Q1 2022 Rent the Runway Inc Earnings Call

June 9, 2022

Okay.

Yeah.

Yes.

Okay.

Perfect.

Yeah.

Yes.

Okay.

Right.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[laughter].

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Uh huh.

Yes.

[laughter].

Yes.

[laughter].

Okay.

Yeah.

[laughter].

Yes.

Okay.

Yes.

Okay.

[laughter].

Yes.

[laughter].

Yes.

[laughter].

Okay.

Right.

Great.

[laughter].

Yes.

Perfect.

Yes.

Great.

Yes.

[laughter].

Perfect.

Okay.

Please.

Sure.

From.

Sure.

Okay.

Yeah.

Yes.

Yeah.

Okay.

[laughter].

Yeah.

Yes.

Okay.

[laughter].

Okay.

Yep.

Yes.

[laughter].

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

Right.

Yeah.

Sure.

Yeah.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[laughter].

Yes.

[laughter].

Yes.

Okay.

[laughter].

Okay.

Yeah.

[laughter].

Yes.

Yeah.

Yes.

[laughter].

Yeah.

[laughter].

Good.

With this.

Yes.

Okay.

Hey.

Hi.

Oh yeah.

Okay.

Yes.

Right.

No.

Okay.

Right.

Yep.

Okay.

Perfect.

Great.

Yes.

So.

Please proceed.

Great.

Perfect.

Please.

Uh huh.

Please please.

Yeah.

We've made.

Please.

Doug.

Thank you.

Sure Kip.

Please flip to slide.

Right.

Okay.

Thanks.

Great.

Okay.

Sure.

Got it.

Yeah.

Okay.

Uh huh.

Right.

Yep.

Sure.

Yes.

Hum.

Yes.

Perfect.

Hi.

Please please.

Thanks, Karen.

Please.

Correct.

Smith.

Right.

Yeah.

It's Peter here.

It's been a ton of effort.

Yes.

So can we.

With.

Yes.

Weaker margins firstly.

Great.

Please sir.

Yes.

Steve.

Oh, no pollster approved is <unk>.

No.

Thanks Bruce.

Got it.

Macro factors.

Yes.

Hum.

After.

Chris Please.

Please.

But when it gets passed.

Thanks, Paul.

But I think Richard baffled.

Baffled.

Got it.

Wilson.

That's a fact.

Interesting.

Rockaway U S European Smart permit that's may be confused.

Okay.

From defense to offense.

Sure Paul.

<unk>.

Yes.

Thank you.

First can you get passed out of pittsboro.

It's Tom.

Absolutely.

Yeah.

And keep it keep the ultimate benefit.

Davidson.

You buy from fencing threatened.

The retail price of fuel.

From $40 nine Smiths subscriptions threat we.

Okay.

Huntington Hartford.

Sure.

America needs to purchases.

<unk> got some strict flips miracle here.

Is that more often.

And value focused resources.

At that time.

In three months.

First the feedstock.

We can't pick up consumers will be.

Instead of affirmative votes will be.

Barclays.

Good evening.

Sure.

Yes.

Thank you.

Yes.

With.

Okay.

Sure.

Okay.

Yes.

Okay.

Yeah.

Yes.

Okay.

Sure.

Great.

Okay.

Right.

Thanks.

Okay.

Yeah.

Okay.

Right.

Yeah.

Yes.

[laughter].

Okay.

Yes.

Yeah.

Okay.

[laughter].

Thanks.

Okay.

Great.

Okay.

Yeah.

Great.

Okay.

Great.

Hi.

Yeah.

Perfect.

[laughter].

Yeah.

Yes.

Perfect.

Yes.

<unk>.

Yeah.

Right.

Please go ahead.

Yes.

Yeah.

Okay.

Victor.

Yes.

Great.

Thanks.

[laughter].

Right.

Yeah.

Okay.

[laughter].

Yep.

Okay.

Uh huh.

Paul.

Yeah.

Okay.

Hi, Keith.

That's perfect.

Perfect.

Yep.

Thanks Keith.

Right.

Okay.

Hum.

Okay.

Right.

Arthur.

Yeah.

Right.

Yes.

Yeah.

