Rent the Runway Reports Mixed Q2 Financial Results
Revenue Growth and Profitability Challenges
Rent the Runway Inc. (NASDAQ: RENT), a leader in reshaping women’s fashion with its pioneering Closet in the Cloud concept, has released its financial results for the fiscal second quarter (Q2) ending July 31, 2024. The company reported a 4.2% increase in revenue, reaching $78.9 million, up from $75.7 million in the same period last year. This growth, however, has been overshadowed by a significant decline in the company’s stock price following the announcement.
Rent the Runway Q2 Results
Detailed Financial Metrics
The company’s gross profit for Q2 2024 was reported at $32.4 million, reflecting a slight decrease of 2.4% compared to the $33.2 million recorded in Q2 2023. The gross margin also narrowed to 41.1% from 43.9% in the previous year. Despite these challenges, Rent the Runway’s net loss narrowed to $(15.6) million, an improvement from $(26.8) million a year ago. As a percentage of revenue, the net loss decreased to (19.8)% from (35.4)% in the prior year.
Adjusted EBITDA showed notable improvement, rising to $13.7 million from $7.7 million in Q2 2023. The adjusted EBITDA margin also improved significantly to 17.4%, up from 10.2% in the same quarter last year.
Rent the Runway Q2 Results – Subscriber Metrics and Market Dynamics
As of July 31, 2024, Rent the Runway had 129,073 active subscribers, a 6% decrease from 137,566 in Q2 2023. The average number of active subscribers fell by 3% to 137,455. Additionally, the total number of subscribers decreased by 5% to 175,087.
Operational Enhancements and Strategic Focus
During the second quarter, Rent the Runway achieved several operational milestones. Free cash flow consumption improved to $6 million for the six months ending July 31, 2024, marking a reduction of $24 million compared to the same period in 2023 and $48 million lower than in 2022. The company has reaffirmed its commitment to achieving free cash flow breakeven within this fiscal year.
The company reported strong momentum in its Reserve offering, driven by a renewed focus on operational improvements and product enhancements. This has led to a better customer experience and higher rejoin rates among former subscribers. Additionally, the company has made significant strides in enhancing its site performance, resulting in faster load times and lower bounce rates, which are expected to boost organic traffic.
Rent the Runway Q2 Results – Leadership Perspectives
Jennifer Hyman, Co-Founder, President, and CEO of Rent the Runway, shared her insights on the company’s progress. “Rent the Runway is at an exciting inflection point,” Hyman stated. “Our revenue growth and profitability improvements demonstrate that our business strategies are working. The significant progress in our Reserve business and strong repeat subscriber acquisition are promising signs of our ongoing success.”
Sid Thacker, CFO, expressed confidence in the company’s performance. “We have seen improved momentum in Q2 2024,” Thacker said.
“Revenue growth has improved for the third consecutive quarter, leading us to raise our full-year revenue guidance. The Reserve business’s performance and the continued strength in our Subscription and Resale businesses highlight our positive trajectory.”
Stock Performance and Market Metrics
Rent the Runway’s stock is currently valued with a market cap of $40.01 million and a trailing twelve-month revenue of $302.20 million. Despite these revenues, the company reports a net income loss of $93.90 million. With 3.72 million shares outstanding, the earnings per share (EPS) stands at -$26.12. The stock’s price fluctuated between $10.50 and $13.99 today, opening at $13.65 and closing at $15.08. Over the past year, the stock has traded within a 52-week range of $4.46 to $41.81. It has a beta of 1.09, indicating moderate volatility, and is currently rated as a “Buy” by analysts, who have set a price target of $26.78, reflecting a potential upside of 149.09%.
Strategic Growth Initiatives
Rent the Runway (RTR) is leveraging a range of strategies to drive growth. The company is focusing on improving search engine optimization (SEO) to boost organic traffic and enhance customer engagement.
“Our improved site experience, combined with enhanced merchandising, is designed to set us up for success in the second half of the year,” said Jennifer Hyman, CEO of Rent the Runway. These efforts include a revamped approach to marketing, emphasizing timely and engaging content. Monthly campaigns celebrating iconic women and the expansion of the college ambassador program are central to this initiative.
Expanding In-Person Engagement
RTR is also reenergizing its in-person presence. This fall, the company is launching a Southeast roadshow and mobile tour, targeting universities with strong Greek life and sports culture. This tour aims to capture the attention of Generation Z and expand RTR’s market share.
“In real-life events, we’ve seen hundreds of women standing around the block to get in,” Hyman said. “Reigniting marketing will not only drive higher organic traffic but also increase customer engagement.”
Focus on Reserve Business and Customer Relationships
Hyman outlined RTR’s key priorities: expanding its Reserve business, boosting organic traffic, and deepening customer relationships. The company’s improvements in customer experience have also helped attract former customers back.
“Over the past three years, we’ve focused heavily on cost and profitability,” Hyman said. “Now, we’ve repositioned the company around growth, and I’m confident that growth is coming for RTR.”
SEO and Organic Traffic
A core goal for RTR is increasing organic traffic through SEO and building strong customer loyalty. “SEO is a big part of our strategy,” Hyman added, “but making customers fall in love with the brand is just as important. I’m excited for what’s ahead.”
Future Outlook and Guidance
Looking ahead, Rent the Runway has provided guidance for the fiscal third quarter of 2024. The company anticipates revenue between $75 million and $77 million and expects an adjusted EBITDA margin of 13% to 15%.
For the full fiscal year 2024, Rent the Runway is projecting revenue growth of 2% to 6% compared to fiscal year 2023, an increase from previous forecasts. The adjusted EBITDA margin is expected to be between 15% and 16%. The company remains committed to achieving free cash flow breakeven for the fiscal year.
Rent the Runway Q2 Results – Market Reaction
Despite the positive developments in revenue growth and operational improvements, Rent the Runway’s stock is experiencing a notable decline. The market’s reaction to the Q2 results of Rent the Runway underscores ongoing concerns about profitability and subscriber metrics. The company’s commitment to improving its business model and financial performance will be closely watched in the coming quarters.
As Rent the Runway moves forward, the focus will be on how effectively it can maintain revenue growth, enhance customer experience, and achieve its financial targets. Investors and analysts will be keenly observing these developments to gauge the company’s future trajectory.
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