Rent the Runway, Inc. (NASDAQ:RENT) Q1 2026 Earnings Call Transcript

Rent the Runway, Inc. (NASDAQ:RENT) Q1 2026 Earnings Call Transcript June 5, 2025

Rent the Runway, Inc. beats earnings expectations. Reported EPS is $-6.58, expectations were $-7.43.

Operator: Greetings, and welcome to the Rent the Runway’s Quarter 1, 2025 Earnings Call. [Operator Instructions] And as a reminder, this call is being recorded. It is now my pleasure to introduce Cara Schembri, Chief Legal Officer. Thank you, Cara. You may begin.

Cara Schembri: Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q1 2025 earnings presentation, which can be found in the Events & Presentations section of our Investor Relations website. Before we begin, we’d like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the second fiscal quarter of 2025 and the fiscal year 2025 and statements regarding the impact of our business strategies and plans, our ability to drive subscriber growth and customer loyalty in a cost-efficient manner and our planned increases in inventory. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially.

These risks, uncertainties and assumptions are detailed in today’s press release as well as our filings with the SEC, including our Form 10-Q that we plan to file in the coming days. We have no obligation to update any forward-looking statements or information, except as required by law. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our investor website and in our SEC filings. And with that, I’ll turn it over to Jenn.

Jennifer Y. Hyman: Thank you, Cara, and thank you all for joining today. On our last earnings call, we walked you through our plan to transform Rent the Runway as we increase the breadth and depth of our inventory, innovate on our product to give customers what they want and get back to our customer-obsessed roots. In the past quarter, we’ve put this plan into action and we’ve seen very positive results. We drastically increased the desirability and quantity of inventory on the platform with much more to come, launched some of the most highly requested features from our members, including back-in-stock notifications and a customer promise for new and rejoining subscribers and restored our relationship with customers through a revitalized authentic approach to organic, social and customer service.

And as I speak with you today, I’m happy to report that our transformation strategy is working. We’ve seen a return to subscriber growth in Q1, ending the quarter with over 147,000 active subscribers, the most ending subscribers at the end of a quarter in company history. We’ve also seen the strongest quarterly customer retention in 4 years with improved churn rates for both early term and long- term subscribers. Today, I’ll walk through our strategy and the results we’re seeing in more detail as we show our community and the world that Rent the Runway is back. First and foremost, our bold inventory strategy. Rent the Runway provides our customers with a valuable offering, a risk-free way to try new styles and brands that may have previously not been on their radar or in their closets.

Q&A Session

This ability to discover newness is a key reason why so many women love our service. And with the rejuvenated inventory this year, we’re giving her an even greater opportunity to discover new brands and items that she loves. As we detailed on our last earnings call, we are planning our largest ever investment in new inventory this year. Our new brands and styles have already started to roll out on our site and into the hands of our customers. Throughout this transformation, we have been guided by our customer feedback and data so that we can be more specific about the aesthetic of the styles we offer on Rent the Runway, with the ultimate goal of attracting new customers and retaining existing customers. We’ve been focused on building an assortment that resonates with our feminine, polished and playful core customer and we’re building depth across categories that we know our customers desire like denim, outerwear, day dresses, casual everyday clothing, handbags and workwear.

I truly believe that we’ve not only created visual differentiation between us and our competitors, but we’re also well on our way to significantly improving customer loyalty. Q1 inventory volume received was up 24% year-over-year. We launched 36 new brands and over 1,000 new styles that align with what we know our customer is looking for. And we’ve been right. Our customers are more engaged with our selection than ever before. Our Spring 2025 inventory has 23% higher share of views, 46% more hearts and a 14% higher love rate than our Spring buy last year. She’s also adding more to her shipment with April add-on gross bookings up 11% year-over-year. We’ve identified several pillar brands like Veronica Beard, A.L.C., Ulla Johnson and Staud, which drive a higher perception of the value of Rent the Runway when a customer has one of them in her order.

To double down on these pillar brands, we’ve considerably increased our buys from them. We’ve also released 4 new collaborations with Sea, New York, Plan C, Ganni and Simon Miller, and they’re leading the way in customer engagement. The new Simon Miller collection alone drove almost 3 million views. And from a cost perspective, I want to remind you that these collections deliver comparable quality at approximately 40% lower cost on average. We’re excited and proud to be giving customers more styles from the pillar brands they covet and introducing new brands that excite them, and we’re just getting started. We expect that the remainder of the year will be significantly more impactful. In Q2 alone, new receipts are expected to be up over 420% year-over-year.