[laughter].

With Wedbush.

Perfect.

Got it.

Okay.

Thanks Robert.

Okay.

Perfect.

Okay.

For Q2.

Thank you.

Perfect.

Great.

[laughter] this past year.

Just briefly.

Sure.

Yes.

Perfect.

Hum.

Perfect.

That's perfect.

Okay.

Revenue.

Okay.

Please proceed.

Performance.

That's right.

No.

Yes.

Thanks for that.

Please go for it.

Thank you.

Well.

First for you.

Yeah.

Okay.

Yes.

60.

Thanks.

Hey, Steve.

At this point.

Thanks Christian.

Okay.

Mr.

Smith.

Yeah.

Sure.

So that's interesting.

Okay.

Yeah.

Local fund.

Thanks, Bob.

Sure.

Fulfillment.

The apartment.

Thanks, Jim.

Adjusted EBITDA efforts too.

<unk> eight <unk>.

Chris Tonight at $6 30.

What I fear, representing 34 first mortgages and.

Treatment for 85 plus year.

Yes.

Yeah.

Got it.

With that breakeven.

Four four.

Our operating expenses.

Okay.

77%.

With nice thank you you're welcome.

Yeah.

Thanks Lisa.

Thanks, Paul.

You bet.

Thank you.

Wonderful.

The next policy that provides scale and efficiency benefits.

Great.

Got it.

For example, since Q1 2002.

Toothbrush appear.

Mark.

13% of revenue and that's perfect excellent employees.

And of course.

Significantly.

The forecasted due to strong organic growth.

Okay.

And our plan for the rest of this year.

Pardon me.

Okay Awesome fleet.

Since then.

Yeah.

Moving to free cash flow, we continue to anticipate reservoir.

Largest Catholic cemeteries.

$60 million.

And remind you that seasonally Q1, and Q3 tends to be higher.

We are on track.

Alright.

So far through this year.

So more normalized year swap acquisition.

Yeah.

Annually.

Hollywood product.

And we remain.

Free cash flow breakeven information firms as you previously laid out.

The cash we have on it.

As we look at the remainder of 2022.

Remindful of backbone firemen and pricing and that is our.

Our outlook is reflected in our guidance this quarter.

The rest of right away.

We play a prescription.

To provide even more financial value.

In a cost conscious environment.

Also does navigation spheres.

<unk>.

Already in April that path with you.

Great.

Negative impact on our business.

In particular, a significant portion of our costs are variable we have demonstrated we can manage our fixed cost investments in a downturn.

Turning to Q2 and the rest of your guidance Youre reiterating historical seasonality of subscriber acquisition.

We just reported and what is typically one of our stronger periods for the year.

Acquisition.

Naturally think about changing over to walk through this.

This means that in the summer months, we generally see more acquisition and hiring of Paul <unk>.

Now our guidance for EPS.

In addition, we expect the continuation of the strong environment for events that we saw benefit our reserve and refill businesses that you'd want.

No wonder runway as John referenced plans to Covid variance toward time.

Closely watch variance at potential impact and we have incorporated similar patterns to the prior two years.

But the second half of this year.

We expect Q4 revenue to be only slightly higher than Q3.

For Q2, do you expect revenue of $70 million to $74 million, representing 56% year over year growth at the midpoint versus Q2 'twenty one.

For adjusted EBITDA in Q2, we expect negative four to negative $3 million.

In terms of the full year, we are reiterating our revenue guidance of $295 million to $305 million, representing 45% to 50% growth versus full year 'twenty. One we continue to believe that longer term, we can sustainably grow revenue in excess of 25% annually.

We are actively managing to free cash flow dollars and margin and maintain our prior guidance of negative six to negative 5% adjusted EBITDA margin for fiscal 'twenty two.

From a quarterly progression standpoint, a reminder, the pre COVID-19 seasonality of our profitability with Q3 typically impacted by higher marketing when we lean on seasonal customer acquisition and also by higher project spend and revenue share we.

We would therefore expect Q3 profitability to be lower than Q2 profitability.

We continue to be intently focused on balancing robust growth with profitability and we will seek to strike the right balance to attain both objectives and maximize the long term value of rent the runway.

