Rent the Runway, Inc. Q1 FY2025 earnings call

Bold Inventory Strategy

• Drastically increased inventory desirability and quantity, with Q1 inventory volume up 24% year over year, launched 36 new brands and over 1,000 new styles.
• Expected new receipts to be up 134% year over year for the rest of the year, planning to launch over 40 new brands and post over 2,700 new styles.
• Revenue share and exclusive design channels growing, with fiscal year 2025 expected to have around 70% of items as exclusive designs and revenue share compared to 20% in 2019.

Product Innovations

• Introduced back-in-stock notifications, with 25% of subscribers engaging and 48% of those adding back-in-stock items to their bag after notification.
• Personalized styling support for early-term customers, resulting in 27% reduction in first-month churn.
• Launched 60-day customer promise for new and rejoining customers, leading to 34% reduction in churn. RTR Concierge saw 18% reduction in churn for those who answered calls and 14% for those who didn't, with plan to scale to 100% of new and rejoining subscribers by end of Q2.
• Launched personalized homepage and browse experience, with plans to scale improvements and launch new rewards program, Harding Progression, and more personalized feeds in Q2.

Restoring Customer Relationships

• Shifted marketing towards transparency and community, with engagement rate on social channels up 163% since new strategy launched in April and May.
• Engaged with community on Reddit, launched social features like Instagram Q&A and Gen Reacts, reintroduced member-first experiences including We Heard You hybrid webinar, Women at Work styling event, etc.

In Q1 2025, total revenue was $69.6 million, down $5.4 million or 7.2% year over year and down $6.8 million or 8.9% quarter over quarter. Subscription and reserve rental revenue was down 6.2% year over year in Q1 2025 primarily due to lower average revenue per subscriber. Other revenue decreased 14.6% or $1.3 million year over year. Fulfillment costs were $20.4 million in Q1 2025 versus $20.6 million in Q1 2024 and $20.2 million in Q4 2024. Gross margins were 31.5% in Q1 2025 versus 37.9% in Q1 2024. Adjusted EBITDA for Q1 2025 was negative $1.3 million or negative 1.9% of revenue versus $6.5 million or 8.7% of revenue in Q1 2024. Free cash flow for Q1 2025 was negative $6.4 million versus negative $1.4 million in Q1 2024.

Q2 2025 Guidance

• Expect revenue to be between $76 million and $80 million.
• Expect adjusted EBITDA margins to be between negative 22% of revenue.

Full-Year 2025 Guidance

• Continue to expect double-digit growth in ending active subscribers.
• Continue to expect full-year cash consumption to be between negative $30 million and negative $40 million.

Risks

• Uncertainties around tariffs, as guidance does not factor in potential impact from tariffs despite having placed majority of inventory orders for fiscal year 2025.
• Uncertain customer behavior, as renting's value compared to buying is difficult to predict.