Q1 2024 Rent the Runway Inc Earnings Call and Business Update

Operator: Welcome to Rent the Runway's first quarter 2024 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 press star zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Rent the Runway's Chief Legal and Administrative Officer, Cara Schembri. Thank you. You may begin.

Welcome to rent the runway is first quarter 'twenty 'twenty four 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 press star zero on your telephone keypad.

Remind you that this conference call is being recorded I would now like to turn the call over to rent the runway <unk> chief legal and administrative officer Carey Schembri. Thank you you may begin.

Cara Schembri: Good afternoon, everyone, and thanks for joining us today. During this call, we will make references to our Q1 2024 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 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 Change: Good afternoon, everyone and thanks for joining us today. During this call we will make references to our Q1 2024 earnings presentation, which can be found in the events and presentations section of our Investor Relations website before we begin we'd like to remind you that this call will include forward looking statements. These statements include our future expectations.

Speaker Change: Regarding financial results guidance and target market opportunities and our growth. These statements are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially.

Cara Schembri: These risks, uncertainties, and assumptions are detailed in this afternoon's press release, as well as in our filings with the SEC, including our Form 10-Q that will be filed today. We undertake no obligation to revise or 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, the slide presentation posted on our Investor website, and in our SEC filings. And with that, I'll turn it over to Jen.

Speaker Change: Risks uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our Form 10-Q that will be filed today, we undertake no obligation to revise or update any forward looking statements or information, except as required by law. During this call. We will also reference certain non-GAAP financial information and the presentation of this non.

Speaker Change: 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 website and in our SEC filings and with that I'll turn it over to John Thanks, Kara and thank you everyone for <unk>.

Jen: Thanks, Cara, and thank you, everyone, for joining us. On our Q4 earnings call, I shared that 2024 would be focused on two major goals for Rent the Runway. One, getting to free cash flow break-even for full year 2024, and two, reigniting the growth flywheel of the business. I'm proud to report that we believe we are well on our way on both fronts, and as a result, we are reiterating our guidance for the year.

unknown: Joining us on our Q4 earnings call I shared that 'twenty 'twenty four would be focused on two major goals for rent the runway one getting to free cash flow breakeven for full year, 'twenty 'twenty four and to reigniting the growth flywheel of the business I'm proud to report that we believe we are well on our way on both fronts and as a result.

unknown: We are reiterating our guidance for the year.

Jen: Q1 2024 was a strong quarter for Rent the Runway. We hit the top end of our guidance on revenue, coming in at $75 million for the quarter, and we beat unadjusted EBITDA, coming in at 6.5 million, or 8.7%. This was our eighth consecutive quarter of positive EBITDA. Most exciting, we reduced free cash flow burn to 1.4 million, a record low. Our Q1 free cash flow of negative 1.4 million is an 11 million reduction in cash burn versus Q1 2023 and a $27 million reduction in cash burn versus Q1 2022.

Speaker Change: Q1, 2024 was a strong quarter for rent the runway we hit the top end of our guidance on revenue coming in at $75 million for the quarter and we beat unadjusted EBITDA coming in at $6 5 million or eight 7%. This was our eighth consecutive quarter of positive EBITDA most exciting we reduced.

Speaker Change: Free cash flow burn to one 4 million a record low our Q1 free cash flow of negative $1 4 million is an 11 billion reduction in cash burn versus Q1, 2023, and a $27 million reduction in cash burn versus Q1, 2022 we've come.

Jen: We've come a long way over a short timeframe. One way that I look at our evolution from a heavily cash-consumptive model to a business that is on the cusp of free cash flow breakeven is through the lens of operational rigor. We set a goal to be free cash flow breakeven for the full year 2024, and we've been relentless in inspecting every aspect of our P&L and working to find operational efficiencies and opportunities for margin expansion.

Speaker Change: A long way over a short time frame.

Speaker Change: One way that I look at our evolution from a heavily cash consumptive model to a business that is on the cusp of free cash flow breakeven is through the lens of operational rigor. We set a goal to be free cash flow breakeven for full year 2024, and we have been relentless in inspecting every aspect of our P&L and working.

Speaker Change: To find operational efficiencies and opportunities for margin expansion, but the other way I'd love for you to think about our profitability journey is by digging into the strength of our core business model brand and position in the fashion industry.

Jen: But the other way I'd love for you to think about our profitability journey is by digging into the strength of our core business model, brand, and position in the fashion industry. We believe our business model's competitive advantages have been a big part of getting us closer to breakeven and will enable us to reach our ultimate goal of being a highly cash-generative business in the future. These are two strong examples of the competitive advantages we've built over the last several years that we believe have set us up for continued profitability.

Speaker Change: We believe our business model is competitive advantages have been a big part of getting us closer to breakeven and will enable us to reach our ultimate goal of being a highly cash generative business in the future.

There are two strong examples of the competitive advantages we've built over the last several years that we believe have set us up for continued profitability first we've transformed our inventory model to a more capital light, one where we acquire nearly half of our inventory at zero or minimal upfront cost.

Jen: First, we've transformed our inventory model to a more capital-light one, where we acquire nearly half of our inventory at zero or minimal upfront cost, and revenue share with our brand partners only when the inventory performs. This eliminates fashion risk. How have we been able to accomplish this?

Speaker Change: And revenue share with our brand partners only when the inventory performs this eliminates fashion risk from nearly half of our assortment how have we been able to accomplish this rent. The runway provides our brands with a platform to get in front of our young educated and upwardly mobile customer base as customer.

Jen: Rent the Runway provides our brands with a platform to get in front of our young, educated, and upwardly mobile customer base. As customers use Rent the Runway for important everyday and special moments in their lives, they try new brands and develop authentic brand love. We encourage brands to think about Rent the Runway as a cheaper cash alternative to their paid marketing dollars.

Speaker Change: Reviews rent the runway for important everyday and special moments in their lives. They try new brands and develop authentic brand love. We encourage brands can think about rent the runway as a cheaper CAC alternative to their paid marketing dollars one unit of inventory on the rent the runway platform can be worn by dozens of women.

Jen: One unit of inventory on the Rent the Runway platform can be worn by dozens of women and seen by thousands when our customers post on social media. Our brand partners have shared that many of their full-price customers came to them via having a Rent the Runway experience first. We believe that another important example of the strength of our business model translating into our financial performance is the frequency and loyalty of our customer base.

Speaker Change: And seen across thousands when our customers posts on social media our brand partners have shared that many of their full price customers came to them via having a rent the runway experience first.