With that we're happy to open it up for questions.

And at this time, we'll be conducting a question and answer session.

That's a question. Please press star one on your <unk>.

Got it.

Kaufman syndrome.

Thank you.

Thank you for that.

Keith.

Participants.

Smith.

Necessarily connected.

Okay.

One of them. Please.

Yes.

Our first question comes from the final.

Okay.

Christina.

Great.

The blip may fluctuate given subsets there one key results.

Right.

Thank God.

Just putting some of them for instance.

And it's fair to say that.

And what that means.

Yeah.

Bob.

That's why Adam Scott.

Phosphate margins necessary, Inc from scratch and ultimately centered.

Christian please.

I'm sorry, what.

Okay.

Yeah. Thanks, a lot for the question why don't I start with the waste.

Okay.

And so we're giving for Q2.

Hum.

Right.

Sure.

The rest of the here and it's really based on what we've seen in the last two years.

Absolutely.

We thank you Sir.

Cynthia.

So that's fine.

It's worth it.

And thank you for that.

Yes.

Okay.

I mean can he can.

G E.

Very high engagement platform.

Stronger.

You can get activated.

And Sweden.

It is simply that it's been for us over the next few quarters.

Yes, it does.

A cheaper way for sure.

Yeah.

60 minutes from customers.

First kind of jumping in Sofia national carrier.

So I think that for me.

D C.

Yeah.

We are.

Okay.

It is possible for as many subscribers as possible. So that we can give them the goal that 50% of subscribers have access.

We hope to be able to beat that.

Yeah.

For customers.

<unk> experience.

I'd say no.

Yeah.

Yeah right right now.

Sorry for being a customer seems tapers off the bat.

Good.

We're excited about the opportunity set over.

Over the next few months.

Okay, great. Thank you.

Our next question comes from the line. Thanks.

Bruce.

Please proceed with your question.

Hey, Thanks for taking my question.

Thanks Richard.

So you have a preference.

Secondly, after last recession.

Kind of with your assessment into existence, where we've talked about.

Okay.

We work to see if I can.

Robert.

Can you kind of talk about what you've alluded to this in the prepared remarks, but where specifically what levers would you guys be able to pull in.

How much do you would've potentially throw off.

Perfect.

From a high level.

Yes.

Thanks.

So first you know today.

<unk> continues to grow our outlook is positive.

And that's reflected in our guidance in this quarter.

Closely monitoring.

No.

Remind you again that we navigated in two years, the Covid impact, where we were significantly impacted by.

Customers in the U S sheltering at home.

And.

And people were sheltering at home wearing primarily their pajamas.

Less need for driving their wardrobe and therefore for instance person departure.

So during that period of time, we reacted incredibly quickly we made lots of tough decisions to cut cost across every area of our business and we think that we're ready enabled.

When.

You're in respond to any negative impact on the business now.

Going back to 2020.

It's really important to understand that data is core to rent the runway.

We monitor and analyze data real time.

So we have a unique advantage in the vibrant comes were up over three times a week there.

So as soon as there is a change in their behavior, we see it so.

So we started to see data.

Early March 2020 that later to make those really swift informed decisions to cut costs throughout the business very early on and we didn't hesitate in making the right decisions for the best for the business.

So we know early on when their shifts in behavior now interestingly right now we are seeing a shift in behavior in the sense that our customers are actually shifting into more celebratory clothing than we've ever seen before.

He's really showing us with what she is renting and how she is engaging but she is ready to get back out into the world and whether it's for work whether it's for the weekend, whether it's for special events. She wants to feel happy and she wants to use fashion as a way to show up and feel that way.

And I can in terms of the more financial side any question. Let me let me take the last question first which is that we are laser focused on staying on our path to profitability are even where the recessionary environment and then more practically speaking the way that we would get there is it really just remind you a bit about the the kind of the structure of the business and the business model.

We have a significant portion of our operating costs are largely variable and they represent approximately 60% of our cash operating costs.

Which means that they either will vary with nomad automatically or or we have high flexibility and discretion to a job as we did throughout COVID-19. So these would be things like our fulfillment expenses, our customer service costs clearly credit card fees revenue share payments that are performance based and marketing and then the remaining cash Cogs, which is about 40%.

