Q1 2023 Rent the Runway Inc Earnings Call
Speaker 1: I that.
Speaker 2: Welcome to the Rent the Runways first quarter 2023 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please do not use the link in the description.
Speaker 2: please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would like now to turn this call over to Rent the Runways General Council, and please press star 0 on your telephone keypad.
Speaker 2: Good afternoon everyone and thanks for joining us to discuss Rent the Runway's first quarter 2023 results. Joining me today to discuss our results are CEO and co-founder Jennifer Hyman and CFO Sid Bakker. During this call we will make references to our Q1 23 earnings presentation which can be found in the events and presentation section.
Speaker 2: of our disaster relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include our future expectations regarding financial results, guidance and targets, market opportunities, and our growth. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially.
Speaker 2: 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 that's 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 website.
Speaker 2: in our SEC filing. And with that, we'll turn it over to Jen. Thanks, Kara, and thanks everyone for joining. As I shared on our last call, our 2023 growth strategy is focused on improving our customer experience. To do that, we are focused on delivering more value to customers quarter over quarter.
Speaker 2: in the areas that matter to them most. It's an exciting time for Rent the Runway. We're delivering tangible momentum in executing against our customer-centric vision, as evidenced by our strong Q1 results. We delivered a new VECCR to active subscriber count of 145,220.
Speaker 2: representing 15% growth quarter over quarter while posting a beat on the top and bottom line. Revenue came in at $74.2 million, a 10% increase year over year. We continued to hold our gross margin above 40% at 42.3% and posted a strong adjusted EBITDA margin of 6.1%, well above guidance. I'm particularly proud of the progress on profitability metrics paired with strong subscriber growth.
Speaker 2: because I believe that it demonstrates our ability to manage costs effectively while making important investments into the customer experience.
Speaker 2: improvements we've made so far this year. Having said that, I also want to emphasize that transforming our customer experience is not a one-quarter endeavor. We will be updating you on impact over the next several quarters. Our goal is to maximize customer love and retention and we'll do that by making their experience easier, more valuable, and more fun.
Speaker 2: Now I want to talk to you about what our team has already accomplished related to our three customer-centric strategic pillars, which are one, getting her the inventory she wants when she wants it, two, providing an efficient and easy to use experience, and three, offering best in class product discovery. These pillars are key due to the frequency with which our subscribers use Rent the Runway, and this is what we have to get more and more right over time. As a reminder, the majority of our team is focused on customer-facing initiatives this year.
Speaker 2: We kicked off the year by permanently adding an extra item to every shipment of our subscription programs, and we've been happy with the results of our launches since then.
Speaker 2: One, on inventory she wants when she wants it. In support of getting her the inventory she wants when she wants it, inventory availability continues to be a top priority. We know our customer is here for the fashion, and her ability to access it is one of the key ways she evaluates the value of her subscription.
Speaker 2: We've expanded and grown an ongoing strategy to acquire more of the styles our customers are telling us they want in real time.
Speaker 2: Because of real-time data signals we get on actual and unmet demand, we are one of the few retailers that is structured to chase and refresh inventory mid-season. This gives our buying team significant leverage on pricing. We believe the next step in this effort will be felt deeply by our customers in the back half of the year.
Speaker 2: as we are focused on significantly increasing depth in the key styles and trends we know our customers want. Next, I want to share some of the actions we've taken in Q1 to make Rent the Runway easier to use for our customers.
Speaker 2: In early May, we launched a luxury-style concierge service to help new subscribers onboard with Rent-a-Runway more seamlessly.
Speaker 2: Rent-a-Runway Concierge provides free one-on-one interaction via text with our customer service team to help new subscribers get the most out of their membership, from building their first shipment to styling tips or solving a fit or shipping issue. We believe this program has the potential to be an important retention driver.
Speaker 2: Our customers have incredibly busy lives. 90% of them work, a third have kids, and 85% socialize more than twice a week. So the easier we make the experience, the more it can be cemented into her life. As we've shared previously, we've enjoyed strong, long-term customer loyalty. But we also know that the majority of subscribers who churn are not going to be able to make the same amount of money as their customers.