Speaker Change: We believe that another important example of the strength of our business model translating into our financial performance is the frequency and loyalty of our customer base, we generate significant revenue and profit per customer because many of our customers use our services frequently they view rent the runway as a solution to their everyday fashion.

Jen: We generate significant revenue and profit per customer because many of our customers use our service frequently. They view Rent the Runway as a solution to their everyday fashion needs, be it work or a special event. This isn't by accident.

Speaker Change: It needs to be at work or a special event. This isn't by accident, it's because we've invested over many years and excellent operations and customer service that strives to put the customer first and a product experience, where we've innovated around fit in discovery to earn our customers' trust.

Jen: It's because we've invested for many years in excellent operations and customer service that strives to put the customer first and a product experience where we've innovated around fit and discovery to earn our customers' trust. However, e-commerce of any kind isn't without significant customer risk, as evidenced by the high rates of returns that most apparel retailers suffer from. For most customers, buying clothing online only works some of the time. But we believe that our loyalty rates and high LTV to CAC demonstrate customer trust and show that our business model of providing dresses in two sizes for special events or five items at a time via our subscription works for them.

Speaker Change: e-commerce or any kind isn't without significant customer risk as evidenced by the high rates of returns that most apparel retailers suffer from for most customers buying clothing online only works some of the time, but we believe that our loyalty rates and high LTV to CAC demonstrate customer trust.

And show that our business model of providing the dress in two sizes for special events or five items at a time via our subscription works for them. We're proud of the trust, we built and believe it will continue to support our growth for years to come to.

Jen: We're proud of the trust we've built and believe it will continue to support our growth for years to come. Q1 ending active subscribers were 145,837, a record high quarterly ending active subscriber count for Rent the Runway and a 16% increase in ending active subscribers versus Q4 2024.

Speaker Change: Q1, ending active subscribers were 145837, a record high quarterly ending active subscriber count for rent the runway and a 16% increase in ending active subscribers versus Q4 2020 for subscriber growth was fueled by strong rejoin her and retention rate.

Jen: Subscriber growth was fueled by strong rejoiner and retention rates. Our Q1 2024 loyalty rate was at the highest levels in over two and a half years, and we maintain strong subscription rates. It makes sense that due to the year over year improvements we've driven in inventory depth and in-stock rates, our current and former customer base would be the first to notice, as these women are still engaged. They're receiving our marketing communications and are attuned to what's new with the brand.

Speaker Change: Our Q1 'twenty for loyalty rate was at the highest levels in over two and a half years and we maintain strong subscription and total net promoter scores.

Speaker Change: It makes sense that due to the year over year improvements, we've driven inventory depth and in stock rates that are current and former customer base would be the first to notice as these women are still engaged they're receiving our marketing communications and are attuned with what's new with the brand. We're confident that the improved experiences that we're delivering to our.

Jen: We're confident that the improved experiences that we're delivering to our customers is the first step in reinvigorating our new customer growth. Now, let's get into what we've been up to since the start of the year, first on marketing. I founded this business with a mission to empower women to feel self-confident every day because I believe that confident women can change the world. Fashion is armor, and enabling everyone to access it, express themselves freely through it, and have fun with it is game-changing. Why?

Speaker Change: Customers is the first step in reinvigorating, our new customer growth.

Speaker Change: Now, let's get into what we've been up to since the start of the year.

Speaker Change: First on marketing.

Jen: Because designer fashion, i.e., expensive fashion, which is the space Rent the Runway operates in, has always been about exclusion and has had the effect of making many women around the world feel like they were never rich enough, thin enough, or cool enough to wear it. The Rent the Runway brand has always stood for inclusion and had a rebellious spirit that the old rules do not apply. The crisis of COVID presented immense business challenges and reduced our ability to put our mission and brand at the center of everything we do.

Speaker Change: I founded this business with a mission to empower women to feel self confidence every day, because I believe that confident women can change the world.

Speaker Change: Fashion is armor and enabling everyone to access it express themselves freely through it and have fun with it is game changing why because designer fashion I E expensive fashion, which is the space rent. The runway operates in has always been about exclusion and has had the effect of making money.

Speaker Change: Women around the world feel like they were never rich enough big enough, where cool enough to where it the rent. The runway brand has always stood for inclusion and had a rebellious spirit that the old rules do not apply the.

Speaker Change: The crisis of Covid presented a men's business challenges and reduced our ability to put our mission and brand at the center of everything we do I'm. So proud that we're moving forward with a full funnel strategy of building emotional relationships with our customers and prospects. So that they not only consider us and love our service, but that they advocate on orbit.

Jen: I am so proud that we're moving forward with a full-funnel strategy of building emotional relationships with our customers and prospects so that they not only consider us and love our service, but that they advocate on our behalf. Customers only advocate on behalf of businesses they love and businesses that have values that align with their own.

Speaker Change: Have customers only advocate on behalf of businesses, they love and businesses that have values that align with their own we see a significant untapped audience that is either a weird rent the runway and has not tried up whereas not aware and we believe that we have the ability to convince.

Jen: We see a significant untapped audience that is either aware of Rent the Runway and has not tried us yet, or is not aware, and we believe that we have the ability to convince. We started with the team. I announced last quarter that we had hired a new CMO who started in early March, and she has very quickly reorganized our team into different pods focused on acquisition, retention, creative, and go-to-market, and recruited new talent with both deep marketing experience and customer obsession into the company.

Speaker Change: We started with the team I announced last quarter that we had hired a new CMO who started in early March and she is very quickly reorganized our team into different pods focused on acquisition retention creative and go to market and recruited new talent with both deep marketing experience and customer obsession into the company.

Jen: We've moved very quickly. On acquisition, we expanded channels, adjusted some of our keyword tactics, and overhauled our creative across all of our bottom and mid funnel marketing channels. As a result, traffic in April was up more than 40% from March and has reached the highest level in years.

Speaker Change: We've moved very quickly on acquisition, we expanded channels adjusted some of our key where tactics and overhauled our creative across all of our bottom in mid funnel marketing channels. As a result traffic in April was up more than 40% to March and has reached the highest level in years on retention.

Jen: On retention, we've dedicated a team to segmenting our over 3 million lifetime customers and developing unique multi-channel lifecycle strategies against each segment. This means that though we have one single threaded view of the customer and strategy for her internally, we are using a multiplicity of channels, including customer service, stylus, text, chat, push, email, phone, and in real life events to communicate with her. The goal of the life cycle is to drive more revenue from every customer cohort.