And for the rest of the year, we expect new receipts to be up 134% year-over-year. We’re also planning to launch over 40 new brands and post over 2,700 new styles. For the designers and brands themselves, we believe that Rent the Runway is now well established as a core marketing channel. We’ve delivered brands an opportunity to reach new customers cost effectively outside of traditional paid marketing channels. We’ve done this by spending the last 15 years building trust with brands and connecting them to our customers. The growth of our revenue share in exclusive design channels are unique to Rent the Runway and a testament to the excitement that brands have to partner with us during a time in which they are losing confidence in other retail channels.

About 20% of items acquired in fiscal year 2019 were exclusive designs and revenue share. This fiscal year, it’s expected to be around 70%. And this momentum is expected to continue. In Q2 alone, we’re planning to expand into 19 new brands, launch 3 new exclusive collections, introduce fresh use cases like beach and tennis and double down on the summer categories our customers crave most when temperatures rise. We expect that the new inventory will continue to have a dramatic effect as more of it hits the site over the course of the year. Two, now let’s walk through our recent product innovations, all of which are in response to direct customer feedback and are designed to make the experience with Rent the Runway best-in-class for every customer.

We know that inventory alone isn’t everything. We want our customers to feel that they are getting the white glove experience they expect from a luxury brand, and we’re investing in the product and customer service experiences designed to deliver on that vision. We’ve introduced multiple enhancements to the product for both new members and for customers who’ve been with us for a while, including back in-stock notifications, our #1 most requested new feature. Now a subscriber can set a notification if she has her eye on a style, but it’s not available at the time she’s building her order. When it’s back in stock, she gets notified and can add it to her next order. People are really excited about this feature. 25% of all subscribers have engaged with it since launch and 48% of those who’ve engaged with it have successfully added a back-in-stock item to their bag after getting a notification.

Secondly, we launched personalized styling support for our early term customers, where stylists help build hearts list, place orders and provide personalized suggestions. We believe that this is a very valuable service to our subscribers, many of whom are professional women that value the extra assistance with discovery and ordering. We provide a complimentary first 30-minute session and have seen a 27% reduction in first month churn when subscribers talk to stylists. We’ve also introduced a 60-day customer promise for all new and rejoining customers. If a customer doesn’t like any of the items in her order during the first 60 days, we’ll send her new items for no cost. We’ve seen that this leads to a 34% reduction in churn. RTR concierge, where new and rejoining customers receive a call from us to explain the service and answering any questions, is another new initiative that members love.

So far, we’ve seen an 18% reduction in churn for those who answered our call and a 14% reduction in churn for those who didn’t answer. This has been so successful that we’re planning to scale it from 50% of new and rejoining subscribers to 100% by the end of Q2. And lastly, we’ve launched a more personalized homepage and browsing experience tailored to what she has happening that month. A key focus for the remainder of the year is to scale these improvements to as many of our subscribers as possible. And we have even more in store. In Q2, we’re planning to launch a new rewards program that will give subscribers perks and rewards to celebrate milestones and key breakpoints. We’re also planning to introduce [ heartening ] progression and more personalized feeds to provide a more curated and personalized subscriber browsing and picking experience.

All of this innovation is rooted in the pod structure we’ve developed for our teams at Rent the Runway. Our 4 pods; retention, revenue, customer growth and inventory, map directly to our strategy and are designed to enable us to simplify and be more agile in the way we introduce new products and serve customers. This has allowed us to ship new features rapidly, respond quickly to customer needs and operate much more efficiently overall. Three, the third area we’ve been focused on has been restoring the relationship with our customers through authentic, transparent branding and communications, along with member experiences for our community. We know that Rent the Runway is an emotional and aspirational product. It’s not purely about renting and purchasing clothing items.

