Rent the Runway, Inc. (NASDAQ: $RENT) is a leading online subscription and rental service for designer fashion. Founded in 2009, the company provides members access to a rotating wardrobe of high-end apparel and accessories from over 750 designer brands. Its mission is to empower individuals to express their style without ownership constraints.
On April 10, Rent the Runway announced its financial results for the fourth quarter and fiscal 2023, showcasing a promising trajectory for the company. Focusing on enhancing customer experience and expanding its market reach, Rent the Runway aims for a transformative year ahead.
Strengthening Customer Experience
Jennifer Hyman, Co-Founder and CEO of Rent the Runway, expressed confidence in the company’s direction, stating, “2023 was a year of significant improvements to the customer experience that we believe have set the foundation for a milestone fiscal year 2024.”
Introducing a premium personal concierge service aimed at styling customers, alongside initiatives to simplify inventory discovery and elevate the product experience, has resulted in noteworthy achievements. Net Promoter Scores (NPS) have reached the highest levels in years, with increased customer engagement and retention. These improvements position the company well for future growth and financial stability.
Fiscal Q4 2023 Highlights
Despite a marginal increase in revenue to $75.8 million, Rent the Runway surpassed expectations, exceeding the analysts’ consensus estimate by 1.75%. However, the gross profit declined to $29.9 million, attributed to company strategy adjustments. Consequently, the gross margin decreased to 39.4%, compared to 44.2% in the same period of the previous fiscal year.
The net loss for the quarter was $24.8 million, an improvement from the $26.2 million net loss the previous year. The net margin was -32.7%, compared to -34.7% in the same period of the previous fiscal year.
The company reported $11.2 million in adjusted EBITDA, a significant increase from $7.1 million in the fourth quarter of fiscal year 2022. The adjusted EBITDA margin also showed improvement, reaching 14.8%, compared to 9.4% in the same period of the previous fiscal year.
Fiscal Year 2023 Performance
In fiscal year 2023, the company reported revenue of $298.2 million, a slight 0.6% increase from the previous fiscal year’s $296.4 million. The growth coincided with a 5% rise in Average Active Subscribers, reaching 135,211 compared to 128,586 at the end of fiscal year 2022.
The Gross Profit for the fiscal year remained relatively steady at $119.7 million, compared to $120.0 million in fiscal year 2022, with a Gross Margin of 40.1%, slightly lower than the previous year’s 40.5%. Despite this, the company managed to narrow its Net Loss to $113.2 million from a $138.7 million net loss in fiscal year 2022, resulting in a lower Net Loss as a percentage of revenue at -38.0% compared to -46.8% the previous year.
One of the significant improvements was the Adjusted EBITDA, which soared to $26.9 million, a substantial increase from $6.7 million in fiscal year 2022. The improvement was reflected in the Adjusted EBITDA margin, which climbed to 9.0% from 2.3% in fiscal year 2022.
The company also managed its cash flow more efficiently, with net cash used in operating activities plus net cash used in investing activities totaling -$70.3 million for the fiscal year 2023, an improvement from -$92.0 million in 2022. As a percentage of revenue, this translated to -23.6% for fiscal year 2023, compared to -31.0% for fiscal year 2022.
As of January 31, 2024, the company held cash and cash equivalents amounting to $84.0 million, indicating a healthy financial position.
Rent the Runway’s Strategic Growth Initiatives
Rent the Runway has enhanced customer satisfaction and loyalty through strategic initiatives, such as improved inventory management and expanding its concierge program. The company’s ‘Try Before You Buy’ resale business has also seen remarkable growth, leveraging its unique model to offer competitive pricing and drive customer engagement.
Rent the Runway recently appointed Natalie McGrath as its new Chief Marketing Officer. With extensive experience in retail and tech brands, McGrath will oversee customer growth strategies and report to CEO Jennifer Hyman. Her arrival aligns with the company’s efforts to revitalize brand loyalty and launch new marketing initiatives, following successful campaigns on platforms like LinkedIn and the “Real Runway” project.
Rent the Runway’s Fiscal 2024 Guidance
Looking ahead, Rent the Runway anticipates revenue growth between 1% to 6% for fiscal year 2024. Additionally, the company aims for an Adjusted EBITDA Margin within the range of 15% to 16%. Moreover, they expect to achieve Free Cash Flow Breakeven on a full-year basis.
For the fiscal first quarter of 2024, Rent the Runway forecasts revenue to fall between $73 million and $75 million. Correspondingly, they aim for an Adjusted EBITDA Margin ranging from 7% to 8%.
Sid Thacker, Rent the Runway’s chief financial officer, expressed optimism about the future, stating, “We have conviction that Rent the Runway is poised to exit fiscal year 2024 as a sustainable, growing, and free cash flow breakeven business.”
Reverse Stock Split
In a strategic move to enhance shareholder value and maintain compliance with listing requirements, Rent the Runway announced a 1-for-20 reverse stock split of its outstanding shares. With the new symbol “RENT” and CUSIP number 76010Y202, the reverse split aims to increase the per-share market price of the Common Stock and ensure continued listing on the Nasdaq Capital Market.
Rent the Runway Stock Performance
On Wednesday, Rent the Runway (RENT) experienced a significant surge, closing at $7.40, marking a 36.28% increase from the previous day’s close at $5.43. This uptick follows the release of their positive fourth-quarter 2023 financial results, which garnered a favorable reception from investors. On Thursday, April 11, the rally continued, with the stock rising 165.07% to $19.61 as of 03:44 PM EDT. The shares experienced wild swings on Thursday, reaching a high of $24.12 at one point.
Following the rally that began on Wednesday, RENT shares are up 132.84% over the past month and 78.72% year to date. However, they are still down 72.71% over the past 12 months. The stock is above its 50 DMA and 200 DMA of $8.20 and $16.99, respectively, with an intraday market cap of $26.24 million.
Looking at the short interest on RENT, investors are short on 12.34% of the float and 9.94% of the shares outstanding as of March 28, 2024.
Analysts’ Outlook on RENT Stock
5 Wall Street analysts give RENT stock an overall moderate buy rating. They forecast a board range for the stock with a high of $2 and a low of $0.60. Their average forecast of $1.27 is a massive downside from the current price of over $17. However, due to the recent upswing in the stock following its positive Q4 results, most analysts will likely revise their price target for the stock in the coming weeks.
Should You Buy RENT Stock?
Rent the Runway’s FY 2023 showcased resilience and strategic agility in a challenging market. Despite industry uncertainties, their focus on customer satisfaction and operational efficiency drove positive outcomes. Notable increases in net promoter scores and subscriber growth demonstrate adaptability to changing consumer preferences.
Financially, they saw a significant rise in adjusted EBITDA and made progress towards cash flow breakeven. Forward-looking steps like appointing a new CMO and implementing a reverse stock split signal commitment to long-term sustainability and shareholder value.
However, Rent the Runway’s analysis reveals a mixed trend in estimate revisions after its earnings report. Analysts project a -$5 EPS on revenue of $73.2 million for the next quarter and a -$20 EPS on revenue of $306.3 million for the current fiscal year. Additionally, the retail industry’s outlook ranks in the bottom 28%. Consequently, investors should consider industry trends and company-specific factors before buying RENT shares.
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