We have a dedicated we dedicated a team to segmenting, our over 3 million lifetime customers and developing unique multichannel lifecycle strategies against each segment. This means that though we have one single threaded view of the customer and strategy for her internally, we are using a multiplicity of channels, including customer service.

Speaker Change: Stylus text chat push email phone and in real life events to communicate with her the bold lifecycle is to drive more revenue from every customer cohort our lifecycle team works closely with our tech team to develop strategies that we automate throughout the customer journey and build into the digital product. It's.

Jen: Our lifecycle team works closely with our tech team to develop strategies that we automate throughout the customer journey and build into the digital product itself. Our early strategies are already seeing success. In April, our pause reactivation rate was 35% higher than our pause reactivation rate over the past 12 months. We're expanding our pause reactivation efforts to include Turner Winback, and recent automations we've implemented have seen high rates of customer engagement. Expect some significant innovations, especially in the back half of the year as it relates to lifecycle marketing. The easiest way to see what's going on in Creative is to go to our app or site.

Speaker Change: Ralph or early strategies are already seeing success in April our Pas reactivation rate was 35% higher than our Pas reactivation rate over the past 12 months were expanding our Pas reactivation efforts to include churn of win back and recent automation, we've implemented have seen high rates of customer engagement.

Speaker Change: Expect some significant innovations, especially in the back half of the year as it relates to lifecycle marketing.

Jen: Our Make It a Moment summer campaign launched yesterday, and you'll see the site loaded up with new photography, copy, and merchandise edits that we believe look significantly more aspirational, bold, and alluring than our historical creatives. Given the premium nature of the brands we work with and our brand ethos of living an unlimited life, our creative needs to live up to this and do the work of generating demand for the fashion we carry.

Speaker Change: The easiest way to see what's going on in creative is to go to our appetite or make it a moment summer campaign launched yesterday and Youll see the site loaded up with new photography copy and merchandize Kirk durations that we believe looks significantly more aspirational bold and alluring than our historical creative.

Jen: We believe that the more aspirational our content and creative, the more we'll convert new customers to rental. More than content living on our own surfaces, our summer campaign is social first and taps into creator-led content across social platforms with almost 100 fashion influencers across Instagram, TikTok, and Meta. Our influencer takeover is targeted to specific geos and sociographics over a concentrated period of time so that we can have more of a swarm effect for a more focused group of prospects.

Speaker Change: Given the premium nature of the brands, we work with and our brand ethos of living an unlimited life are accretive needs to live up to this and do the work of generating demand for fashion. We carry we believe that the more aspirational our content and creative the more we'll convert new customers to rental more than the content living out our own.

Speaker Change: Surfaces are summer campaign is social first and taps into creator led content across social platforms with almost 100 fashion influencers across Instagram TIK tuck in meta our influencer takeover is targeted to specific geos and socio graphics over a concentrated period of time. So that we could have more of a swarm effect for a more.

Speaker Change: Focus group of prospects showing these women that are unlimited cloud that can help her get dressed for every day in every occasion.

Jen: Showing these women that our unlimited closet can help her get dressed for every day and every occasion. For the brand, thus far, our focus has been on reigniting our in real life presence. We believe that in real life experiences, stores, and pop ups must be a big part of our brand moving forward to grow. I do not believe that a brand in the fashion space can grow on digital alone.

Speaker Change: For brand thus far our focus has been on reigniting our in real life presence, we believe that in real life experiences stores and pop ups must be a big part of our brand moving forward to grow I do not believe that our brands in the fashion space can grow on digital alone in April we invited the.

Jen: In April, we invited the New York City Rent the Runway community back to our flagship store to see our spring fashion, get styling advice, and interact with the brand again. I was absolutely floored by the line down the block to get in and by the dozens of customers who approached me personally sharing how meaningful the Rent the Runway retail experience had been in their lives pre-COVID and how much community they felt coming into the store to get dressed before work or to pick out outfits for a night out at the end of the day.

Speaker Change: New York City rent the runway community back to our flagship store to see our spring fashion get styling advice and interact with the brand again I was absolutely floored by the line down the block to get in and buy the dozens of customers, who approached me personally sharing how meaningful the rent the runway retail experience had been in their lives pre co.

Speaker Change: And how much community they felt coming into the store to get dressed before work or to pick out outfits for a night out at the end of the day.

Jen: The event also provided an uplift in organic traffic to our site and drove over 22 million impressions across social media, PR, and in real life. Interestingly, nearly 80% of those that visited the store were new to subscription at Rent the Runway. This past weekend, we held the second In Real Life event in Atlanta, which is one of our fastest growing and highest potential markets. With TikTok phenoms Pookie and Jet, we had over 1000 women attend, and the energy was palpable.

Speaker Change: The event also provided an uplift in organic traffic to our site and drove over 22 million impressions across social media PR and in real life Interestingly nearly 80% of those visited.

Speaker Change: Those that visited the store were new to subscription that rent the runway.

Speaker Change: This past weekend, we held our second in real life event in Atlanta, which is one of our fastest growing and highest potential markets with tic Toc phenom spooky and jet we had over a thousand women attend and the energy was palpable, we're planning more in real life events throughout 2024 geared towards fueling the natural customer barology of the.

Jen: We're planning more In Real Life events throughout 2024, geared towards fueling the natural customer virality of the business that we thrived on pre-pandemic. Due to the success of the New York and Atlanta events, we plan to officially reopen our flagship New York City store this month. At our soft opening this summer, we'll enable women to try on looks in advance to get a feel for fit and styling.

Speaker Change: A business that we've thrived on pre pandemic.

Speaker Change: Due to the success of the New York and Atlanta events, we plan to officially reopen our flagship New York City store. This month in our soft opening this summer will enable women to try them looks in advance to get comfort on fit and styling. We plan to do a major relaunch of the store in the fall with new technology that will enable same day rental.

Jen: We plan to do a major relaunch of the store in the fall with new technology that will enable same-day rental like we used to do. Pre-COVID, we had five retail stores, and these stores were a significant growth engine and brand building for the markets they were in. We have significant ground to make up, and we plan to execute quickly. For an existing subscriber, the changes she's experienced over the past few months are significant.

Speaker Change: Like we used to do pre Covid, we had five retail stores and these stores, where a significant growth engine and brand building for the markets. They were in we have significant ground to make up and we plan to execute quickly.

Speaker Change: For an existing subscriber the changes she has experienced over the past few months are significant we're bringing our fashion first brand back to the center of what we do imagery and styling has been brought to life with fresh editorial content custom durations use case hubs in boutiques, we've upgraded our grids in PDP used to be.