The rest of it is you know fixed or largely fixed and thats, mostly in G&A and tech as you've heard me mentioned before and I would say that within the second bucket approximately 30% of our employee related costs, which we could reduce in a lower growth scenario and yeah. We demonstrated in 2020 at the onset of Covid that we had levers.

Also on capital expenditures, which would be the product in the P. P. Any capex. If we saw a change in demand, but I also just want to remind you that you know our business is different than other businesses, because we're able to monetize our products over many years as opposed to other retailers are a company that could be stuck with their inventory we have that ability and you just saw us do.

That over the last couple of years. So we feel good about the cost structure of the business and our ability to react in a in a kind of a downturn environment at one other thing that I would add is that our consumer is.

Slightly different so 80% of our subscribers and household incomes over 100 K.

So this consumer maybe less sensitive to changes in the macro environment and we'll continue to monitor that.

Thanks, so much variable.

Our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Hey, guys.

Just to follow up on the macro question.

You mentioned that when consumers might be trading down the value prop.

Huge savings that they get from rent the runway might shine through if you go into a recession.

I'm just curious what other parts of your business I assume customer acquisition costs would improve at launch as competition and those add auctions.

It goes down and then.

Whether recessionary impacts might you see positive like how could the conversations with designers change if youre.

We're getting absolutely returns from their department store.

Clients et cetera could you just flush that out a little bit and then Scott you mentioned.

A bunch of the shared by RTR inventory crossed over the threshold whereby you have to pay the Rev share. Just curious like is that a meaningful percentage of the share by RTR are how do we think about that.

On a go forward basis, as we kind of permanently cross connect.

That should be about three going forward. Thanks.

Yeah. Thanks.

So you know.

I came up with the idea for us in 2008, and really became a student of what was going on in not recession, one of the things that I found really fascinating without drawing down.

Last recession customers were still buying 65.

Items per year.

Here, which was very similar to what you would find recession.

And we saw that not only would be trading into other retailers like T. J Maxx, Burlington and Ross as the World. She also that was the emergence of the flash sale.

And really also a massive growth in value oriented retail like fast fashion.

Thank the consumer.

Showing us that he's still wanted variety she's still buying high quantity, but he's changing in kind of pulling for Gemini.

Units at lower price points.

So what happens well in that environment from a brand perspective, I think you would have even more ability to shift more of our inventory acquisition into consignment, where our brands would be able to.

Sharon revenue benefits their alternative would be to deeply discount on their own.

Product and more to kind of sell it to off price or kind of flash cell types for lower <unk>.

Lower take rates, so I think that as they saw during COVID-19. When we went into we transitioned into revenue share agreements with many of our designers when COVID-19 hit in 2020, you know those designers have been.

Getting their wholesale costs were even more back overtime. So they trust this kind of consignment channel and I think we'd be able to drive even more a.

Consignment in the case of a recessionary environment to your point as well I do think that.

We might have more NIM.

Negotiating leverage when it comes to paid marketing span I also think more importantly, negotiating leverage would come back as it relates to transportation partners. So we saw transportation expenses were rising in 2021, and we were proactive in two ways number. One is we just increase the amount of partners we worked with from approximately.

Absolutely two partners to over a dozen partners because more partners equals more negotiating leverage and two we started implementing consolidation strategy, which are consolidation centers and home pickup or example, we think that as potentially ecommerce rates might go down that transportation partners maybe.

Willing to come back to the table and actually negotiate.

For the first time in a little while.

And Ross in terms of the questions related to share by arch yard. So I I'm not disclosing the exact percentage of our units that hit their cap, but it did positively impact our gross margins and we were really pleased with the results that were better than we had forecasted in terms of going forward you know its possible its an ongoing benefit it's really going to depend on the.

Sure by arch are products that our customers choose you know and and how close those products are to hitting their perhaps already which is which can vary but you know I would certainly take a look at you know what I said on the call which is that we do expect the gross margin to increase slightly this year versus last year.

Yeah.

And our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.