Speaker 2: do so in their first 90 days. By providing a concierge experience in her early months of membership, we aim to delight her with an effortless introduction to rental. We think this will improve her attention and make her a loyal customer sooner. You'll see us integrate this offering more deeply into our product experience in the quarters to come.
Speaker 2: their first 90 days. By providing a concierge experience in her early months of membership, we aim to delight her with an effortless introduction to rental. We think this will improve retention and make her a loyal customer sooner. You'll see us integrate this offering more deeply into our product experience in the quarters to come. Next, we're making our site and app faster.
Speaker 2: As an example, we drove a 48% improvement in average load time on a key entry point into our conversion funnel, which resulted in an 89% lift in conversion on that page.
Speaker 2: Last, we made two improvements to our delivery and returns experience that directly speak to the premium level of service Rent-the-Runway offers. One, we launched a new tool to drive further adoption of at-home pickup, which has led to an increase in in-market adoption of the service by nearly 4 percentage points from the end of Q422 to the end of Q123.
Speaker 2: Finally, I'm going to share recent accomplishments related to our strategic pillar on best-in-class product discovery, where our goal is to be even better than a typical retailer in how our customers find the inventory they love. First, we shared during our last call that we launched Rent-A-Look and similar items in late March to enable customers to easily find a complete outfit or a visually similar option based on the styling we provide on our product display pages. The introduction of these features has increased member engagement, particularly when members landed on pages with unavailable styles.
Speaker 2: Now she's served similar substitute items through this feature directly on the product display page, leading to a 34% increase in engagement with substitute items among members.
Speaker 2: Last, and something I'm personally very passionate about, we're excited to announce that in the coming weeks, we plan to launch an AI-driven search beta. This will allow customers to search common fashion terms or use cases, and is intended to make searching our site more intuitive and natural.
Speaker 2: For example, she will be able to write Miami vibe, Clam Bacon, Nantucket or Tropical motif. And our AI powered discovery engine will serve her relevant inventory. We see this as a first and important step in Rent the Runway using AI models to improve our product experience.
Speaker 2: and we expect to build on this launch in the months and quarters to come. We believe that AI has the potential to directly support our 2023 strategy of delivering more value to the customer, and leapfrog ahead of the experience that we deliver today. Fashion as an industry.
Speaker 2: inventory quality, occasion, and more every time she rents. The majority of subscribers are reviewing 10 plus items per month. This dataset gives us a head start on any future innovation we'll endeavor in the AI space. We also believe that our opportunity in AI is bigger than product discovery. We are exploring how it can impact our concierge experience and onboarding to deliver an even more personalized experience to enhance customer loyalty. And we have the team to do this.
Speaker 2: We've been harnessing machine learning for a decade, employing data to power personalization within our consumer experience, our operation, and across our business.
Speaker 2: So we're looking forward to continuing to build this muscle that runs the runway.
Speaker 2: I'm truly energized about the progress we've made so far this year and everything that lies ahead. Most of all, I'm looking forward to continuing to deliver for our customers. And with that, I'll turn it over to Sid. Thanks, Jen. And thanks again, everyone, for joining us. Since our 2021 IPO, investors have asked us two key questions. First, can Rents-a-Runway grow? Second, how profitable can the company be? Our first quarter results demonstrate solid progress on both fronts. As Jen outlined, we believe deeply that the customer experience improvements we are making
Speaker 3: are key to driving improved retention and faster growth. At just over 145,000 ending active subscribers at the end of Q1, we are making progress to 25% plus active subscriber growth in fiscal 2023.
Speaker 3: Our path to profitability is focused on free cash flow. Last quarter, we outlined the almost 50% reduction in cash consumption we expect for fiscal 23. We believe that our margins in Q1 provide a strong foundation for progress towards that goal. Let me now review our Q1-23 results. We ended Q1 with $145,220.
Speaker 3: quarter with $74.2 million, up 10.6% year over year.
Speaker 3: Subscription and reserve rental revenue was $66.8 million versus $61.4 million last year, an increase of 8.8%.