Jen: We're bringing our fashion-first brand back to the center of what we do. Imagery and styling have been brought to life with fresh editorial content, custom curations, use case hubs, and boutiques. We've upgraded our grids and PDPs to be much faster and to provide more filtering and discovery options.

Speaker Change: Much faster and to provide more filtering and discovery options in the months to come our customer can expect to continue to see this creative overhaul come to life across all of our channels.

Jen: In the months to come, our customers can expect to continue to see this creative overhaul come to life across all of our channels. For new customers, we're in the midst of reimagining our prospect flow to provide a clear path from traffic to conversion. The new flow is meant to create interest first in the fashion we carry on our platform, then get the customer excited about rental overall, and then we follow up by guiding her to a new checkout experience that reduces friction and streamlines her checkout.

Speaker Change: For new customers, we're in the midst of re imagining our prospect flow to provide a clear path from traffic to conversion. The new flow is meant to create interest first in the fashion. We carry on our platform then get the customer excited about rental overall and then we follow with guiding her to a new checkout experience that reduces friction and streamlined.

Jen: Since its phased rollout that began in April, we've seen the subscription checkout completion rate already increased by over 20%. I also want to provide an inventory update, which is important to fully understand our growth strategy. We continue to believe that the fashion we have on our platform is the linchpin to our ability to be successful. Our plan for full year 24 was to increase our average in-stock rates versus 2023 and increase the number of units available to rent per subscriber. Thus far, we have seen success.

Speaker Change: Check out since it's phased rollout that began in April we've seen subscription checkout completion rate already increased by over 20%.

Speaker Change: I also want to provide an inventory update which is important to fully understand our growth strategies. We continue to believe that the fashion. We have on our platform is the linchpin to our ability to be successful our plan for full year 'twenty four was to increase our average in stock rates versus 2023 and to increase the number of you.

Speaker Change: And it's available to rent per subscriber.

Speaker Change: Thus far we have seen success inventory in stock rates in Q1, 24, or 24% higher than Q1, 'twenty three and inventory churn is down 20% versus the same quarter last year.

Jen: In-stock rates in Q124 are 24% higher than Q123, and inventory churn is down 20% versus the same quarter last year. With such a solid inventory foundation in 2024, our team is now focusing on additional improvements to the inventory experience. For example, we're investing in more reserve exclusive inventory with the aim of multiplying the size of our special event rental business by doing a more comprehensive job targeting customer segments where we can gain more share, such as Gen Z, the young professional, and the mother of the bride segment. We continue to focus on psychological comfort around fit as being a growth accelerant.

Speaker Change: With such a solid inventory foundation in 2024, our team is now focusing on additional improvements to the inventory experience. For example, we're investing in more reserve exclusive inventory with the aim of multiplying the size of our special event rental business by doing a more comprehensive job targeting customer segments, where we can gain.

Speaker Change: More share such as Gen Z the young professional and the mother of the Bride segment, we continue to focus on psychological comfort around fit as being a growth accelerant in Q1, we significantly increased the number of customer reviews per style through product improvements in user flow increasing reviews per unit.

Jen: In Q1, we significantly increased the number of customer reviews per style through product improvements and user flow, increasing reviews per unit rented by over 8x compared to prior years. We believe that reviews are crucial towards increasing wear rates and rental satisfaction. Beyond changing our inventory position, the other major thing that we have control over related to how our customers experience our selection is merchandising. We have a vast array of styles on site, and we know that even long-term subscribers only see a fraction of them because of traditional e-commerce browsing behavior.

Speaker Change: Rented by over eight X compared to prior years we.

Speaker Change: We believe that reviews are crucial towards increasing where rate and rental satisfaction beyond changing our inventory position. The other major thing that we have control over related to how our customers experience. Our selection is merchandising we have a vast array of styles on site and we know that even long term subscribers only see a fraction of them because.

Speaker Change: [noise] of traditional ecommerce browsing behavior, our merchandising strategy involves better content inspiration, which I spoke to before and ensuring that our customer is constantly experiencing greater diversity in our assortment. So that so that it feels pressured to her we plan to come back with progress against merchandising in future earnings calls.

Jen: Our merchandising strategy involves better content inspiration, which I spoke about before, and ensuring that our customer is constantly experiencing greater diversity in our assortment so that it feels fresher to her. We plan to come back with progress on merchandising and future earnings calls. Finally, in Q1, we continue to grow our inventory resale business. Inventory resale drove a 20% increase in other revenue year over year. This strategy is customer-first, as subscribers view Try Before You Buy as a key value proposition of the subscription program.

Speaker Change: In Q1, we continued to grow our inventory resale business inventory resell drove a 20% increase in other revenue year over year. This strategy is customer first our subscribers you try before you buy as a key value proposition to the subscription program. We plan to continue to use to utilize inventory reef.

Jen: We plan to continue to utilize inventory resale as a way to generate strong margins, cash flow, and get back cash quicker to reinvest in fresh new inventory for our customers. I'm excited by the strong momentum we have coming out of Q1. We spent the last year enhancing our inventory experience and rebuilding our cost structure to drive profitability. Our Q1 results display the remarkable strides we've made. I'm energized and excited about the year to come. And with that, I'll turn it over to Sidd. Thank you.

Speaker Change: <unk> as a way to generate strong margins cash flow and get that cash quicker to reinvest in fresh new inventory for our customers I'm excited by the strong momentum we have coming out of Q1, we spent the last year enhancing our inventory experience and rebuilding our cost structure to drive profitability. Our Q1 results displayed the remarket.

Speaker Change: Strides, we've made I'm energized and excited about the year to come and with that I'll turn it over to Sid.

Siddharth B. Thacker: Thanks, Jen, and thank you, everyone, for joining us. I'll begin by underscoring the key message from this quarter. Our business improved in nearly every dimension. Active subscriber growth, after being negative for the past two quarters on a year-over-year basis, grew versus Q1 2023. We added almost 20,000 subscribers quarter-over-quarter. Additionally, our reserve business has shown improved year-over-year trends this quarter relative to the past three quarters. Resale continued to be strong in Q1. Total revenue grew again on a year-over-year basis after declines in Q2 and Q3 of 2023 and 0.5% growth in Q4 2023.

Sid: Thanks, Jen and thank you everyone for joining us I'll begin by underscoring the key message from this quarter our business improved in nearly every dimension.

Sid: Subscriber growth after being negative for the past two quarters on a year over year basis grew versus Q1, 2023, we added almost 20000 subscribers quarter over quarter.

