Rent the Runway Shares Drop on First Quarterly Update as Public Firm

·4 min read

Jennifer Hyman might have won her spot on the catwalk and helped spark fashion’s rental revolution — but she is still working to win over Wall Street.

Investors were bearish on Rent the Runway’s first update as a public company, which showed both rebounding revenues and continued losses in the fiscal third quarter.

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Shares of the company fell 12.6 percent to $10.05 in after-market trading Wednesday — on top of the 10.2 percent drop in normal trading. That puts the stock price at less than half the initial public offering price of $21.

While Rent the Runway has genuinely brought something new to consumers and opened up a younger, fashion-interested customer base to designer brands, the financial types are still trying to get a handle on the operation, which has logged more than $761 million in losses since it was founded in 2009.

Clearly, blazing new trails isn’t cheap or easy.

But Hyman’s pitch for the future is also full of many of investors’ favorite things — including a competitive moat and structural advantages like the migration back to the office and a backlog of big social gatherings next year and beyond. The company also raised $357 million with its IPO and used $141 million of that to pay down a third of its debt.

“We have ample cash to invest in our priorities for growth,” Hyman told investors on a conference call, identifying both growing the subscriber base and expanding that competitive moat.

Rent the Runway operates at a scale that few others can compete with and was first on the scene building relationships with designers and customers.

Now, Hyman said, the market is coming her way.

“The rapid consumer behavior shifts toward online commerce, access models and sustainability as well as our compelling value position will be macro drivers of our growth,” she said.

Beyond that, Hyman is pointing to massive shifts in consumer attitudes and putting Rent the Runway right in the middle of it all, painting the company as a sustainable alternative to fast fashion that is less retail and more of a utility company supplying apparel instead of power.

“The feeling of having a closet full of clothes, but nothing to wear is ubiquitous,” said Hyman, adding that the average American buys nearly double what they bought 30 years ago, with 55 percent of the looks in the closet rarely used.

“This is financially wasteful and environmentally unsustainable,” she said.

Hyman specifically called out the $120 billion U.S. mass and fast-fashion market and said attitudes are changing.

“We have seen the consumer start to rethink fast fashion,” she said. “Eighty-three percent of our subscribers used less of it when they use Rent the Runway.

“We are going after a big opportunity,” she said.

Hyman said Rent the Runway measures the health and growth of its business by looking at subscriber and engagement growth.

“When we do these things well, we grow our revenue and scale profitability,” she said.

Nonetheless, the company’s third-quarter net losses nearly doubled to $87.8 million, from $44.3 million, although they included several IPO-related non-cash and onetime charges tied to the revaluation of warrants, extinguishment of debt and vesting conditions of restricted stock units.

Adjusted losses before interest, taxes, depreciation and amortization widened only slightly in the quarter, to $5.6 million from $5.4 million a year ago.

The top line for the three months ended Oct. 31 did show that the company was gaining back traction. Revenues expanded by 66 percent to $59 million from $35.5 million.

Rent the Runway ended the quarter with 116,833 active subscribers, up 78 percent from a year earlier — equal to 87 percent of the company’s pre-COVID-19 active subscriber base.

The firm described subscriber engagement as “strong” with 24 percent of subscribers adding at least one paid item to their subscription program.

Rent the Runway also expanded geographically, with subscribers outside its top 20 markets now making up 29 percent of its base, up from 23 percent in 2019. And casual looks — suited more to lockdowns than big celebrations — now make up 50 percent of the use cases, up from 32 percent before the pandemic.

Thirty new brands joined the service, including Altuzarra, LaQuan Smith, Rachel Antonoff and Rotate.

Most of the goods the company rents are acquired through “capital-efficient channels,” including the collaborative Exclusive Designs and the consignment-based Share by RTR programs.

Rent the Runway expects to close 2021 with 121,000 to 122,000 subscribers, annual revenues of $202 million to $202.5 million and big plans to remake fashion.

For now, it seems like Wall Street is still in wait-and-see mode.

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