So in Q1, we significantly shifted the tone of our marketing towards transparency and community, showing customers we heard you and getting back to the basics of what this brand is all about. This wasn’t about deploying more marketing dollars. Rather, we employed a customer-centric, radically authentic strategy, ensuring customers felt valued, informed and excited about the changes. We also launched a brand-new organic strategy that broke the fourth wall, meaning we acknowledge the presence of the audience and spoke directly to them through our channels. We engaged with our most opinionated community on Reddit and through a very active Reddit AMA, launched new social features like Instagram Q&A and Jenn Reacts, and introduced a new face of Rent the Runway’s social channels, and it’s working.

The engagement rate on social channels is up 163% since we launched our new strategy in April and May as compared to the 2 months prior. I am also personally still responding to customer e-mails and feedback that comes my way and very actively engaging with our customers regularly. Lastly, we reintroduced member-first experiences, engaging hundreds of members, both online and in real life. We kicked off the We Heard You Hybrid Webinar, which allowed our community to hear directly from our leadership team on what’s to come. We also hosted a Women @ Work styling event, a RIXO exclusive design preview, a Meet the Drop Event that drew over 350 attendees. All of these are examples of how we’re bringing the power of our community back in-person and virtually.

In conclusion, we are confident that our new strategy is working. Thanks to the new inventory and product innovation, our quarterly customer retention is the strongest it’s been in 4 years. In Q1 2025, we experienced our greatest year-over-year and quarter-over- quarter Q1 churn improvements since the pandemic recovery period. We’re incredibly excited about the early signals that this inventory strategy is driving results and believe the best is yet to come. We think this is only the beginning, and we’re optimistic and excited. We created this category, and we know where it’s going. With that, I’ll hand it over to Sid.

Siddharth B. Thacker: Thanks, Jenn, and thank you, everyone, for joining us. As Jenn outlined in her remarks, the key message in this quarter’s results is that we believe our inventory and product strategies are working. Our teams are energized and we are finding ways to improve our customers’ experience every day. We believe our significant inventory investments this year will continue to drive retention as customers experience the full impact of the new arrivals in May and in the months to follow. Let me spend a few minutes discussing why it’s taken until fiscal year 2025 to put these plans into action and how we expect fiscal ’25 to unfold. Over the past 2 months, I’ve been asked by new and existing investors why it’s taken us so long to implement the strategies we’re executing on in fiscal ’25.

Indeed, some investors have indicated that, for the first time, they feel like Rent the Runway wants to grow. Let me begin in fiscal ’22. We had emerged from COVID with a similar sized subscriber base as existed before COVID, but with a relatively small amount of inventory purchased in the intervening period. Over time, we focused on increasing depth and exiting older inventory within the context of managing our cash consumption and our balance sheet. In order to continue funding improvements to our customer experience, we substantially reduced costs in fiscal ’22 and fiscal ’23 and made significant strides in moving to an asset-light inventory acquisition model. In fiscal ’24, we brought the business to almost free cash flow breakeven to demonstrate to stakeholders both the strength of our underlying revenue base as well as our sound unit economics.

Finally, in fiscal ’25, armed with a rightsized cost structure, brands willing to provide more than double the amount of Share by RTR inventory and having already demonstrated progress on cash flow in fiscal ’24, we are ready to invest. While it hasn’t been easy, we’re proud of the considerable progress made over the past 3 years. And yes, we are ready to grow. Let me discuss fiscal ’25. Jenn has already outlined how fiscal ’25 is off to a good start with the fastest sequential growth in ending active subscribers in Q1 versus Q4 over the last 4 years. An important driver of that growth is significantly improved retention on both a sequential and year-over-year basis. We believe we can improve retention further in fiscal ’25, given the planned build-up of inventory throughout the year as well as new product launches.

We also expect subscriber acquisitions to benefit from our investments in fiscal ’25, albeit with a lag to retention improvements as customers tell others about the positive changes they are seeing at Rent the Runway. We expect acquisition improvements to also be driven by improved organic marketing as well as higher levels of promotional spending to expose more customers to our improved offering. Our results for Q1 demonstrated these trends; improved subscriber growth with revenue growth lagging subscriber growth due to higher promotional spending. The good news is that we’ve reactivated both paused and former customers successfully in Q1. And so far, retention for those subscribers is better than we’ve seen historically. We expect continued improvement in ending active subscriber growth throughout the fiscal year.