Speaker Change: Our reserve business has shown improved year over year trends this quarter relative to the past three quarters retail continued to be strong in Q1 total revenue grew again on a year over year basis. After declines in Q2, and Q3 of 2023 and <unk>, 5% growth in Q4 2023 as I will discuss.

Siddharth B. Thacker: As I will discuss shortly, our Q2 guidance implies a further improvement in growth trends next quarter at the midpoint of the guidance rate. We made noticeable progress on profitability. Adjusted EBITDA margins for Q1 2024 were at their highest levels versus Q1 in prior periods.

Shortly our Q2 guidance implies a further improvement in growth trends next quarter at the midpoint of the guidance range.

Speaker Change: We made noticeable progress on profitability adjusted EBITDA margin for Q1 2024 were at their highest levels versus Q1 in prior periods.

Siddharth B. Thacker: As outlined in our Q2 adjusted EBITDA margin guidance, we expect our highest second quarter adjusted EBITDA margin in the company's history. Free cash flow also improved this quarter. Free cash flow was just negative $1.4 million in Q1 2024 versus negative $12.1 million in the same period last year. Today, we are reiterating our guidance to be free cash flow break-even for fiscal year 2024 versus free cash flow consumption of approximately $70 million in fiscal year 2023.

Speaker Change: As outlined in our Q2 adjusted EBITDA margin guidance, we expect that highest second quarter adjusted EBITDA margin in the company's history.

Speaker Change: Free cash flow also improved this quarter free cash flow with just negative $1 4 million in Q1 2024 versus negative $12 1 million in the same period last year. Today, we are reiterating our guidance to be free cash flow breakeven for fiscal year 2024 versus three.

Speaker Change: Cash flow consumption of approximately $70 million in fiscal year 2023.

Siddharth B. Thacker: Please refer to the detailed bridge we shared with you during last quarter's earnings call and included in today's slides for more details on the path to free cash flow break-even. Rental product purchases continue to become more capital efficient, with almost 50% of new rental product units in fiscal year 2024 sourced through a share by RTR platform, requiring no or low upfront cost. Indeed, combined with our exclusive design platform, we expect that more than 70% of total new units will be sourced through cost-advanced channels in fiscal year 2024.

Speaker Change: These refer to the detailed bridge, we shared with you during last quarter's earnings call and included in today's slides for more detail on the path to free cash flow breakeven.

Speaker Change: Rental product purchases continue becoming more capital efficient with almost 50% of new rental product units in fiscal year 2024 sourced through our share by RTR platform, requiring no or low upfront cost indeed, combined with our exclusive designs platform, we expect that more.

Speaker Change: Then 70% of total new unit will be sourced through cost advantaged channels in fiscal year 'twenty four.

Siddharth B. Thacker: We made progress in our nascent advertising initiatives this quarter. First, we signed several exciting sampling partnerships that will introduce brands to our affluent and highly coveted customer base. We also explored new ways to work with advertising partners, including co-marketing using a network of influencers.

Speaker Change: We made progress in our leasing and advertising initiatives. This quarter first we signed several exciting sampling partnerships that will introduce brands do our affluent and highly coveted customer base.

Speaker Change: We also explored new ways to work with advertising partners, including co marketing using a network of Influencers.

Siddharth B. Thacker: We have a powerful brand and engaged customers, but we believe there is more we can do to build a meaningful advertising business. In summary, Q1 demonstrates positive progress and momentum across our business. As Jen outlined in her remarks, there are a number of important marketing, product, and customer experience improvement initiatives that we expect will continue to drive progress this year. Let me now review our financial results for the quarter. We ended Q1'24 with 145,837 ending active subscribers, up 0.4% year-over-year. Average active subscribers during the quarter were 135,896 versus 135,966 subscribers in the prior year, a decrease of 0.1%.

Speaker Change: We have a powerful brand and engage customers. We believe there is more we can do to build a meaningful advertising business in.

Speaker Change: In summary, Q1 demonstrates the positive progress and momentum across our business as Jim outlined in her remarks, there are a number of important marketing product and customer experience improvement initiatives that we expect will continue to drive progress this year.

Speaker Change: Let me now review our financial results for the quarter.

Speaker Change: We ended Q1, 'twenty four with 145837, ending active subscribers up 0.4% year over year.

Speaker Change: Average active subscribers during the quarter were 135896 versus 135966 subscribers in the prior year, a decrease of 0.1% ending active subscribers increased from 125954 subscribers at the end.

Siddharth B. Thacker: Ending active subscribers increased from 125,954 subscribers at the end of Q4'2023, primarily due to seasonally stronger acquisitions combined with solid and better-than-expected customer retention. Total revenue for the quarter was $75 million, up $0.8 million, or 1.1% year-over-year, and down $0.8 million, or 1.1%, quarter-over-quarter. Subscription and reserve rental revenue decreased 0.7 million, or 1% year-over-year Other revenue increased 1.5 million, or 20.3% year-over-year, due to an increased focus on our resale business, which drove incremental cash flow and customer loyalty.

Speaker Change: End of Q4, 2023, primarily due to seasonally stronger acquisitions, combined with solid and better than expected customer retention.

Speaker Change: Total revenue for the quarter.

Siddharth B. Thacker: Fulfillment costs were $20.6 million in Q1'24 versus $21.9 million in Q1'23 and $20.1 million in Q4'23. Fulfillment costs as a percentage of revenue were lower year-over-year at 27.5% of revenue in Q1'24 compared to 29.5% of revenue in Q1'23.

Speaker Change: With $75 million up zero point $8 million or one 1% year over year, and down zero point $8 million or one 1% quarter over quarter.

Speaker Change: Subscription and reserve rental revenue decreased zero point $7 million or 1% year over year in Q1, 'twenty four due primarily to a decline in the reserve business.

Speaker Change: Other revenue increased $1 5 million or 23% year over year due to increased focus on our retail business, which drove incremental cash flow and customer loyalty.

Speaker Change: Fulfillment costs were $26 million in Q1, 24 versus $21 9 million in Q1, 23 and $21 million in Q4, 'twenty three fulfillment cost as a percentage of revenue were lower year over year at 27, 5% of revenue in Q1 'twenty.

Speaker Change: Four compared to 29, 5% of revenue in Q1 'twenty three.

Speaker Change: Finland cost benefited from a new transportation contract with UBS and continued warehouse efficiencies.