Thanks for taking the questions maybe two if I can one that is really seem to call out in terms of geographic differences, you're seeing in the business in terms of either gross additions or customer behavior that might give us a better sense of how the return to office might be playing into some of the dynamics of the business that could promote future growth that'd be number one in the prior.

Nicole's, we've talked a lot about your automation efforts to the long term or anything to add there as an update about how we should be thinking about automation as a driver of margins over the long term. Thanks, so much.

Yes, so there's actually you know not much differences in geographic.

Customer behavior that we're seeing we're seeing across the board that our customers are back in the office a few days a week, we're certainly seeing them be far more resilient to COVID-19 impacts in all geographies and varian.

One of the interesting aspects of.

Going back to the office in a hybrid way is that.

She isn't yet back in the office five days, a week and therefore, Justin and she hasn't bought workwear in the past two years, so justifying purchasing new work, where it makes less sense, if you're not really going to be there five days a week. If you don't even know what your dress code is anymore. So renting the runway.

For the office makes more sense now.

In many cases than in the past.

And we believe that a recessionary environment interestingly could lead even more.

Our workers to be back in the office more days of the week, because we think that employers may have more power.

Power to request people to come back and just one of the things I would kind of call out that we think about a lot is.

Mr. During COVID-19 when people were sheltering at home.

People really were not attending events they were not going into offices, they weren't walking around the neighborhood. They werent socializing in a recessionary environment people still get married people still celebrate new year's people still go into offices and I think they may go into offices more so we're focused intently here on positioning rent the runway.

As the most cost effective way to get dropped because we know that people still want and need variety in their wardrobe and we think that we.

We may be heading into environment, where this becomes even more attractive to more consumers.

Hi, Eric and then in terms of your your second question. Yeah. We absolutely think that there is a lot more that we can get out of the automation as Jen mentioned on the call. We just finished the rollout of RFID. We just are implementing digital issue tagging, which should make us much more efficient when it comes to cleaning and restoration. So this is really why we think that there are a good bench.

That's ahead of US you know why we feel confident in what we had said last call.

Call It which is that we believe that the fulfillment cost to get back down to below 30% of revenue over the next few years.

Thanks for the color.

Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.

Hey, guys I just wanted to ask thanks for taking my question I was going to ask.

The marketing going private you said, 13% to 10% for the 13th time in the first quarter and 10% of revenues rest of the year. You know, it's been kind of be hammered home to us that this is the biggest wedding season in decades, and we've lost we've heard that you know through the Department store earnings calls and Diamond Jewelers, and obviously as you know in this environment that.

Data point quickly gets connected the questions about how to lap those kind of big comparisons next year and I don't know how you feel about that but do you think this is a one time big bump potential for the reserve business. This summer that makes you think maybe you should deploy more towards converting some of those you know one time ish reserve customers into that very lucrative.

The LTV of the subscription customer.

We feel really good about our plan to continue to spend about 10% of our revenue on marketing this year excluding.

Employee related expenses because.

Number one we continue to benefit from this really strong organic growth flywheel, we're doing a lot of marketing that doesn't actually involves paid marketing. So we talked about content. We talked about partnerships, we talked about product improvement that might enhance the virality of our business. So we completely agree.

Three with you that this is a really important a period of time for us to build the funnel for both current subscribers and subscribers for many years to come and we're really pleased with our success in Q1 in terms of our reserve business, beating by 20% versus our.

<unk>. We also have this really large first party database and we're able to engage with customers from the past to rented for an event and our prospects to really convert them into coming back to rent dollar part again, we're coming back to a subscription. So we think that we can balance growth.

With profitability that we don't have to spend more than 10% and not our number one goal is driving the business to free cash flow profitability.

Hmm.

And if I could ask the thanks for that if I could ask a follow up I think you ran a sample sale in New York in the first quarter, which probably helped the resettlement that as retail number in the quarter was.

If I'm right on that is that a good experience for you is that something that you feel like you could do again this year to add a little you know realize three dimensional.

Aspects of the brand every once in a while and touch consumers and help monetize some of that product that you've been you know good to move over to retail.

Yeah, So I'm I'm glad that you asked that because I think it's really important to distinguish between.

Sample cells, which are part of our liquidation revenue for inventory and retail.

So.