Speaker 3: As we discussed last quarter, we did see weakness in our reserve business in Q1. Subscription R-POOF of the quarter was slightly higher year over year, primarily due to the impact of the April 22 price increase.
Speaker 3: partially offset by changes in program mix and add-on rates.
Speaker 3: Other revenue was $7.4 million versus $5.7 million last year, growing 29.8% year-over-year, due primarily to increased purchases of rental products.
Speaker 3: Note that the timing of these purchases can vary from quarter to quarter, depending on the assortment available for sale. The other revenue represented approximately 10% of revenue versus 8.5% of revenue in 2.122.
Speaker 3: Fulfillment costs were $21.9 million in Q123 versus $22.9 million in Q122. Fulfillment costs as a percentage of revenue improved from 34.1% of revenue in Q122 to 29.5% of revenue in Q123. As a reminder, Q122 results did not benefit from an April 22 price increase. We were able to offset the impact of higher ship units per order on account of a five-item launch with efficiencies in both processing and transportation costs. Growth margins were 42.3% in Q123 and 32.5% in Q123.
Speaker 3: versus 33.5% in Q122. Q123 gross margins reflect the impact of the April 22 price increase, the fulfillment cost improvements discussed above, as well as lower product depreciation due to the continued impact of product acquisition mix changes towards more efficient channels.
Speaker 3: As expected, gross margins were lower than Q422 levels due to seasonally higher product acquisition we typically see in Q1 and Q3.
Speaker 3: Operating expenses were 5% lower year-over-year and about 13% lower year-over-year before soft-based compensation primarily due to the favorable impact of our 2022 restructuring plan. We continue to expect about $25 million in restructuring-related savings in fiscal 23 compared to the Q2-22 run rate.
Speaker 3: that allowed us to offset investments made to improve customer experience. Free cash flow with negative $12 million in Q123 versus negative $28 million in Q122. We continue to expect significant improvement in cash consumption in fiscal 23. Let's turn to guidance. For the full year, we continue to expect revenue of between $320 to $330 million and ending active subscriber growth in excess of 25%. We are also reiterating a full year adjusted EBITDA margin guidance of 7% to 8% of revenue. Our guidance on cash flow remains unchanged.
Speaker 3: and we expect to reduce cash consumption by almost 50% to below $50 million. We are updating a fiscal 2023 product spend expectation to $74 to $76 million from $69 to $72 million as we are seeing increased opportunities
Speaker 3: to purchase high quality styles from top brands at deep discounts. Finally, there is no change to our expectation for growth margins to be slightly lower on a year over year basis.
Speaker 3: We expect Q2 revenue to be between $77 and $79 million. This represents about 5% growth sequentially versus Q123 and approximately 2% growth versus Q222 at the midpoint of the guidance range. Let me talk about the factors affecting Q2.
Speaker 3: First, as some of you may have noticed, we are experimenting with being less promotional with our new customer offer pricing.
Speaker 3: We think this will improve retention and allow us to invest in improving the customer experience.
Speaker 3: We do expect these experiments to reduce acquisitions in the short term, especially in our lower-priced programs. As a result, we expect lower ending active subscribers in Q2 versus Q1. We think these are the right decisions for our customers and have factored these changes into a full year guidance of 25% plus subscriber growth.
Speaker 3: Second, both sequential and euro-year growth are expected to be negatively impacted by the decline in the reserve business. Finally, we also expect other revenues to be relatively flat quarter-over-quarter due to higher units sold in the first quarter of this year. The 2.223 adjusted EBITDA margins are expected to be between 7 to 8 percent of revenue.
Speaker 3: as we expect the higher revenue base versus Q1 to improve leverage on our fixed cost base. I'd like to end by saying that we remain confident in the trajectory of our business, and we have a very clear sense of how to improve the customer experience.
Speaker 3: The second half of fiscal 23 should see us make significant progress across inventory, onboarding, and product initiatives.
Speaker 3: We believe these changes will be noticeable to our customers and make it easier for them to find and experience our inventory and products in a more seamless manner. With that, we are happy to open it up for questions. Thank you. We will now be conducting a question and answer session.
Speaker 2: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker 4: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 4: So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may re-queue and time permitting those questions will be addressed.