Siddharth B. Thacker: Gross margins were 37.9% in Q1'24 versus 42.3% in Q1'23. Q124 gross margins reflect higher rental product costs due to increased investment in rental products in FY23 and higher sales through our resale channel. Increased investment in rental products reflects last year's debt adjustments to increased inventory in stock rates in fiscal 23 and beyond. These increases were partially offset by the fulfillment benefit discussed earlier.

Speaker Change: Gross margins were 37, 9% in Q1 24 versus <unk> 42, 3% in Q1, 'twenty three Q1, 'twenty four gross margins reflect higher rental product costs due to increased investment in rental product in fiscal year, 'twenty, three and higher sales through our retail channel increased in <unk>.

Speaker Change: <unk> and rental product reflects last year's depth adjustments to increase inventory in stock rate in fiscal 'twenty three and beyond these increases were partially offset by the fulfillment benefit discussed earlier Q1, 'twenty four gross margin decreased quarter over quarter to 37, 9% from 39, 4%.

Siddharth B. Thacker: Q1-24 gross margins decreased quarter over quarter to 37.9% from 39.4% in Q4-23, primarily due to higher upfront revenue share payments and seasonally higher promotional spending. However, operating expenses were about 15.3% lower year-over-year due to lower stock-based compensation expenses and the favorable impact of our cost reduction efforts. As a reminder, in January of 2024, we announced a restructuring plan that is expected to reduce our workforce by approximately 10% by the end of Q2 2024.

Speaker Change: In Q4, 23, primarily due to higher upfront revenue share payments and seasonally higher promotional spending.

Speaker Change: Operating expenses were about $15, 3% lower year over year due to lower stock based compensation expenses and the favorable impact of our cost reduction efforts. As a reminder, in January of 2024, we announced a restructuring plan that is expected to reduce our workforce by approximately 10.

Speaker Change: <unk> by the end of Q2 24.

Siddharth B. Thacker: Total operating expenses, which include technology, marketing, and G&A, were 55.2% of revenue in Q1'24 versus 65.9% of revenue in Q1'23 and 55.9% in Q4'23. Adjusted EBITDA for the quarter was $6.5 million, or 8.7% of revenue versus $4.5 million and 6.1% of revenue in the prior year. Adjusted EBITDA year-over-year reflects lower fulfillment costs and the impact of our fixed cost reduction efforts, partially offset by higher revenue share payments due to a greater proportion of revenue share units.

Speaker Change: Total operating expenses, which include technology marketing and G&A were 55, 2% of revenue in Q1 24 versus 65, 9% of revenue in Q1, 23, and 55, 9% in Q1 Q4 'twenty three.

Speaker Change: Adjusted EBITDA for the quarter was $6 5 million or eight 7% of revenue versus $4 5 million and six 1% of revenue in the prior year adjusted.

Speaker Change: Adjusted EBITDA year over year reflects lower fulfillment costs and the impact of our fixed cost reduction efforts, partially offset by higher revenue share payments due to a greater proportion of revenue share units.

Siddharth B. Thacker: The cash flow for Q1 2024 was negative $1.4 million versus negative $12.1 million in the first quarter of fiscal year 2023, primarily due to higher profitability, improved working capital, and lower rental product expenditure. I will now discuss guidance for Q224 and fiscal year 2024. Let me start with Q2.

Speaker Change: Free cash flow for Q1, 'twenty four was negative $1 4 million versus negative $12 $1 million in the first quarter of fiscal year 2023, primarily due to higher profitability improved working capital and lower rental product expenditure.

Siddharth B. Thacker: We expect revenue to be between $76 million and $78 million, and adjusted EBITDA margins to be between 14% and 15% of revenue. Our full year 2024 guidance remains unchanged. We continue to expect revenue growth of between 1% and 6% versus fiscal year 2023. We also continue to expect adjusted EBITDA margins of between 15% and 16% of revenue. Our guidance for rental product acquired remains unchanged at $48 million to $50 million. Finally, we expect a V3 cash flow breakeven for fiscal year 2024.

Speaker Change: I will now discuss guidance for Q2, 'twenty four and fiscal year 2024.

Speaker Change: Let me start with Q2.

Speaker Change: We expect revenue to be between $76 million and $78 million and adjusted EBITDA margin to be between 14% and 15% of revenue.

Speaker Change: Our full year 2024 guidance remains unchanged, we continue to expect revenue growth of between 1% and 6% versus fiscal year 2023. We also continue to expect adjusted EBITDA margins of between 15% and 16% of revenue our guide.

Speaker Change: Guidance for rental product acquired remains unchanged at 48 million to $50 million.

Speaker Change: Finally, we expect to be free cash flow breakeven for fiscal year 2024.

Siddharth B. Thacker: As outlined last quarter, there is some seasonality in our rental product purchases this year with a greater proportion of rental product acquired in the first half of the year versus the second half. This is expected, of course, to have an impact on the timing of free cash flow generation over the year. We will now take your questions.

Speaker Change: As outlined last quarter, there is some seasonality in our rental product purchases this year with a greater proportion of rental product acquired in the first half of the year versus the second half. This is expected of course to have an impact on the timing of free cash flow generation over the year.

Speaker Change: We will now take your questions.

Operator: Thank you. 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate as I mentioned in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before.

Speaker Change: Before pressing the star keys, please limit to one question and one follow up question.

Operator: Please limit yourself to one question and one follow-up question. Our first question is from Andrew Boone with JMP Securities. Please proceed.

Speaker Change: Our first question is from Andrew Boone with JMP Securities. Please proceed.

Andrew M. Boone: Thanks so much for taking my question. Jen, I wanted to ask about marketing. It sounds like you guys have a lot of irons in the fire there.

Andrew M. Boone: Thanks, so much for taking my question.

Andrew M. Boone: Jenn I wanted to ask about marketing it sounds like you guys have a lot of irons in the farther can you speak to the opportunity with untapped audiences and increasing awareness just across the entirety of the population as well as kind of resurrected users.

Jen: Can you speak to the opportunity with untapped audiences and increasing awareness just across the entirety of the population as well as kind of resurrecting users? And then Sid, you guys had a bunch of qualitatively positive things as it relates to subscribers for 1Q? 2Q seasonally is typically a step down. Is there any way that we should be thinking about ending active subs for 2Q as it relates to the guide and just the cadence of that for the rest of the year? Thanks so much.

Speaker Change: And then Ted you.

Speaker Change: <unk> had a bunch of them.

Speaker Change: Qualitatively positive things as it relates to subscribers for one Q2 seasonally is typically a step down there anywhere that we should be thinking about ending active subs for Q2 as it relates to the guide and just the cadence of that for the rest of the year. Thanks. So much.

