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Rent the Runway Inc. (RENT) reported its Q2 2025 earnings with a notable increase in revenue and subscriber growth, despite a decline in gross margins. The company’s stock experienced a significant boost, rising 29.56% to close at $6.09, following the earnings announcement. According to InvestingPro data, this surge contributes to an impressive 59% gain over the past six months, though the stock remains below its Fair Value estimate. This movement reflects investor optimism fueled by strategic operational updates and market expansion efforts.
Key Takeaways
- Revenue rose to $80.9 million, marking a 2.5% year-over-year increase.
- Active subscribers grew by 13.4% year-over-year, reaching 146,373.
- Gross margins fell to 30% from 41.1% in Q2 2024.
- The company announced a recapitalization plan, reducing debt significantly.
- Stock surged by 29.56% post-earnings announcement.
Company Performance
Rent the Runway demonstrated resilience in Q2 2025 with a revenue increase to $80.9 million, up 2.5% from the previous year. The growth in active subscribers by 13.4% suggests strong consumer engagement and retention. While quarterly margins declined, InvestingPro analysis shows an impressive trailing twelve-month gross profit margin of 72.54%. The platform offers 12 additional key insights about RENT’s financial health and growth prospects through its comprehensive Pro Research Report, available to subscribers.
Financial Highlights
- Revenue: $80.9 million, up 2.5% year-over-year
- Ending Active Subscribers: 146,373, up 13.4% year-over-year
- Adjusted EBITDA: $3.6 million, representing 4.4% of revenue
- Free Cash Flow: -$26.5 million
- Gross Margins: 30%, down from 41.1% in Q2 2024
Outlook & Guidance
Looking ahead, Rent the Runway projects Q3 2025 revenue between $82 million and $84 million, with an adjusted EBITDA margin ranging from -2% to 2%. The company anticipates continued double-digit growth in active subscribers but expects free cash flow to remain below -$40 million, indicating ongoing challenges in achieving positive cash flow.
Executive Commentary
CEO Jen described the current phase as "our IPO 2.0," emphasizing strategic growth initiatives. CFO Sid highlighted the importance of growth for achieving fixed cost leverage, stating, "We believe that growth is what is required to drive fixed cost leverage." Sid also noted, "We are in the strongest position we have been in several years," reflecting confidence in the company’s strategic direction.
Risks and Challenges
- Gross Margin Decline: The drop from 41.1% to 30% could impact profitability if not addressed.
- Free Cash Flow Deficit: With free cash flow projected below -$40 million, liquidity remains a concern.
- Debt Management: Despite reducing debt to $120 million, long-term debt management remains critical.
- Market Competition: Increasing competition in the fashion rental market could pressure growth.
- Economic Conditions: Macroeconomic factors may affect consumer spending and subscription growth.
Rent the Runway’s strategic initiatives and subscriber growth have positively influenced market sentiment, as reflected in the stock’s significant post-earnings surge. However, challenges such as declining margins and cash flow deficits highlight areas requiring attention as the company navigates its growth trajectory.
Full transcript - Rent the Runway Inc (RENT) Q2 2026:
Conference Operator: Greetings and welcome to Rent the Runway’s Quarter Two 2025 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to Cara Schembri. Thank you. You may begin.
Cara Schembri, Investor Relations, Rent the Runway: Hello everyone, and thanks for joining us today. During this call, we will make references to our Q2 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the third quarter in fiscal year 2025 and statements regarding the recapitalization transactions. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially. These risks, uncertainties, and assumptions are detailed in today’s press release, as well as our filings with the SEC, including our Form 10-Q that we plan to file in the coming days. We have no obligation to update any forward-looking statements or information except as required by law.
During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our Investor Relations website, and in our SEC filings. With that, I’ll turn it over to Jen.
Jen, CEO, Rent the Runway: Good afternoon. Rent the Runway had a busy Q2 and an even busier start to Q3. I’m excited to provide an update today on three things. First, our recently announced recapitalization plan. Second, the continued growth we’re seeing in the business. Finally, the results we’re seeing from our focus on customer experience. Let’s start with the recapitalization plan we announced on August 21st that is designed to strengthen our balance sheet and inject fresh capital into the business. Our long-time existing lender, Aranda Principal Strategies, or APS, is partnering with two highly respected private equity firms with deep experience in the consumer retail space: StoryTree Capital Partners and Nexus Capital Management, on a plan that will reduce our total debt from over $340 million to approximately $120 million.
APS will convert a substantial portion of its original debt investment into common equity ownership, and APS, StoryTree, and Nexus will contribute new capital to further support the business and its growth initiatives. The maturity on the debt will also be extended to 2029, giving us years of additional runway. We will proudly remain a public company and trade under the ticker RENT on NASDAQ. This transaction sets us up to have a significantly stronger and healthier balance sheet, which means more financial flexibility to lean into the market we created 15 years ago. Since COVID, I believe that our capital structure has been the thing holding us back from making a full comeback, and we’re happy to be moving forward into a new chapter. We’re ready to be reacquainted with the investor community, and I view this as our IPO 2.0.