Speaker 4: One moment please while we poll for questions. Thank you. Our first question comes from Rick Patel with Raymond James. Please proceed with your question.
Speaker 5: Thank you and good afternoon everyone. I have a question on getting better at giving customers what they want, when they want it. How do we think about this from an inventory management perspective? Does it mean that you will be buying more inventory as you get a read on fashion? Does it mean that you will be leaning more on your share by...
Speaker 2: seen us really deploy one of the ways thus far in Q1 and early Q2. So the first way is we get these real-time data signals in season on what's doing well, what's highly demanded, and number one we're able to respond to them in season, get competitive pricing, reorder pretty aggressively against top styles.
Speaker 2: week of full price selling kind of calendar.
Speaker 2: So that's number one. The second aspect of this is really focusing on depth.
Speaker 2: We know that our customers come to Rent the Runway, they heart styles that they love, and we want to give them more ability to get those products that they heart.
Speaker 2: way more frequently and way more often.
Speaker 2: So we are making significant changes to the depth of the styles that we acquire from our partners. And that's going to really start to show up in the second half of this year. And we think that it will make a noticeable impact on customer experience. We have great data on what you want.
Speaker 2: I think that we're solidly in now this post-COVID world where she's really using us again for workwear, for weekends, and for special occasions. And so we're able to increase the depth across the styles that matter to her most.
Speaker 3: Yeah, Rick, and thanks for the question. I think in terms of the financial impact of this move, look, it's obviously the number one factor into the guidance that we have provided for product spend this year. But more importantly, I would say we always face this trade-off, right? How many styles do we want to buy, and then how many units of each style do we want to buy? So there is no additional dollars that are required to optimize for depth. I mean, we have.
Speaker 3: to inventory because of these optimizations on depth and breadth that Jen mentioned.
Speaker 4: Thanks very much. All the best. Thank you. Our next question comes from Andrew Boonie with JMP Securities. Please proceed with your question.
Speaker 5: Good afternoon, and thanks for taking my questions. I'd like to talk about the guide for 2023. Just given the guidance for 2Q and thinking about the back half of the year, can you talk about your confidence in the reacceleration of subscriber growth to hit that 25% plus number?
Speaker 3: Sure. Look, I think we had to go back a little bit. We always this year was always supposed to be a year of two halves. Right? So when we provided guidance last quarter, we said revenue growth in the back half of the year was supposed to be significantly stronger than the first half.
Speaker 3: year, right? So we still believe that's going to be the case. But I think fundamentally what underpins our confidence on the growth for this year is of course number one we've had a strong start to the year, but secondly it's our confidence in the data that we have behind all of the key initiatives.
Speaker 3: that we have lined up for the backup. So we think, number one, the inventory changes are going to be significant because ultimately, people come, customers visit, rent the runway, to rent the products they love. And if we make it very easy or much easier to find those products to interact with our website very easily, that is going to pay dividends in terms of the retention and the loyalty customers have.
Speaker 3: The other very significant change or improvement that we've made to the site is this personalized onboarding and RTR-concaired service. So 55% of all subscribers will leave us to do so within the first 90 days. So, how could you recommend an Airport Development government?
Speaker 3: It's quite critical to address the pain points those first 90 days. And here we are providing a very personal SMS-based, it's almost like your personal stylist, and we're seeing very encouraging results from customers. I think fundamentally, we have very significant product improvements that we always had planned.
Speaker 3: So this year that gave us a lot of confidence that we're going to get to 25% subscriber group. Yeah, I think our results in Q1 show that the strategic pillars that we outlined this year are working and they are being felt by the customer and I think more importantly
Speaker 2: What you're seeing across the organization is you're seeing an agile organization that has an execution orientation.
Speaker 2: So we've actually done a lot over the first four months of the year. We've launched a lot, we've iterated a lot, and this was within a plan where we knew that the majority of the transformative product experiences would really be showing up in the back half of the year.
Speaker 5: next few months. Jen I wanted to ask specifically about AI to that last thing that you said. I think you talked about AI as a first step. Can you talk about the vision in terms of how AI can be incorporated more broadly across the platform just a little bit more beyond search? Thanks so much. Yeah.