Jen: Thanks, Andrew. So first on marketing, there's a huge opportunity to increase, first of all, general awareness for Rent the Runway, our offering that we both do special event rental, as well as subscription, and to, you know, go broad in terms of the customer demographics that we are going after because the, you know, over 800 brands that we carry have wide appeal. And given the price point, especially for special event rental, where we're renting at between or around 10% of the retail price, it's a price point that is accessible to the mass market.

Speaker Change: Thanks, Andrea So first on marketing, there's a huge opportunity to increase first of all general awareness for rent the runway.

Speaker Change: Our offering that we both do special and then rental as well as subscription and to go broad in terms of the customer demographics that we're going after because the.

Speaker Change: Over 800 brands that we carry have wide appeal.

Speaker Change: And given the price point, especially for special event rental where we're renting at between or around 10% of the retail price is the price point that is accessible to the mass market. So you heard that.

Jen: So you heard that there are multiple engines that we are building out within marketing. Number one, there's the re-ignition of our brand, and ensuring that our brand is building emotional connections with women by actually doing things in real life, showing up at events, stores, and building back our ambassador network. All of the things that actually used to drive that organic virality of our business were fueled by our brand efforts and by the customer experience that we were delivering. So making a major investment in shifting our dollars away from the bottom of the funnel, more towards the mid funnel and top of the funnel, where brand is an important component, is key there. Creative writing is, critical.

Speaker Change: There are multiple engines that we are building out within marketing.

Speaker Change: Number one there's the re ignition of our brand.

Speaker Change: And ensuring that our brand is.

Speaker Change: Building emotional connections with women is actually doing things in real life, showing up events stores building back our ambassador network all of the things that actually use to drive that organic virality of our business were fueled by actually our brand efforts.

Speaker Change: And by the customer experience that we're delivering so making a major investment into shifting our dollars away from bottom of funnel more towards mid funnel and top of funnel all of which brand is an important component is key there creative is critical.

Siddharth B. Thacker: We now know that whether it's on a paid channel, or whether it's how creative shows up on your app or on your site, that is number one in increasing the efficacy of our ad spend. And number two, actually putting a stake in the ground as to what our brand stands for and kind of the psychographic that we're going after. So you've seen what I would call a creative kind of revolution in terms of how we showcase our inventory to our customers and give them more inspiration and ideas for how they can actually put together outfits, style themselves, etc., and really just cement our position as the premium player in the space.

Speaker Change: Critical we now know that whether it's on a paid channel.

Speaker Change: Or whether it's how creative shows up on your App or on your site that is what is.

Speaker Change: Number one in the increasing the efficacy of our AD spend.

It's number two actually putting a stake in the ground as to what our brand stands for and kind of the psychographic that we're going after so you've seen really what I would call accretive kind of revolution in terms of how we're actually showcasing our inventory to our customers and giving them more.

Speaker Change: Inspiration and ideas for how they can actually put together alpine style themselves et cetera, and really to just cement our position as the premium player in the space now, even we're making strides on the things that we were doing before like the paid marketing by nature of invest changing some of our Tam.

Siddharth B. Thacker: Now, even we're making strides on the things that we were doing before, like the paid marketing. By nature of changing some of our tactics and strategies on the bottom and mid funnel, we've been able to increase traffic, like we were saying, by 40% month over month. So we're bringing more new customers to the site, we're engaging them across the entire funnel, and you will see a whole host of new partnerships, new real-life experiences, new brand networks, new channels, and, of course, a tremendous investment in lifecycle marketing so that we're really building very strong relationships with every customer cohort and ensuring that we're driving as much revenue from each customer as possible.

Speaker Change: Arctic and strategies on bottom in mid funnel, we've been able to increase traffic like we were saying by 40% month over month, So we're bringing more new customers to the site, we're engaging them across the entire funnel and you will see a whole host of new partnerships new in real life.

Speaker Change: Experience is new brand networks, new channels and of course, a tremendous investment into lifecycle marketing so that we're really.

Siddharth B. Thacker: So very, very excited by the progress in marketing and, of course, the beginning, but I think we'll see a lot of things change in the second half of the year in a positive direction. Great. And on the second part of your

Speaker Change: Building very strong relationships with every customer cohort and ensuring that we're driving as much revenue from each customer as possible. So very very excited by the progress in marketing and of course. This is the beginning but I think we'll see a lot of things change in the second half of the year in a positive direction.

Siddharth B. Thacker: Great, and on the second part of your question Andrew, I'd say three things. The first is we're obviously not guiding specifically to subscriber growth on a quarterly basis, but I will say that the most important takeaway from the guidance that we have issued is that we are confident about the business, we are expecting an improvement in year-over-year growth in Q2 relative to Q1 at the midpoint of the guidance range, and of course you're right, our business is seasonal, we do expect you know higher acquisitions in Q1 and Q3, but the important takeaway here is We feel very good about the way the business

Speaker Change: Great and on the second part of your question, Andrew I would say three things. The first is we're obviously not guiding specifically to subscriber growth.

Andrew M. Boone: On a quarterly basis, but I will say that the most important takeaway from the guidance that we have issued is that we are confident about the business. We are expecting an improvement in year over year growth in Q2 relative to Q1 at the midpoint of the guidance range.

Speaker Change: And of course, you're right our business is seasonal we do expect higher acquisitions in Q1 and Q3, but.

Speaker Change: The important takeaway here is.

Speaker Change: So we feel very good about the way the business is trending.

Speaker Change: Thank you.

Ashley Elizabeth Helgans: Our next question is from Ashley Helgans with Jeffries. Please proceed.

Speaker Change: Our next question is from Ashley Hogan with Jefferies. Please proceed.

Siddharth B. Thacker: Hi, it's Blake on Frasbee. Thanks for taking our questions. So, I wanted to follow up on the cadence question about the top line and subscribers. It sounds like you've made a lot of progress on initiatives. Can you talk at all about just the monthly trends you're seeing, perhaps, or maybe just what gives you confidence that those could potentially continue to build to get you maybe at that high end of the revenue guide for the year?

Speaker Change: It's Blake on for <unk>, Thanks for taking our questions. So I wanted to follow up on the on the cadence question of the top line and subscribers. It sounds like you've made a lot of progress on initiatives can you talk at all about just the monthly trends youre seeing perhaps or.

Blake: Maybe just what gives you confidence those could potentially continue to build.

Speaker Change: To get you may be at that high end of the revenue guide for the year.