We currently expect the deal to be consummated by December 31st of this year, and I encourage you to read our SEC filings in detail for more information. Overall, I see this as a very positive step forward for the company. We will no longer be burdened with an unsustainable amount of debt and expect to be in a much stronger position to deliver value to shareholders. Now, let’s shift gears and talk about the continued growth and positive signs we’re seeing across the business. Over the last two earnings calls, I’ve outlined our plan to capture subscribers and grow the business through a new inventory strategy, increased product innovation, and an improved connection with our core customer. Significant business transformations typically take place over a long time horizon. However, over the last several months, we’ve made swift progress and delivered results quickly.
We believe that our strategy continues to show strong signals that it’s working, and we are successfully executing against it. Here are some of the areas where we’re seeing major improvements. Subscriber growth continues. We ended Q2 with 146,400 active subscribers, a 13.4% year-over-year increase, accelerating from -4.9% in Q4 2024 and 0.9% in Q1 2025. Q2 2025 year-over-year acquisition growth accelerated as compared to Q1 2025 and Q4 2024. Retention continued to be higher than the prior year. These results show that we’re adding more subscribers in a significant way, and subscribers are more likely to stay with the service for longer periods of time. Both very promising indicators. We’re also seeing great progress in the overall customer experience, with our historic investment in inventory starting to meaningfully make its way to customers in Q2.
Put simply, there is a large amount of new inventory hitting the platform for customers to browse and rent. As of August, we’ve posted almost twice the inventory units we did in the prior year. In May, we posted 323% more styles versus the year prior. In June, that number was 235%, and in July, 253% year-over-year, meaning each month our customers are seeing and getting to rent more styles from more of the brands they desire. Year to date, we’ve added 2,200 new styles and have added 56 new brands to the platform, marking a massive improvement in the customer experience when she goes to fill her next order. Subscribers are loving this newness. Engagement with the new inventory in Q2 overperformed last year across every key metric.
This includes share of views up 84% year-over-year, hearts per style up 15% year-over-year, and new units at home up 57% year-over-year. Our average subscription net promoter score in Q2 was also at the highest level in three years and up 77% versus the prior year. We are also continuing to partner with amazing brands who are increasingly recognizing the strength of our customer, the reach of our platform, and the power of our marketing capabilities. Revenue share units from existing revenue share partners are up 40% year-over-year, and total revenue share units are up 119% year-over-year. Overall, we’re adding 80 plus new brands in full year 2025, with 56 already launched in the first half, and we’re seeing growing interest in deeper marketing collaborations. Year to date, we’ve launched seven new exclusive brand collaborations at an average of 40% lower cost to the brand’s own wholesale collection.
As of August, 27 brands and partners have already started testing affiliate emails with Rent the Runway, where we drive our subscribers to purchase from the brands via the links included in RTR emails. Brands continue to love working with us and see us as a valuable marketing channel. These signs are all very encouraging that our inventory strategy is paying off, and we’ll be continuing to add more inventory throughout the year as the summer ends and the cooler weather sets in throughout much of the U.S. In addition to inventory, we’ve also been laser-focused on tangible and continuous improvement to our customer experience, as well as shifting our marketing towards organic growth fueled by our own community on our platform, social, and in real life. As part of our organic social media strategy, we are trying new strategies to reach our customers with authentic, engaging content.
As a result, acquisitions from organic channels had the best performing quarter in years. Overall, engagement with our social media channels is up 796%, and views are up 175% year-over-year. We launched 11 new social series and continue to lean into our new face of Rent the Runway and influencer engagement strategy. We’re meeting our customers where they are on Instagram, TikTok, and Reddit. We’ve also brought our members together for exclusive events. In Q2, we hosted 12 events with 1,200 plus of our subscribers attending in person. Demand for these events was 3x capacity. A huge part of the customer experience is the experience she has when opening our app or visiting our website, and we’ve continued to focus on product innovation. We’ve redefined the subscription experience to be more personalized, rewarding, and engaging.
In Q2, we launched a personalized home screen with contextual education, a rewards program with tiered membership perks, the ability to preview and heart coming soon styles, and a feature that highlights real members with curated styles. Looking forward, product improvements will focus on incorporating more personalized recommendations, such as my most loved designer and my recent hearts, and using AI for review summaries and fit improvements to build a continuously improved product for our customers. Before I hand it over to Sid, I wanted to note that for the first time in three years, we made a change to the prices of our subscription plans on August 1 to account for inflationary pressures and tariffs in the fashion industry. On average, the cost has increased by $2 per item, and our most popular plan, the 2-SWAP plan, went from $144 a month to $164 a month, a 14% increase.
This price increase allows us to deliver an exceptional customer experience while remaining the best deal in fashion. We communicated the change clearly to customers, and thus far, the impact has been in line with expectations. I want to thank everyone who has believed in Rent the Runway over the past 15 years. We are excited to write the next chapter in our story. With that, I’ll hand it over to Sid.