As I will also outline shortly, we will not hesitate to invest further in the customer proposition if we think it is prudent. I will now review results for the first quarter before providing Q2 and full year 2025 guidance. We ended Q1 ’25 with 147,157 ending active subscribers, up approximately 1% year-over-year. Average active subscribers during the quarter were 133,468 subscribers versus 135,896 subscribers in the prior year, a decrease of 1.8%. Ending active subscribers increased from 119,778 subscribers at the end of Q4 2024 due primarily to sequentially higher subscriber acquisitions, higher promotional spending, a decrease in paused subscribers and improved retention. Total revenue for the quarter was $69.6 million, down $5.4 million or 7.2% year-over-year, and down $6.8 million or 8.9% quarter- over-quarter.

Subscription and reserve rental revenue was down 6.2% year-over-year in Q1 ’25, primarily due to lower average revenue per subscriber, driven by increased promotional spend and lower average subscribers versus Q1 ’24. Other revenue decreased 14.6% or $1.3 million year-over-year. Fulfillment costs were $20.4 million in Q1 ’25 versus $20.6 million in Q1 ’24 and $20.2 million in Q4 ’24. Fulfillment costs as a percentage of revenue were 29.3% of revenue in Q1 ’25 compared to 27.5% of revenue in Q1 ’24. Fulfillment costs primarily reflect higher transportation costs as a result of carrier rate increases. Gross margins were 31.5% in Q1 ’25 versus 37.9% in Q1 ’24. Q1 ’25 gross margins reflect higher revenue share costs as a percentage of revenue due to greater Share by RTR inventory, in addition to higher fulfillment costs as a percentage of revenue.

Q1 ’25 gross margins decreased quarter-over-quarter to 31.5% from 37.7% in Q4 ’24 due primarily to seasonally higher revenue share payments combined with higher fulfillment costs as a percentage of revenue. Sequentially higher fulfillment costs as a percentage of revenue reflect lower revenue per order as we chose to sell less inventory this quarter to increase inventory available for subscribers. Operating expenses was 6% lower year-over-year due primarily to lower stock-based compensation expenses. Total operating expenses, which include technology, marketing and G&A were 55.9% of revenue in Q1 ’25 versus 55.2% of revenue in Q1 ’24 and 44% of revenue in Q4 ’24. Adjusted EBITDA for Q1 ’25 was negative $1.3 million or negative 1.9% of revenue versus $6.5 million or 8.7% of revenue in Q1 ’24.

The decrease in adjusted EBITDA versus the prior year is primarily a result of lower revenue and higher revenue share expenses. Free cash flow for Q1 ’25 was negative $6.4 million versus negative $1.4 million in Q1 ’24. Free cash flow decreased versus the prior year, primarily due to lower adjusted EBITDA and higher purchases of rental product on account of our inventory strategy for fiscal year 2025. I will now discuss guidance for Q2 ’25 and fiscal year 2025. Our full year guidance remains unchanged. We continue to expect double-digit growth in ending active subscribers for fiscal year 2025. We also continue to expect full year cash consumption to be between negative $30 million and negative $40 million. As I outlined last quarter, I want to emphasize that this free cash flow range is indicative with many factors that may influence the final result.

The overarching message remains that Rent the Runway is playing offense and that we intend to invest prudently when it makes sense for our customers, even if that results in free cash flow outside the provided ranges. Let me now discuss Q2 guidance. For Q2 ’25, we expect revenue to be between $76 million and $80 million. We expect adjusted EBITDA margins to be between negative 2% and 2% of revenue. Finally, let me reiterate my comments on tariffs from our April earnings call. Our guidance does not factor in any potential impact from tariffs given all the uncertainties. We believe we are fortunate that we directly import a relatively small portion of inventory and have placed orders for the majority of our inventory receipts for fiscal year ’25.

However, there is no guarantee that this will mitigate any impact. It’s also difficult to predict customer behavior, but we believe renting does offer substantially greater value for consumers versus buying. We are mindful that the environment remains uncertain and plan to operate prudently in the months ahead. In conclusion, we’re pleased to see customers respond enthusiastically to our significant investment in inventory in fiscal 2025. The energy from both our customers and employees is palpable. Our brand messaging is authentic. We have more to do, but believe we are firmly on the right track.

Jennifer Y. Hyman: Thanks for the call today, and we look forward to continuing to update you on Rent the Runway.

Operator: Great. Thank you. And with that, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.