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Introduction & Market Context
Rent the Runway Inc (NASDAQ:RENT) released its fourth quarter and fiscal year 2024 earnings presentation on April 15, 2025, showcasing improved financial discipline but continuing subscriber challenges. The stock dropped 9.28% in premarket trading to $4.89, reflecting investor concerns about the company’s plans to increase cash consumption in fiscal year 2025 despite recent improvements in cash flow.
The fashion rental platform demonstrated significant progress in controlling costs and improving profitability metrics, but active subscribers declined 5% year-over-year. The company is now pivoting to a strategy focused heavily on inventory expansion, which management believes is critical to reversing subscriber trends.
Quarterly Performance Highlights
Rent the Runway reported modest revenue growth in Q4 2024, with total revenue increasing 1% year-over-year to $76.4 million. Despite the revenue growth, active subscribers decreased to 119,778, down 5% compared to the same period last year. The company noted that 88% of revenue came from subscribers, with 26% of subscribers adding one or more paid items to their subscriptions.
As shown in the following quarterly metrics chart, the company achieved significant improvements in profitability despite subscriber challenges:
Notably, Rent the Runway’s adjusted EBITDA reached $17.4 million in Q4, representing 23% of revenue and an 8 percentage point improvement year-over-year. Net loss margin improved by 15 percentage points to (18)%, though gross margin declined slightly by 2 percentage points to 38%.
For the full fiscal year 2024, the company reported similar trends with revenue up 3% to $306.2 million, while maintaining the same subscriber decline of 5% year-over-year:
The subscriber decline trend is clearly visible in the company’s historical data, with active subscribers falling from a peak in early 2023:
Despite these subscriber challenges, the company has maintained revenue growth through higher revenue per subscriber and other revenue streams, as illustrated in this revenue chart:
Strategic Initiatives
Rent the Runway’s presentation emphasized a three-pillar strategy focused on rejuvenating its customer-obsessed team, improving loyalty and retention, and maintaining cost discipline. The company identified inventory as the critical factor in driving customer loyalty, citing data showing that inventory availability is consistently the top reason for subscriber churn (65-70%).
Based on this insight, Rent the Runway announced its "largest inventory investment in the company’s history" for fiscal year 2025, planning to double new inventory units year-over-year. The company presented data supporting this strategic decision:
The inventory expansion includes doubling investment in key pillar brands, launching 83 new brands, and transforming brand collaborations. The company highlighted several high-end designer partnerships including Isabel Etoile Marant, Cult Gaia (NASDAQ:GAIA), and Frame:
To enhance customer experience alongside the inventory expansion, Rent the Runway has implemented several product improvements in March 2025:
The company also outlined upcoming enhancements to further improve the customer experience:
Forward-Looking Statements
For fiscal year 2025, Rent the Runway provided guidance indicating a significant shift in strategy. The company expects double-digit growth in active subscribers compared to fiscal year 2024, reversing the recent downward trend. However, this growth will come at a cost, with projected free cash flow consumption of $30-40 million for the year.
For the first quarter of fiscal year 2025, the company expects revenue between $68-70 million and adjusted EBITDA of negative 5-7% of revenue:
During the earnings call, CFO Sid Jaegar explained the rationale behind the increased cash consumption: "The reason there is cash consumption this year is because of the two factors I mentioned. There’s a lag between ending subscribers and average subscribers because subscribers build, and the fact that we are buying a considerably greater amount of units to spark growth in the customer base, but we think that will pay dividends in future years."
Detailed Financial Analysis
Rent the Runway’s improved financial discipline is evident in its cash flow progression. The company achieved positive free cash flow of $2.1 million in Q4 2024, compared to negative $23 million in the same period last year. For the full fiscal year 2024, free cash flow improved dramatically to negative $7.2 million from negative $70.3 million in fiscal year 2023.
The following chart illustrates the components affecting the company’s transition from adjusted EBITDA to free cash flow:
A key driver of this improvement has been the company’s evolving approach to inventory acquisition. In fiscal year 2025, Rent the Runway plans to procure over 60% of units via its revenue share model, which requires minimal upfront investment. This represents a 2.5x increase in the number of units purchased through this channel compared to fiscal year 2024.
The company’s multi-year financial trends show consistent improvement across key metrics since fiscal year 2021:
Despite these improvements, investors appear concerned about the return to higher cash consumption after the company had made significant progress toward breakeven operations. CEO Jenn Hyman defended the strategy during the earnings call, stating: "Inventory is the number one factor in improving customer loyalty," and emphasized that this investment is necessary to drive growth after several years of financial discipline.
The market’s negative reaction to the earnings presentation suggests skepticism about whether the inventory investment will successfully reverse subscriber trends and generate sustainable growth, particularly given the significant cash outlay required in the near term.
Full presentation:
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