Rent the Runway, Inc. Q4 FY2024 earnings call

Cultural Transformation Pillars

• Rejuvenated and customer-obsessed team: Reorganized into four cross-functional pods, restructured customer service to spend 14% on proactive engagement, hired new talent and reinvigorated existing team. Launched initiatives like inviting customers to all-hands meetings, focus groups, and a phone calling campaign.
• Loyalty and retention: Inventory investment key to unlocking loyalty; in 2025, plan to add two times new inventory units y-o-y, 75% more new styles, 83 new brands. Launched largest inventory investment with new initiatives like 60-day customer promise and stylist in product.
• Cost discipline: Developed revenue share model (Share by RTR) and exclusive design collections to acquire inventory at lower costs. Share by RTR units expected to increase to ~62% of total units in fiscal 2025.### Fiscal 2024 Commentary
• Showed ability to operate close to breakeven with steady revenue, improved cost structure, and working capital. ~50% of inventory purchases through Share by RTR program.

Fiscal 2025 Plans

• Need to invest in inventory to drive subscriber growth, expecting double-digit ending active subscriber growth. Full-year cash consumption between negative $30M and negative $40M. Q1 revenue expected between $68M and $70M, adjusted EBITDA between negative 5% and negative 7% of revenue.

In Q4 '24, total revenue was $76.4 million, up $0.6 million or 0.8% year-over-year. Subscription and reserve rental revenue was down 1.2% year-over-year, while other revenue increased 13.5% or $1.4 million year-over-year. Fulfillment expenses were $20.2 million in Q4 '24, 26.4% of revenue. Gross margins were 37.7% in Q4 '24 versus 39.4% in Q4 '23. Adjusted EBITDA for the quarter was $17.4 million or 22.8% of revenue. Free cash flow for Q4 '24 was positive $2.1 million.

Fiscal Year 2025

• Expect double-digit ending active subscriber growth.
• Full-year cash consumption between negative $30 million and negative $40 million.

Q1 2025

• Revenue expected to be between $68 million and $70 million.
• Adjusted EBITDA expected to be between negative 5% and negative 7% of revenue.

Risks

• Uncertainties around the economy and tariffs.
• Timing of potential customer retention improvements that can affect actual results for fiscal year 2025.

Q: Can you help us understand the cash flow guidance and the drivers of it, especially regarding Share by RTR?

A: The sheer volume of inventory is almost doubling year-over-year. CapEx guidance for the year is $70 million to $75 million. There's a lag between ending subscribers and average subscribers as subscribers build, and a significant increase in Share by RTR inventory which will get utilized as the subscriber base grows.

Q: What have you guys seen more recently regarding consumers given volatility around tariffs? How are consumers reacting?

A: We can't make prognostications about the economy or tariffs. Renting provides considerable value versus buying. The amount of inventory being brought on addresses the number one pain point for customers, and we expect the retention impact from this inventory to drive growth. The community of existing subscribers is noticing the improved inventory and we hope it restarts the organic flywheel for acquisition.

Q: Can you speak to the step function change in customer experience in 2025?

A: This is a tremendous step function change. We're doubling the number of new units on the platform. Customers will receive hundreds of new arrivals weekly, more of their favorite brands, and new arrivals during times of the year previously light on newness. Expect 75% more newness in at-home baskets than last year. Last year focused on depth, this year on quantity to improve loyalty and usage during previously high churn periods.