Speaker 2: So first I just want to talk about, you know, AI and what it can do to the fashion industry in general. I think that fashion e-commerce is one of the most...
Speaker 2: cumbersome customer experiences that exist. You are searching through pages and pages and pages of content to find the items that you like. And no one likes doing this.
Speaker 2: And so, first of all, as an industry that still is selling physical products, AI is going to be, fashion is going to be a major beneficiary as an industry. Now
Speaker 2: Why is Rent the Runway uniquely positioned here? Rent the Runway is different than traditional fashion in two ways. Number one is she's using us all the time, so making the experience much easier for her is even more important for us to do.
Speaker 2: than a retailer that you're going to once or twice a year where you'll flop through the experience as a customer and kind of put up with it. Around the runway if we can make this a seamless experience because we're a utility it'll be appreciated even more. And second because of how frequently she uses us we have real-time information on what she's doing tomorrow on how she liked or disliked the item she received yesterday.
Speaker 2: fit, on how exactly she wants to dress this weekend, and therefore the data set that we have we think is highly unique in terms of how we could power against AI. Now if we are utilizing AI
Speaker 2: appropriately over the next few years, I see no reason why someone even has to come to our website.
Speaker 2: We talked about the fact that she's already texting one-on-one with someone from Concierge. That's really today about her onboarding experience.
Speaker 2: We talked about a beta launching over the next few weeks around AI search, which would be fundamentally about new ways that you could discover product on the site. The, you know, more medium to long-term vision is really the marriage of these two things.
Speaker 2: That there can be through any modality, however you want to communicate to rent the runway, a way for you to constantly access a stylist that can help you with everything from picking out new inventory to you, to solving problems, to answering questions, and you can do it asynchronously when it makes sense for you on your own time.
Speaker 2: So we are really excited about the progress that we've made towards this beta that will go live over the next few weeks. It's really interesting because I think that across all fashion sites all over the world, the way that people are searching for product is fairly.
Speaker 2: It's fairly functional, right? You can go to a site and search for a t-shirt. You can go to a site and search for a black tie gown. The fact that we are going to be able to enable our customers to search how they actually want to use this closet in the cloud. To search for items to wear to my beach bonfire.
Speaker 4: Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Please proceed with your question.
Speaker 2: Hi, good evening everyone. This is Kaydon for EIC. Congratulations in the improvements in Q1. I guess first, Jen, we're now three months post the extra items announcement. You guys obviously had a lot of initiatives in place to improve the customer experience.
Speaker 2: I am curious with this latest cohort, if you can share any more color or numbers behind what you are seeing from a retention basis out of that tranche of consumers. And then, Sid, you noted your confidence in the active subs accelerating into the back half.
Speaker 2: Just from a seasonality perspective, just looking back the last few years, you guys have tended to lose active subs quarter over quarter in Q4. Just anything we should consider between 3Q and 4Q, especially as you're more confident behind some of these initiatives around subscriber growth. Thank you.c Let's variables-
Speaker 2: So to address the first part of the question, through Q1 we saw better churn, better rejoin rates and better conversion rates. And as we get further away from the launch, it's harder to say what's related to 5-item versus other experience improvements that we're making across the board. But we feel really great about what we saw in Q1.
Speaker 3: Yeah, and in terms of active subs, you're 100% right. Last year we did see a decline in Q4. I mean, if I look at the pacing of product improvement and the inventory bill that we have this year, I feel very optimistic that the entirety of the second half is going to be...
Speaker 3: positively affected by that. So I'm not going to sit there and guide necessarily to what Q4 is going to look like relative to Q3, except to say that we've already provided confident outlook in terms of plus 25% subscriber growth. So we'll leave it at that. But that's what we expect to hit. And I think we feel, given the product improvements we have, very confident in that outlook.
Speaker 3: affected by that. So I'm not going to sit there and guide necessarily to what Q4 is going to look like relative to Q3 except to say that we've already provided a confident outlook in terms of plus 25% subscriber growth. So we'll leave it at that. But that's what we expect to hit and I think we feel given the product improvements we have, very confident in that outlook. Great, thanks very much.
