Runway’s rental losses narrow as the company nears profitability

Runway rental Losses narrowed in its fiscal fourth-quarter profit reported on Wednesday as the digital retailer continues to streamline its costs and work toward profitability.

Despite the improvements, the company’s 2023 financial and first-quarter forecasts fell short of analyst estimates. Its share price fell more than 6% in after-hours trading.

Here’s how the fashion rental company performed in the fourth quarter compared to what Wall Street was expecting, based on a poll of analysts conducted by Refinitiv:

• share loss: 40 cents against. expected 51 cents
• he won: $75.4 million vs. $75.2 million projected

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

Sales rose to $75.4 million, up 18% from $64.1 million a year earlier.

In the first quarter of fiscal 2023, the company expects revenue to be between $72 million and $74 million, below analyst expectations of $76.8 million, and adjusted EBITDA margin of 2% to 3%.

For the full year, the company expects revenue in the range of $320 million to $330 million. Analysts had expected full-year 2023 revenue of $346 million, according to Refinitiv’s consensus estimate.

It expects an adjusted EBITDA margin of 7% to 8% and an annual cash spending reduction of approximately 50%.

Rent the Runway, which offers subscription services for clothing and accessory rentals and also offers on-demand service, charted a path to profitability after a few years’ worth of roller coaster eroded its market value and sent its share price tumbling.

Amid the covid pandemic, the company was hit hard when consumers suddenly didn’t need to rent clothes and accessories for work and parties. Since then, the number of subscribers has rebounded, hitting a record in April after changing its subscription model.

In March, the company permanently added an additional item to each shipment to improve the value proposition for customers, and as of April 8, the company had identified 141,205 active subscribers, the highest number of active subscribers the company has seen since its inception in 2009. Active. Subscribers who have suspended memberships are excluded.

“This launch delivered 25% more value to our customers with minimal impact on our gross margins. So we were able to deliver value while, you know, maintaining healthy gross margins financially,” Hyman, co-founder and CEO of Rent the Runway told Network. CNBC.

And we’re seeing some different benefits. We’re seeing improvements in loyalty across the customer base. If they pause, they reactivate them,” Hyman said.

At the end of the fiscal year, Rent the Runway had 126,712 active subscribers, up 10% from the same period last year. In total, the company counted 171,998 subscribers, including people with paused subscriptions. This represents an 8% year-over-year increase compared to the end of the previous fiscal year.

The company expects the number of active subscribers to grow by more than 25% in the next fiscal year.

Investors have been watching to see when Rent the Runway will achieve profitability, which Hyman said will come from increasing its subscriber base and is just “a stone’s throw away.”

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

“The majority of the company’s internal resources are dedicated to improving and innovating the customer experience,” she said. “We’ve already built the infrastructure we need to scale, built the technology, built the processes, so we can now put all of our people into improving the customer experience.”

Also on Wednesday, the company announced that Chief Financial Officer Scarlett O’Sullivan will step down from her position on May 25 and Syd Thacker, the current vice president, will take over. O’Sullivan will remain temporarily as a consultant after leaving the role.

Read the full earnings statement here.