quarter outlook fell short of analysts’ estimates. Its share price fell more than 6% in after-hours trading.

Here’s how the fashion-rental company performed in the fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Loss per share: 40 cents vs. 51 cents expected
• Revenue: $75.4 million vs. $75.2 million expected

The company’s reported net loss for the three-month period that ended January 31 was $26.2 million, or 40 cents per share, compared with a loss of $39.3 million, or 62 cents per share, a year earlier.

Sales rose to $75.4 million, up 18% from $64.1 million a year earlier.

In the first quarter of fiscal 2023, the company expects revenue in the range of $72 million to $74 million, lower than the $76.8 million analysts had projected, and an adjusted EBITDA margin of 2% to 3%.

For the full year, the company expects revenue in the range of $320 million to $330 million. Analysts had been expecting full-year 2023 revenue of $346 million, according to Refinitiv consensus estimates.

It projects an adjusted EBITDA margin of 7% to 8% and a year-over-year reduction in cash spend of almost 50%.

Rent the Runway, which offers subscription services to rent clothing and accessories and also offers the service a la carte, has been charting a path to profitability after a roller coaster couple of years decimated its market cap and sent its share price plunging.

Amid the Covid pandemic, the company took a hit when consumers suddenly didn’t have a need to rent clothes and accessories for work and parties. Since then, its subscriber count has rebounded, hitting a record in April after it changed its subscription model.

In March, the company permanently added an extra item to every shipment to improve its value proposition to customers, and as of April 8, the company marked 141,205 active subscribers, the highest active subscriber count the company has seen since its inception in 2009. Active subscribers excludes those with paused memberships.

“That launch delivered 25% more value to our consumers with minimal impact to our gross margins. So we were able to deliver value while, you know, keeping these really financially healthy, gross margins,” Rent the Runway co-founder and CEO Jennifer Hyman told CNBC.

“And we’re seeing a few different benefits. We’re seeing first, improvements in loyalty across the customer base. We’re seeing improvements in rejoin rates, so people that had churned in the past are coming back to the business, and we’re seeing improvements in pause reactivations, so people who had formerly been in a state of pause are reactivating,” Hyman said.

At the end of the fiscal year, Rent the Runway had 126,712 active subscribers, a 10% increase compared to the year-ago period. In total, the company counted 171,998 subscribers, which includes people with paused subscriptions. That’s an 8% year-over-year increase from the end of the prior fiscal year.

The company expects its active subscriber count to grow by more than 25% in the next fiscal year.

Investors have been watching to see when Rent the Runway will achieve profitability, which Hyman said will come from growing its subscriber base and is just a “stone’s throw away.”

“When we are at 185,000 subscribers, we will have reached free cash flow profitability on a maintenance basis and that means that we can cover all of our fixed costs, variable costs and the cost of our inventory to serve those 185,000 subs,” Hyman said.

“The majority of our internal company resources are put against improving and innovating the customer experience,” she said. “We’ve already built the infrastructure that we need to scale, we built the technology, we built the operations, so now we can put all of our headcount against improving customer experience.”

Also on Wednesday, the company announced that Chief Financial Officer Scarlett O’Sullivan will transition out of her role on May 25 and Sid Thacker, a current senior vice president, will take over. O’Sullivan will temporarily stay on as an advisor after exiting the role.

Read the full earnings release here.