Rent the Runway Q1 2025 slides: revenue drops 7%, bets big on inventory

Introduction & Market Context

Rent the Runway Inc (NASDAQ:RENT) released its Q1 2025 earnings presentation on June 5, 2025, revealing a mixed financial performance as the company implements a strategic pivot toward significant inventory investments. While the clothing rental service reported a revenue decline, it achieved its highest quarterly ending active subscribers in company history, suggesting potential stabilization in its core business.

The stock traded down 2.31% in aftermarket trading following the earnings release, with shares at $6.35. This reaction reflects investor concerns about the company’s declining revenue and increased losses despite subscriber growth.

Quarterly Performance Highlights

Rent the Runway reported total revenue of $69.6 million for Q1 2025, representing a 7.2% year-over-year decline. Despite this revenue drop, the company achieved 1% growth in active subscribers, reaching 147,200 - its highest quarterly ending subscriber count in company history.

As shown in the following comprehensive financial overview:

The company’s profitability metrics deteriorated across the board. Gross margin fell 6 percentage points year-over-year to 31.5%, while net loss increased to $26.1 million, representing a negative 37.5% margin - 8 percentage points worse than the previous year. Adjusted EBITDA turned negative at $1.3 million (negative 1.9% margin), compared to positive $6.5 million (9% margin) in Q1 2024.

The subscriber trend shows modest improvement after previous declines, with a notable sequential increase of over 27,000 subscribers from Q4 2024 to Q1 2025:

Free cash flow worsened to negative $6.4 million compared to negative $1.4 million in the prior year period, primarily due to increased inventory purchases, which rose from $13.1 million in Q1 2024 to $19.3 million in Q1 2025.

Strategic Initiatives

Rent the Runway’s presentation emphasized several key strategic initiatives aimed at revitalizing growth. The company highlighted three main achievements that form the foundation of its turnaround strategy:

The cornerstone of Rent the Runway’s strategy is a massive investment in inventory, which the company believes is critical for improving customer satisfaction and retention. Management reported that Q1 2025 saw the strongest quarterly customer retention in four years, with improved churn rates for both early-term and long-term subscribers.

The following chart illustrates the company’s planned inventory investment throughout 2025:

This inventory expansion appears to be resonating with customers, as evidenced by improved engagement metrics across multiple dimensions:

Rent the Runway is also focusing on improving its digital product experience to enhance customer retention. Recent product innovations include styling support, customer promise features, personalized experiences, and back-in-stock notifications:

Another key element of the company’s strategy involves rebuilding its community relationships through direct engagement from the CEO, a revamped social media approach, and in-person events:

Forward-Looking Statements

For Q2 2025, Rent the Runway provided revenue guidance of $76-80 million and an adjusted EBITDA margin between -2% and +2%. For the full fiscal year 2025, the company projects double-digit growth in ending active subscribers compared to FY 2024.

The following guidance overview details the company’s financial expectations:

Despite the optimistic subscriber growth projection, Rent the Runway expects to consume $30-40 million in free cash flow during FY 2025, largely due to its planned $70-75 million investment in rental product acquisition. This substantial cash outflow raises questions about the company’s path to sustainable profitability, especially given its current debt position of $340.6 million as of April 30, 2025.

The company’s strategy represents a significant bet that heavy investment in inventory will drive subscriber growth and retention, ultimately leading to improved financial performance. However, investors appear cautious about the near-term cash consumption required to execute this plan, as reflected in the stock’s aftermarket decline following the earnings release.

As Rent the Runway implements its inventory-focused turnaround strategy, the key metrics to watch will be whether subscriber growth accelerates and whether improved retention translates into revenue growth in upcoming quarters.

Full presentation:

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