As you know we are <unk>.

Monetizing inventory over multiple years.

We depreciate that inventory over three years straight line and then Theres a salvage value that is associated with our apparel that is tested every single year by our accountants that salvage value is related to how much we can kind of tell the inventory for at the end of its useful life useful life means to us that it no longer loved brand new.

So once the unit of inventory is not in kind of rentable condition, which we consider like new condition, we will take it out of our rentable inventory and we will clear that inventory sample sales are one of the channels from which to be clear inventory and that really goes into salvage value, but that's not our resale revenue so reece.

While revenue is the revenue we make from subscribers when they decide to keep units that they already have at home.

Part of their subscription they have these four units at home I have addressed at home I decided I love. It we're dynamically pricing that dress and I can click to purchase it and nor any person can come to our site at any time and see a dynamic price with which to buy the unit, which is still in like new condition and that's our resale revenue.

Just to double click on that a little bit more Michael Yeah. We've been doing sample sales for years right. This is not a new strategy that is something that we've always done and there's always been a really successful strategy. It really points to the fact that her item even at end of life are still valued by customers and I just want to double click on something that John said, which is that samples they'll revenue does not.

The revenue line that is recognized as a gain or sale you know because we've already you know finished depreciating. The product you know it ended at the end of its useful life. So that's actually not reflected in our refill lines.

Okay. That's very helpful clarification, Thanks, a lot guys and congrats again on a nice quarter.

Thank you.

Our next question comes from the line of I mean, <unk> with Piper Sandler. Please proceed with your question.

Alright. Thank you guys for taking my question going a little bit off of Michael's question with wedding season, being the highest spending decades, what do you see in the mix of customers that are coming to Duane runway for events are they going into reserve business and do you see them convert to subscribers later or because you know you get a discount.

Like your first two months of subscribing do you see them going directly into the subscription business like what's the mix there.

Well, we've done a better and better job over time and this is intentional about positioning subscription as a solution for local events and trying to drive first time renters into subscription.

Before they even try renting for a special event and so we are seeing a healthy amount of new customers come directly into subscription we see based on the inventory that they ramp and some of them may be events in 10 day. So this is certainly kind of a reason why people are.

Are signing up for subscription this year that being said our reserve business continues to be such a critical funnel for us because.

Even though over 80% of our revenue comes from subscribers you know the majority of our customers continue to be people that come in a few times a year rental car buy from us retail and not continues to have a really healthy funnel of people that we can tap into as our future subscribers. So.

So we're kind of agnostic, we just want you to come in try renting feed the depth and breadth of our inventory that we carry aspirational designer brands that we deliver an incredible customer experience and once you use rent the runway of course, it's our job over time to try to convince you that a subscription is a smarter and more sustainable way to get dressed for your everyday life.

Got it thank you.

Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Good afternoon, and thanks for taking my questions Bicoastal and paused subs as we think about Covid, just becoming more normalized or is there a way for us to think about what percentage of paused subs you sure.

I guess should be expected.

In other words are you guys seeing a continuing impact from Covid in terms of policy counts or how do we think about that going forward and then secondly on the price increase how do we think about the potential for future price increases I'm not looking for guidance in terms of you know whether that is net.

Year or whether it's multiple years, but just more structurally given your learnings from this past person crews how do we think about that going forward. Thanks. So much.

So on pause.

Plus it's just a natural part of how people use the subscription it creates flexibility for subscribers, which keep them loyal I wanted to call out that the people that are in pause this month or a different group of people and who's in Pas next months that people are kind of coming in and coming out of the subscription based on.

What's going on in their lives, but we mentioned that theres seasonality.

Our business, so people think more about and care more about their wardrobes and fashion in general between March and May between September and November when they generally we've been trained to consumers to actually buy new clothes. During this period of time. So we see a lot of engagement with customers wanting to use the subscription for newness.

And for a variety of those periods of time during the year as opposed to let's say during the dead of winter in January when we're kind of snuggled up in our sweaters and pajamas at home you know that might be a more natural period of time, where we see higher rates of pause now in terms of how the percentage of folks that are in pause right now compared to pre COVID-19.

