Rent the Runway touts subscriber growth but faces challenges

Dive Brief:

Rent the Runway reached record-high active subscriber numbers in the first quarter of its fiscal year with more than 145,000, a 7.6% increase from the same period last year.
The active subscribers are up 15% quarter over quarter, yet Rent the Runway is predicting a drop for Q2. Company leaders still expect to end the year with 25% growth in active subscribers.
In the quarter, Rent the Runway launched “Rent the Look,” which allows customers to rent a complete outfit. In the coming weeks, the company also plans to beta launch artificial intelligence features to boost the search feature on its website.

Dive Insight:

In its earnings call, Rent the Runway CFO Sid Thacker spoke to investors about the company's plans to reach 25% subscriber growth year over year despite past subscriber losses, which traditionally have plagued the company in fourth quarter reports. Earlier in the call, Thacker cautioned that Rent the Runway already expected active subscribers to be lower in the second quarter than in the first.

“Last year, we did see a decline in Q4. I mean, if I look at the pacing of product improvements and the inventory build that we have this year, I feel very optimistic that the entirety of the second half is going to be positively affected by that, right?” Thacker said in the call. “So, I'm not going to sit there and guide necessarily to what Q4 is going to look like relative to Q3, except to say that we've already provided ... a confident outlook in terms of plus-25% subscriber growth. So, we'll leave it at that. So that's what we expect to hit. And I think we feel, given the product improvements we have, very confident in that outlook.”

The company experienced increased revenue from the same quarter last year — $74.2 million, a 10.6% increase — but it experienced a net loss of $30.1 million in the quarter and a net margin of 40.6%.

Rent the Runway’s gross profit for the quarter was $31.4 million, a 39.6% increase from the same period a year prior.

Rent the Runway is seeing an increased demand for workwear at a rate similar to pre-COVID levels, which the company said would provide a positive tailwind for its business, it said in the earnings call.

This quarter, Rent the Runway launched a text-based concierge service that offered one-on-one communication with the customer service team, which focused on onboarding new subscribers.

The company has experienced challenges to reach profitability. Last year, it announced it would lay off nearly a quarter of its staff to restructure and prioritize profitability, which it estimated would save them between $25 million and $27 million in annual expenses.

Over recent years Rent the Runway has diversified its business model by introducing new subscription tiers, dropping unlimited rental, and adding children’s clothes and home decor offerings among others. Earlier this year, it partnered with Amazon Fashion to launch an online storefront.