Release Date: December 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rent the Runway Inc (RENT, Financial) achieved a significant milestone by nearing free cash flow breakeven, a major improvement from burning $70 million in cash last year.
- The company reported a 4.7% year-over-year revenue growth in Q3, marking the fourth consecutive quarter of positive revenue growth.
- The special event rental business 'Reserve' saw a 21% year-over-year increase, and the resale business grew by 23% year-over-year in Q3.
- Significant improvements in paid marketing efficiency were noted, with a 23% year-over-year improvement in customer acquisition costs.
- The launch of a new subscription plan at $119 per month has shown promising initial uptake, indicating potential for subscriber growth.
Negative Points
- Adjusted EBITDA margin was slightly below guidance, primarily due to lower than expected other revenue.
- Free cash flow for Q3 was negative $3.4 million, although it was a $14 million improvement year-over-year.
- Average active subscribers decreased by 2.9% year-over-year, indicating challenges in subscriber retention or acquisition.
- Gross margins decreased quarter-over-quarter due to seasonally higher revenue share payments and higher fulfillment costs.
- The company had to strategically pull back on its resale business to preserve inventory for subscribers, potentially limiting revenue growth in that segment.
Q & A Highlights
Q: Can you explain the widening of the revenue guidance range for Q4 compared to previous quarters?
A: Siddharth Thacker, CFO: The Q4 guidance range reflects our full-year revenue guidance of 2% to 4%. The range is due to our decision to retain more inventory as the rental business improves, impacting other revenue. Additionally, the timing of subscriber acquisitions and reduced promotions contribute to this range. The range is not indicative of negative trends but rather our strategic choice to hold inventory.
Q: What are the key levers for subscriber growth in 2025?
A: Jennifer Hyman, CEO: We are focusing on inventory as a key growth driver, investing heavily in inventory acquisition through revenue share and exclusive design channels. We have also reorganized our teams to improve subscriber onboarding and retention. These efforts, combined with our improved inventory position, set us up for subscriber growth in 2025.
Q: When do you expect inventory to be in the right place?
A: Siddharth Thacker, CFO: We can make substantial improvements in a short time, as seen in fiscal '23. We plan to leverage our data and inventory acquisition channels to quickly enhance our inventory position. Our strategy includes focusing on top-performing brands to improve availability and customer satisfaction.
Q: Can you discuss the differences in customer profiles between reserve, resale, and subscribers?
A: Jennifer Hyman, CEO: Reserve attracts a diverse customer base and serves as an entry point to Rent the Runway. We've seen significant growth in new customers through reserve, which we aim to convert into subscribers. Subscription has become more mainstream, attracting a diverse demographic, and we plan to accelerate subscriber growth in 2025.
Q: How are you planning to accelerate revenue growth while maintaining capital sustainability?
A: Siddharth Thacker, CFO: We aim to accelerate growth by investing in inventory and leveraging our established channels while preserving the business's cash characteristics. Our focus is on sustainable growth, ensuring we maintain a balance between investment and financial stability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
