Business Overview
Rent the Runway, Inc. is a pioneering company that is disrupting the trillion-dollar fashion industry and changing the way women get dressed. Founded in 2009, RTR's mission has remained the same since its inception - to empower women to feel their best every day. Through its innovative platform, the company offers customers the ability to subscribe, rent items à-la-carte, and shop resale from hundreds of designer brands.
The Closet in the Cloud, as RTR calls it, provides access to a wide assortment of millions of items for every occasion - from evening wear and accessories to ready-to-wear, workwear, denim, casual, maternity, outerwear, blouses, knitwear, loungewear, jewelry, handbags, activewear, and ski wear. RTR has built a two-sided discovery engine that connects deeply engaged customers with differentiated brand partners on a powerful platform built around the company's brand, data, logistics, and technology.
RTR operates in two primary business segments: Subscription and Reserve Rental Revenue, and Other Revenue. The Subscription and Reserve Rental Revenue segment, which includes the company's subscription plans and a-la-carte rentals, represented 87.5% of total revenue in the six months ended July 31, 2024. The Other Revenue segment, primarily consisting of sales of rental products to customers at discounted prices, accounted for 12.5% of total revenue during the same period.
Company History
Rent the Runway was founded by Jennifer Hyman and Jennifer Fleiss with the goal of pioneering the world's first shared designer closet. In its early years, the company focused on building partnerships with hundreds of designer brands and establishing its logistics and operations capabilities to support the rental model. This strategy proved successful, leading to rapid growth and recognition. By 2018, RTR had expanded its offerings beyond just evening and occasion wear, allowing customers to rent items for everyday use as well.
However, the company faced significant challenges during the COVID-19 pandemic in 2020. With the decline in social events and occasions, demand for RTR's rental services plummeted, forcing the company to make difficult decisions, including layoffs, to weather the storm. Despite these setbacks, RTR persevered and continued to innovate. In 2021, the company went public on the Nasdaq exchange, raising $327 million in its IPO. By 2023, Rent the Runway had served approximately 3 million lifetime customers across its subscription, a-la-carte rental, and resale offerings.
Under the visionary leadership of Co-Founder and CEO Jennifer Hyman, RTR has been recognized as a disruptive force in the industry. The company has been named to CNBC's "Disruptor 50" list five times in ten years and has been featured on Fast Company's Most Innovative Companies list four times. Hyman herself has been named to the "TIME 100: Most Influential People in the World" and as one of People Magazine's "Women Changing the World."
RTR's unique business model and relentless focus on innovation have allowed the company to navigate the challenges of the highly competitive and rapidly changing global fashion industry. Despite the macroeconomic headwinds, RTR has demonstrated its ability to adapt and continue driving growth and profitability.
Financials
In the fiscal second quarter of 2024, RTR reported revenue of $78.9 million, a 4.2% increase year-over-year, exceeding the high end of the company's guidance range of $76 million to $78 million. This growth was driven by a combination of strong performance in the Reserve offering, improved subscriber retention, and increased focus on the resale business. Notably, the company's Adjusted EBITDA for the quarter was $13.7 million, or 17.4% of revenue, marking the ninth consecutive quarter of positive Adjusted EBITDA and exceeding the high end of the guidance range of 14% to 15%.
For the six months ended July 31, 2024, RTR's total revenue was $153.90 million, up 2.7% year-over-year. The company reported a gross profit of $60.80 million, with a gross margin of 39.5%. However, RTR still recorded a net loss of $37.60 million, with a net loss margin of 24.4%. Adjusted EBITDA for the same period was $20.20 million, with an Adjusted EBITDA margin of 13.1%.
Looking at the most recent fiscal year (2024), RTR reported revenue of $298.20 million, with a net loss of $113.20 million. Operating cash flow was negative $15.70 million, and free cash flow was negative $98.20 million.
RTR's continued focus on improving the customer experience, enhancing its technology platform, and diversifying its marketing channels has been a key driver of its recent success. The company has made significant investments in upgrading its website and mobile application, streamlining the checkout process, and optimizing its inventory management to better serve its customers.
One of the areas where RTR has seen particularly strong momentum is in its Reserve offering, which allows customers to rent dresses and accessories à-la-carte. In the second quarter, the company dedicated a new cross-functional team to focus on reinvigorating this part of the business, and the results have been impressive. Orders in the Reserve business were up around 10% year-over-year in July and 20% in August, with new customer growth into Reserve up approximately 50% year-over-year.
RTR has also made strides in improving its marketing efforts, with a focus on diversifying its channels and creating more aspirational and engaging content. The company has seen success with its marketing on platforms like TikTok and Pinterest, and it plans to ramp up its brand marketing efforts in the second half of the year, which it hopes will further catalyze growth in organic traffic.
On the inventory front, RTR has executed successfully on its depth strategy in fiscal year 2023, which has resulted in increased demand for its 2024 product assortment. Looking ahead to 2025, the company plans to solidify its position as the fashion leader in the rental space by refreshing its assortment and leaning into its strength in dresses.
Liquidity
Despite the challenges posed by the macroeconomic environment, RTR has demonstrated its resilience and ability to adapt. The company has taken decisive actions to reduce its cost structure, including a restructuring plan announced in January 2024 that is expected to generate annual operating expense savings of approximately $12 million. Additionally, RTR has renegotiated its credit facility, which has significantly reduced its interest expense and improved its overall liquidity position.
As of the most recent quarter, RTR reported $76.60 million in cash and cash equivalents, along with $10.00 million in restricted cash. The company's debt-to-equity ratio stands at -2.095, reflecting its current financial structure. RTR maintains a $319.80 million credit facility with Temasek Holdings, maturing in October 2026. This facility was recently amended to eliminate all interest for six quarters and reduce the minimum liquidity covenant from $50.00 million to $30.00 million, providing additional financial flexibility.
The company's current ratio and quick ratio both stand at 1.92, indicating a reasonable ability to meet short-term obligations. However, RTR continues to focus on improving its liquidity position and achieving sustainable profitability.
Outlook
Rent the Runway's strong performance in the second quarter, coupled with its strategic initiatives and improved financial footing, have positioned the company well to continue on its path of growth and profitability. For the third quarter of 2024, RTR is guiding for revenue between $75 million and $77 million, implying 3% to 6% year-over-year growth. The company also expects adjusted EBITDA margins of 13% to 15% for the same period.
Looking at the full year 2024, RTR has raised its revenue guidance to 2% to 6% growth compared to fiscal 2023. The company has also reiterated its commitment to achieving free cash flow breakeven for the fiscal year.
As RTR navigates the evolving fashion landscape, the company's innovative business model, focus on the customer experience, and commitment to sustainability have the potential to drive long-term success. The company continues to face challenges from macroeconomic conditions, competition in the fashion industry, and the need to effectively manage its supply chain and logistics. However, with its multi-channel sourcing strategy, including Wholesale, Share by RTR, and Exclusive Designs, RTR is working to optimize its inventory management and reduce rental product capital expenditures.
The global fashion industry remains highly competitive and rapidly changing, with RTR facing competition from traditional and online retailers as well as other rental companies. The company's success will depend on its ability to attract and retain customers, manage its supply chain effectively, and control costs while continuing to normalize the concept of renting clothing in the broader market.
With a talented leadership team, a differentiated product offering, and a growing customer base, Rent the Runway is poised to capitalize on the significant opportunities ahead and solidify its position as a disruptive force in the industry. As the company continues to execute on its strategic initiatives and adapt to changing market conditions, it remains well-positioned to drive long-term growth and value for its stakeholders.