Rent the Runway RENT Q1 2025 Earnings Transcript

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ETCALL PARTICIPANTSChief Executive Officer — Jennifer HymanChief Financial Officer — Siddharth ThackerNeed a quote from one of our analysts. [ tected]RISKSCFO Siddharth Thacker stated that gross margins (GAAP) decreased to 31. 5% in Q1 FY2025, down from 37. 9% a year earlier and 37. 7% in the previous quarter, due to higher revenue costs and increased fulfillment costs

April add-on gross bookings increased 11% year over year (all metrics as reported for FY2025)

Customer Retention: Achieved the strongest quarterly retention in four years

SUMMARYRent the Runway dered record quarter-end active rs and demonstrated sequential r growth in Q1 FY2025, despite reporting a year-over-year decline in both average active rs and total revenue

The company faced compression in gross margin and negative free cash flow due to higher revenue expenses, increased inventory investment, and rising fulfillment costs

CFO Siddharth Thacker said, "Our full-year guidance remains unchanged. " indicating that major strategic and financial targets are intact despite short-term margin pressures

Operational discipline continues, with leadership stating willingness to "invest prudently when it makes sense for our customers, even if that results in free cash flow outside the vided ranges. "INDUSTRY GLOSSARYRevenue Inventory: Merchandise supplied by brands or designers where Rent the Runway, Inc

Pays a of rental revenue rather than purchasing outright

By RTR Inventory: Items cured through Rent the Runway, Inc. 's revenue agreements rather than traditional wholesale purchase

Hearts/Love Rate: User engagement metrics specific to Rent the Runway, Inc. , tracking customer preference and interaction with inventory selections

RTR Concierge: A gram viding direct outreach and customer support to new and returning rs to boost retention and education

Full Conference Call TranscriptJennifer 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, Inc

As we increase the breadth and depth of our inventory, innovate on our duct 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 mise for new and rejoining rs, and restored our relationship with customers through a revitalized authentic apach 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 also seen the strongest quarterly customer retention in four years, with imved churn rates for both early-term and long-term rs

Today, I'll walk through strategy and the results we're seeing in more detail as we show our community and the world that Rent the Runway, Inc

First and foremost, our bold inventory strategy

Vides 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 closet

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 back and data, so that we can be more specific the aesthetic of the styles we offer on Rent the Runway, Inc

With the ultimate goal of attracting new customers and retaining existing customers

We've been focused on building an asment that resonates with our feminine, polished, and playful core customer

And we're building depth across that we know our customers desire, 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 imving customer loyalty

Our customers are more engaged with our selection than ever before

We've identified several pillar brands Veronica Beard, AL Ola Johnson, and Stodd, which drive a higher perception of the value of Rent the Runway, Inc

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 four new collaborations with Sea New York, Plan C, Ghani, and Simon Miller, and they are leading the way in customer engagement

We're excited and ud to be giving customers more styles from pillar brands they covet and introducing new brands that excite them

And we are just getting started

We expect that the remainder of the year will be significantly more impactful

For the designers and brands themselves, we believe that Rent the Runway, Inc

Is now well established as a core marketing channel

We've dered brands an opportunity to reach new customers outside of traditional paid marketing channels

We've done this by spending the last fifteen years building trust with brands and connecting them to our customers

The growth of our revenue and exclusive design channels are unique to Rent the Runway, Inc

And this momentum is expected to continue

In Q2 alone, we're planning to expand into 19 new brands, launch three new exclusive collections, introduce fresh use cases beach and tennis, and double down on the summer 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

Now let's walk through our recent duct innovations, all of which are in response to direct customer back and are designed to make the experience with Rent the Runway, Inc

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 in the duct and customer service experiences designed to der on that vision

We've introduced enhancements to the duct for both new members and for customers who've been with us for a while, including back-in-stock notifications, our number one most requested new feature

Now a r can set a notification if she has her eye on a style but it is not available at the time she is building her order

If it's back in stock, she gets notified and can add it to her next order

Secondly, we launched personalized styling support for our early-term customers, where stylists help build hearts lists, place orders, and vide personalized suggestions

We believe that this is a very valuable service to our rs, many of whom are fessional women that value the extra assistance with discovery and ordering

We've also introduced a sixty-day customer mise for all new and rejoining customers

If a customer doesn't any of the items in her order during the first sixty days, we'll send her new items at no cost

RTR Concierge, where new and rejoining customers receive a call from us to explain the service and answer any questions, is another new initiative that members love

And lastly, we've launched a more personalized page and browse experience, tailored to what she has happening that month

A key focus for the remainder of the year is to scale these imvements to as many of our rs as possible

And we have even more in store

In Q2, we're planning to launch a new rewards gram that will give rs perks and rewards to celebrate break points

We're also planning to introduce Harding gression and more personalized s to vide a more curated and personalized r browsing and picking experience

All of this innovation is rooted in the pod structure we have developed for our teams at Rent the Runway, Inc

Our four 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 ducts and serve customers

This has allowed us to shift new features rapidly, respond quickly to customer needs, and operate much more efficiently overall

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, Inc

Is an emotional and aspirational duct

It's not purely renting and purchasing clothing items

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

This wasn't deploying more marketing dollars

Rather, we employed a customer-centric, radically authentic strategy ensuring customers felt valued, informed, and excited the.