We do think that we're in a very different environment than we were in 2019, we have a product that we have different programs that have almost double the margin of the programs that we had in 2019, we have a customer who is using us for a much wider away ray of use cases than she used us for in 2019.

And to be completely honest, we don't know what the baseline percentage of people in Pas is gonna be in this post Covid World. We know what it was in 2019, but like the data you know remains to be seen over the next few quarters will a baseline out around 20 per son will it stay around 24 per.

We don't know all that we care about is that active subs and total subs continue to grow because pause subscribers are the very bottom of the funnel for us they're automatically rebuilt 30 days later, so we love the flexibility that it provides and we are excited about the fact that we reached a record.

Ending active sub count in Q1.

And thank you for the question on price increase Andrew you know I would say I think we're really trying to get to perhaps our two increases over time, it and how we drive that and we do have confidence in driving ARPA increases over time.

A portion of how that happens is really true customer engagement rates were the fact that we have seen really strong add on activity and we believe that that continues and we don't have a specific plan for annual price increases. We do think that you know from time to time, we might do some mid single digit pricing action when it makes sense.

We have continued to invest in the experience for the customer.

Mark.

Okay. Good.

Okay.

Right.

Okay.

Yeah.

Okay.

Oh boy.

About half as much.

As we did last year.

That's one six counties in which we've been talking about it's nice to see a show up in our numbers today.

Yeah.

You mentioned the higher <unk> than we had expected.

Said way back which is a strong add on activity and that always is going to improve margin for us and then three is what we also discussed which as you know the revenue share as a percent of revenue was favorable versus their forecast you know because of those Max payouts, where we no longer have to pay the brand. So those are really the three elements that contributed to the gross.

Jane being substantially better than it was last year and maybe John maybe I'll hand, it off to you a little bit if you want to talk about product depreciation and the dynamic of the longevity of our items, which is really unique to our business model.

Yeah. So one of the things that I've observed and based on kind of feedback that I've gotten over the last few months.

One of the things that is misunderstood about rent the runway is how clothing, how it's possible to monetize clothing overtime.

So there is this big.

Big.

Men in.

In the fashion industry that things go out of style right away.

That's how the retail industry has functioned forever that you launch product in a few weeks later you mark it down in the new market down again, and then you have to clear it and.

And we have 12 years of data that show that number one thing's actually don't go out of style. After a season that we can monetize inventory for many years and now what the customer cares about is she cares about wearing something that is new to her every single time she comes to rent the runway.

Often our customers don't know and they don't care, whether something is right off the runway where it's from previous season as long as they've never worn it before so that's why we've invested so much in personalization because we constantly want to show our customers a fresh assortment of new items that are new to her.

So the other thing that's really important to understand is that the lifetime of the garmin is much more highly correlated to how frequently it's been used and cleaned.

How many seasons old it.

So the lifetime is not dependent on fashion trends, it's entirely dependent on our ability to restore the item into like new condition and how many times have been cleaned.

So we have inventory cohorts that we kind of acquired in 2018 in 2019 that are still monetizing and we're producing revenue in Q1.

And that inventory has already been fully depreciate. It we can still make money off these cohorts because customers don't want them and they didn't actually get as much use as we originally anticipated during COVID-19.

So I think that that dynamic as well.

Really understanding how we're able to use personalization to drive monetization of inventory over time I think is one of the most important thing to understand about rent the runway.

Great Super helpful. Thank you.

And our next question comes from the line of Dana Telsey Telsey with Telsey Advisory Group. Please proceed with your question Hi, Good afternoon, everyone. As you think about product costs, which have been coming down what do you see the opportunity in product costs going forward certainly seems like obviously, it's been product cost reduced by 20.

Percent of revenue year over year, where could that come from and why and then very interesting on the at home any data points on the 20 markets that you have it and so far what youre learning from that at all enhances the next 20 markets you put it in any learnings there. Thank you.

And we'd mentioned that our goal to drive to a free cash flow profitability was to move non wholesale product acquisition. So non wholesale barrages, our consignment business year by RTR expert design.

Yeah.

Okay.

Q1 2022 Rent the Runway Inc Earnings Call

Request a DemoDemo

RENT

Rent the Runway

Earnings