Speaker 6: Thank you. Our next question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question. Thanks so much for taking the question. I want to know if we could maybe just talk about the broader environment that you're operating in generally. We've talked in the past about return to work, the return of big events, elements of possible rationalization of spend by the consumer and shift into a model like yours and away from a purchase model. Can you just give us a sense of where we can level set in terms of the thinking around the headwinds and tailwinds you face in the business as we go deeper into 2023 across those themes that we've talked about before and how those might impact elements of policy.
Speaker 2: we're seeing demand for workwear is continuing to increase.
Speaker 2: and demand overpenetrates into work wear relative to active units on our site. Very similar to pre-COVID.
Speaker 2: for the first time since COVID has occurred. And so we think that because of
Speaker 2: the macro environment as CEOs are calling their workforce back into offices and demanding more that they're there that this is a very positive tailwind for our business and it feels great to see work wear back up to, you know,
Speaker 3: similar utilization than we saw pre-COVID. And I think that it's helpful, I think, when you go into, what about the macro? We're obviously in an uncertain environment and so on, but why do we still feel good, right? And I think probably the biggest reason why we feel good are, number one, we're addressing these problems that customers are told.
Speaker 3: on our customers. So you're seeing now it's just a question of how many customers can we get signed up? How long will that take? And really it's just a continuation of the data that we're already seeing reflecting the improvements that we are making to that customer's experience. Take inventory, another very important factor this year.
Speaker 3: once we actually optimize for breadth and depth and you know the actions we're taking, we know what a customer is likely to feel in terms of what's available to her when she visits the site. Now we also know based on historical data and evidence how that customer is likely to react. How loyal is that customer going to be because she sees that item more available. It's much more...
Speaker 2: reaching the benefits of the actions that we know our customers care about. We just see this as a market that's growing. We think that rental continues to offer tremendous financial value whether you're renting a car or you're subscribing and our goal is to focus on making our customer experience as
Speaker 2: positive as it can possibly be and to continuously improve it quarter over quarter in a market where there are more customers who are considering rental than ever before. Thank you for the color.
Speaker 2: as it can possibly be and to continuously improve it quarter over quarter in a market where there are more customers who are considering rental than ever before. Great, thank you for the color. Thank you.
Speaker 4: Our next question comes from Ashley Hilgens with Jeff Rees. Please proceed with your question. Hey, thanks for taking our question. Anything you can tell us on the composition of subscriber growth trends? Are you activating more reserved users or seeing new subscribers come into the platform? Thanks so much.
Speaker 3: Yeah, I mean obviously look, we've called out the weakness in the reserve business, we've talked about that that is affecting performance this year, but so what that implies is we're clearly seeing activation across re-joiners, we're clearly seeing activation across new customers. I mean this goes back a little bit to
Speaker 3: two things that are going on. The first thing is customers are embracing rental. So with that, you are seeing new customers sign up and that's a very positive trend in the business. And then the second thing you're seeing is really this impact of loyalty. I mean that's been a pretty strong driver for Q1 and given all of the changes we're making for the rest of the year should continue to be a pretty strong driver for the rest of the year. So I think those are the two. It's really a combination of
Speaker 3: certainly acquisitions and new customers given, you know, people embracing rental, but also really strong retention that we hadn't shown and expected.
Speaker 3: to new customers given people embracing rental, but also really strong retention that we had in Q1 and expected. Our next session will now begin so take Racing Land it another couple <expletive> imbeciles
Speaker 3: Thank you. Our next question comes from Lauren Phoenix with Morgan Stanley . Please proceed with your question. Hey, this is Nathan Featheron for Lauren. Two quick ones for me. So first, how is inventory utilization trending with the launch of the five item plan?
Speaker 2: And do you feel you have the right mix of inventory or anywhere you see a material gap that you're trying to fix? Thank you. So as expected inventory utilization is higher because of the launch of five items. We do feel that we are...
Speaker 2: seeing an opportunity in Workwear. We're actually increasing purchases in Workwear this year, 50% versus last year.
Speaker 2: and Workwear. We're actually increasing purchases in Workwear this year, 50% versus last year.
