Hire the Runway (RENT) Income This autumn 2022

Rent the runway Losses narrowed in fourth-quarter results reported Wednesday as the digital retailer continues to streamline costs and work toward profitability.

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

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Here’s how fashion rentals performed in the fourth quarter versus Wall Street expectations, based on a survey of analysts by Refinitiv:

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

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

Revenue rose to $75.4 million for the quarter, up 18% from $64.1 million a year earlier.

In the first quarter of fiscal 2023, the company expects revenue of between $72 million and $74 million, down from analysts’ guidance of $76.8 million, and an adjusted EBITDA margin of 2% to 3%.

For the full year, the company expects sales of between $320 million and $330 million. Analysts had expected full-year 2023 revenue of $346 million, according to Refinitiv consensus estimates.

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

Rent the Runway, which offers subscription services for renting clothes and accessories and also offers a la carte service, has embarked on a path to profitability after a couple of years of roller-coaster rides decimated its market cap and plummeted its share price.

Amid the Covid pandemic, the company took a hit when consumers suddenly no longer felt the need to rent clothes and accessories for work and parties. Since then, the number of subscribers has recovered, hitting a record high in April after the subscription model was changed.

In March, the company permanently added an additional article to each show to enhance its value proposition to customers, and as of April 8, the company had 141,205 active subscribers, the highest active subscriber count since its inception in 2009. Active subscribers include those with paused memberships.

“This launch has brought 25% more value to our consumers with minimal impact on our gross margins. So we’ve been able to deliver value while maintaining those really financially healthy gross margins,” Rent the Runway co-founder and CEO Das told CNBC, Jennifer Hyman.

“And we see a couple of other benefits. First, we’re seeing improvements in loyalty across the customer base. We’re seeing improvements in re-entry rates, allowing people who had churned in the past to return to the organization, and we’re seeing improvements in pause reactivation, allowing people who were previously in a paused state to reactivate.”

At the end of the fiscal year, Rent the Runway had 126,712 active subscribers, a 10% increase over the same period last year. In total, the company counted 171,998 subscribers, including people with paused subscriptions. That’s an 8% year-over-year increase since the end of fiscal 2021.

The company expects its active subscriber base to grow more than 25% over the next fiscal year.

Investors have been watching when Rent the Runway will achieve profitability, which Hyman says will result from expanding its subscriber base and is “a stone’s throw away.”

“By the time we get to 185,000 subscribers, we will have achieved free cash flow profitability on a maintenance basis, and that means we can cover all of our fixed costs, variable costs and the cost of our inventory to service those 185,000 subscribers,” Hyman said .

“Most of our internal company resources are directed towards improving and innovating the customer experience,” she said. “We’ve already built the infrastructure we need to scale, we’ve built the technology, we’ve built operations, so now we can devote our entire workforce to improving the customer experience.”

Also on Wednesday, the company announced that Scarlett O’Sullivan, chief financial officer, will step down effective May 25 and will be replaced by Sid Thacker, the company’s current senior vice president. O’Sullivan will remain as an advisor on an interim basis following the termination of the role.

Read the full results announcement here.