Sid, CFO, Rent the Runway: Thanks, Jen, and thank you everyone for joining us. I want to begin by highlighting three key points. First, this quarter is beginning to show the tangible results of our strategy to significantly invest in inventory this fiscal year. Year-over-year ending active subscriber growth accelerated from 0.9% in the first quarter to 13.4% in the second quarter compared to the prior year. We continue to be encouraged by improving subscriber acquisitions, even after taking into account higher promotional activity versus Q2 2024, indicating to us that new customers are starting to notice our improved assortment. Year-over-year retention trends also continue to be solid. We believe even more strongly that an improved inventory experience is critical to driving subscriber growth.
Second, the recapitalization transactions we announced on August 21, 2025, are important validation of our inventory strategy this year and a key step forward for our ability to continue to invest in improving our customers’ experience. As Jen highlighted, assuming all closing conditions are met, there will be a significant cash infusion to the business, and our debt balance will be markedly reduced. Interest expense will decline, and maturity will be extended into 2029. Also, as existing shareholders will note, conversion of existing debt will occur at a meaningful premium to the stock price in the period preceding the August 21 announcement. Finally, we think continued investment in inventory represents the best way to drive sustainable revenue growth and free cash flow generation. We believe that growth is what is required to drive fixed cost leverage, a key ingredient to cash generation.
We have conviction that the company is on the right track to generate strong medium and long-term performance. I will now review results for the second quarter before providing full year 2025 guidance. We ended Q2 2025 with 146,373 ending active subscribers, up approximately 13.4% year-over-year. Average active subscribers during the quarter were 146,765 subscribers versus 137,455 subscribers in the prior year, an increase of 6.8%. Year-over-year subscriber growth was driven primarily by higher subscription acquisitions versus Q2 2024, higher promotional activity, and improved subscriber retention in Q2 2025 versus Q2 2024. Ending active subscribers decreased slightly from 147,157 subscribers at the end of Q1 2025, due primarily to seasonally lower subscriber acquisition and retention in Q2 2025 versus Q1 2025. Total revenue for the quarter was $80.9 million, up $2 million, or 2.5% year-over-year, and up $11.3 million, or 16.2% quarter over quarter.
Subscription and Reserve rental revenue was up $0.7 million, or 1% year-over-year in Q2 2025, primarily due to higher average subscribers, offset partially by lower average revenue per subscriber versus Q2 2024. Other revenue increased $1.3 million, or 12.5% year-over-year. Fulfillment costs were $22.5 million in Q2 2025 versus $20.6 million in Q2 2024 and $20.4 million in Q1 2025. Fulfillment costs as a percentage of revenue were 27.8% of revenue in Q2 2025 compared to 26.1% of revenue in Q2 2024. Fulfillment costs primarily reflect higher transportation costs as a result of carrier rate increases and higher warehouse processing costs. Gross margins were 30% in Q2 2025 versus 41.1% in Q2 2024. Q2 2025 gross margins reflect higher revenue share costs as a percentage of revenue due to greater share by Rent the Runway inventory, in addition to higher fulfillment costs as a percentage of revenue.
Q2 2025 gross margins decreased quarter over quarter from 31.5% in Q1 2025, due primarily to higher revenue share costs as a percentage of revenue, partially offset by lower fulfillment costs as a percentage of revenue versus Q1 2025. Sequentially lower fulfillment costs as a percentage of revenue reflect higher sales of inventory compared to Q1 2025. Operating expenses were 8% higher year-over-year, due primarily to transaction-related expenses. Total operating expenses, which include technology, marketing, and G&A, were 51.7% of revenue in Q2 2025 versus 49% of revenue in Q2 2024 and 55.9% of revenue in Q1 2025. Adjusted EBITDA for Q2 2025 was $3.6 million, or 4.4% of revenue versus $13.7 million, or 17.4% of revenue in Q2 2024. The decrease in adjusted EBITDA versus the prior year is primarily a result of higher revenue share expenses.
Free cash flow for Q2 2025 was negative $26.5 million versus negative $4.5 million in Q2 2024. Free cash flow decreased versus the prior year, primarily due to lower adjusted EBITDA and higher purchases of rental product on account of our inventory strategy for fiscal year 2025. I will now discuss guidance for Q3 2025 and fiscal year 2025. For Q3, we expect revenue to be between $82 million and $84 million. We expect adjusted EBITDA margins to be between negative 2% and 2% of revenue. For fiscal year 2025, we continue to expect double-digit growth in ending active subscribers. We now expect free cash flow to be lower than negative $40 million, primarily due to costs associated with the recapitalization transaction.
We believe our business is showing improved momentum as evidenced by growth in the active subscriber base, and we plan to prudently manage investments to continue to drive growth for the rest of fiscal year 2025. In conclusion, we believe that Rent the Runway is in the strongest position it has been in several years. We look forward to embarking on the next chapter of building sustainable growth and to taking even better care of our customers going forward.
: Operator.
Conference Operator: Thank you. With that, ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
: Thanks everyone for joining us.
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