Speaker 2: Utilization is in line with where we assumed it would be, the four or five items. We're also seeing really nice utilization in weekend wear and accessories and all of these areas, where the areas that we really look to, where we deployed kind of our reorder dollars and access more style. Great, thanks. And...
Speaker 3: the long term growth of this business. I just want to remember 80% of all our customers come to us because it comes out organically. And 60% of all our customers come to us because they heard about us from somebody they know. Fundamentally what everything, all our strategies are geared to is to improve that customer's experience so that they are delighted and they talk about their experience.
Speaker 3: the core to be fair and the nice thing about OILTE and the initiative is that we've got a lot of data behind what we're doing.
Speaker 4: Great. Thank you. Our next question comes from Ross Sandler with Barclays. Please proceed with your question.
Speaker 7: Hey guys, how do we feel about where we are with the kind of super high demand in season?
Speaker 7: going to skew depth and availability. Is that at this point fully optimized and fully built out? Or did you mention second half investments around that? But when do we think that will be in the right place to match?
Speaker 7: besides the subscriber business.
Speaker 7: with your inventory. And then, kind of related to that, the second part would be how does AI kind of improve discovery of like...
Speaker 7: and then isn't kind of related to that, but the second part would be how does AI kind of improve discovery of like hot items that may be...
Speaker 2: aren't being personalized to the user today and help solve some of that availability issue. Thanks a lot. Amy? So I think that Hummer is going to start to feel a major difference as it relates to inventory availability starting in August , because we've made a significant change in our desk strategies for the second half of the year. So that's when she's going to feel that she's getting more per part.
Speaker 2: any e-commerce experience of just having through many, many pages of results. And on Runway, there's hundreds of pages of search results that you could see for clicked addresses, clicked new lasers, etc. So to be able to actually have a query that's related to something you have going on in your life.
Speaker 8: Thank you. Our next question comes from Ed Eren with Piper Sandler. Please proceed with your question.
Speaker 9: Hey, good afternoon guys. Thanks for taking the questions. I guess first on reserve, just want to click on that a little bit more. I know you guys are facing some tough compares there. Has inventory been an issue there? I know it was through part of last year. And then I guess just kind of stepping back and maybe the following the AI question.
Speaker 9: I guess how do we think about the rate by which you can bring some of these innovations to the market? I know you indicated you are going to have a soft launch in a couple weeks, but should we think about this as being kind of a couple quarter phenomena, or do you think you can implement some of these AI search functions relatively quickly? Thank you.
Speaker 2: So in terms of AI, I think that whatever we do launch will be in data and we will continue to iterate and improve it over time. I think AI is so new to everyone and I think that what I'm excited about is how quickly we've been able to leverage our data here and create a product that we think is going to make a nice difference in product discovery and we'll just continue to make that better over time. Yeah, and on the reserved-ness, I think it's a fascinating...
Speaker 3: I think we made it last quarter, we've been very focused on driving our subscription business. So everything we've done on marketing, on brand messaging, all reflecting that focus on subscription, particularly with the recent five item launch in Q1. But having said that, we think internally there's a real opportunity to grow our reserve business over time.
Speaker 3: mutually exclusive business. So we're working on plans that involve both inventory and product to re-energize this offering and if you know that factored into the guidance and the expectations for this year, we've just reflected a continuation of plans. But over time we feel pretty optimistic about our ability to re-energize that business and have it continue to serve us quite broadly actually.
Speaker 3: business. So we were working on plans that involve both inventory and product to energize this offering and on if you know that fact that into guidance and the expectations for this year we've just reflected a continuation of plans. But for time we thought you were pretty optimistic about our ability to energize that business. I'd have it continue to to serve on quite wrongly with the action. Thank you.
Speaker 2: Thank you. There are no further questions at this time. I would like to turn the floor back over to manage it for closing comments. Thanks so much for joining us. I'm really excited about our land and accelerate our path to profitability and the long runway for growth ahead. We look forward continuing to update you on our progress on our 22 2023 call in September . And thanks again for joining us. Thank you.
Speaker 8: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Goodbye.
Speaker 1: can
Speaker 1: I.