Siddharth B. Thacker: Yeah, we're not going to comment on any, you know, particular monthly trends. But I think what you can surmise from the guidance that we've issued, I mean, I pointed out earlier, that the strength we see in our business isn't just limited to any one particular area, correct? I mean, if you think about the reserve business, we've called out that we're seeing improved trends in the reserve business year over year relative to the past few quarters.

Speaker Change: Yeah, we're not going to comment on any particular monthly trends, but I think what you can surmise from the guidance that we've issued.

Speaker Change: Pointed out earlier that the strength, we see in our business isn't just limited to any one particular area right. I mean, if you think about the reserve business, we've called out that where we're seeing improved trends in the reserve business year over year relative to the past few quarters.

Siddharth B. Thacker: We're obviously seeing, you know, very good rejoiner activity; we're seeing very strong retention, and that is providing, you know, a lot of confidence in the guidance that we issued. And finally, we're continuing to see subscribers engage with us in a very positive way on the resale business. All of the key input metrics in the business that we, you know, believe, contribute to that, and the acceleration in Eurovision growth that we've guided to in Q2 make us confident that, you know, we're on the right track.

Speaker Change: Obviously seeing very good rejoined our activity, we're seeing very strong retention.

Speaker Change: And that is providing a lot of confidence in the guidance that we issued and finally, we're continuing to see subscribers engage with us in a very positive way.

Speaker Change: On the retail business so.

Speaker Change: All of the key input metrics in the business that we believe.

Speaker Change: <unk> to that acceleration in year over year growth that we've guided to in Q2 make us confident that.

We're on the right track.

Jen: I mean, one of the things that we shared on this call is that we saw significant improvements in our loyalty rates and our rejoiner rates in Q1. And we mentioned that, typically, when you change an experience, and this is true for all businesses like ours where there's a frequency of behavior. The first people to notice that you've improved the experience are your current and former customers, and they're going to give you a glaring signal one way or the other as to whether they like the changes that you've made.

Speaker Change: I mean, one of the things bad.

Speaker Change: We shared on this call is that we saw significant improvements in our loyalty rates, nor rejoin our rates in Q1, and we mentioned that typically when you change an experience and this is true for all businesses like ours, where there's frequency of a behavior.

Speaker Change:

Speaker Change: The first people to notice that you've improved the experience or your current and former customers and theyre going to give you a glaring signal one way or the other as to whether they like the changes that you've made and the fact that both our current customers who are active who are paying off as well as former customers who weren't poorly paying us, but now are coming back.

Jen: And the fact that both our current customers, who are active, who are paying us, as well as former customers who weren't paying us before but are now coming back, have really shown us that they think that the inventory experience has improved, our inventory churn is down significantly, they're having a great customer experience, as evidenced by, you know, very high kinds of net promoter scores and net promoter scores that are higher than in many years past. That, coupled with all of the work that we're doing in marketing to actually drive new customers, really gives us a lot of confidence because I think that we have the signal from our former and current customers that the experience is much improved. So now it feels great to go out to new customers and bring this experience to them. The other really good, more qualitative piece, but I think that it matters is...

Speaker Change: Have really showed us that they think that the inventory experience has improved our inventory churn is down significantly they're having a great customer experience as evidenced by very high kind of net promoter scores and net promoter scores that are higher than in many years past that to us.

That coupled with all of the work that we're doing in marketing to actually drive new customers really gives us a lot of confidence because I think that we have the signal from our former and current customers that the experience is much improved so now it feels great to go out to new customers and bring them into this experience.

Speaker Change: Yeah, that's great really really.

Speaker Change: The more qualitative piece, but it Matt, but I think that matters is.

Jen: When we have an event, of which we've had two over the past six weeks, thousands of people show up. And those thousands of people aren't just current customers. 80% of the people that showed up in New York were not current customers. They are just people that love the brand, that are interested in the brand, that want to engage. There is so much latent brand love for Rent the Runway, and we have an opportunity to harness it in an entirely new way, which is why we just shared that we're reopening our flagship store.

Speaker Change: When we have an event of which we've had to over the past six weeks.

Speaker Change: Thousands of people show up.

Speaker Change: And there are thousands of people arent just current customers, 80% of the people that showed up in New York were not current customers. They are just people that love. The brand that are interested in the brand that want to engage there is so much latent brand love for rent the runway and we have opportunity to harness it.

Speaker Change: In an entirely new way, which is why we just shared that we're reopening our flagship store, we're going to make retail a big priority over the next few years.

Jen: We're going to make retail a big priority over the next few years, and that's really not just about the sales that we are going to drive out of these stores. It's about reinvigorating the in-real-life experience of interacting with our brand and the virality that that creates in the markets where we show up.

Speaker Change: And that's really not just about the sales that we are going to drive out of these stores. It's about reigniting b in real life experience of interacting with our brand and the virality that that creates in the markets, where we show up.

Ashley Elizabeth Helgans: And a follow-up on that would be, how do you think about the importance of word of mouth referrals right now? Because I know you're doing a lot of work on digital marketing and social media, but if you could talk about the balance of those two sources of growth for acquisition,

Speaker Change: And then a follow up on that would be how do you think about the importance of word of mouth referrals right now because you're I know you're doing a lot of work on digital marketing.

Speaker Change: For media, but you talk about the balance of those two.

Speaker Change: Sources of growth for acquisition going forward.

Speaker Change: Yeah.

Jen: The majority of our growth over the past 15 years has been through word of mouth. It's been through women sharing this experience authentically with their friends, with their colleagues, and them wearing something that they are obsessed with to a party, to work, having conversations with other women, and kind of sharing this amazing Rent the Runway-like secret that they have.

Speaker Change: The majority of our growth over the past 15 years has been through word of mouth. It's been through women sharing this experience authentically with their friends with their colleagues and them wearing something that they are obsessed with to a party to work having conversations with other women and kind of sharing this.

Speaker Change: Amazing rent the runway like.

Jen: And it used to be a secret, and now it's something that they share openly and broadly, and it goes up on social media as well. So this has been the number one driver of our business's growth over time. I believe that it's the most important driver of every business's growth because the more customers have an authentic brand connection with you and actually wanna advocate on your behalf, like, the stronger and healthier your business will be, and the more you can invest in the customer experience as opposed to just investing in, you know, bottom of the funnel paid marketing.

Speaker Change: Secret that they have.

Speaker Change: And it used to be a secret and now it's something that they share openly and broadly and it goes up on social media as well so.

Speaker Change: This has been the number one driver of our businesses growth overtime I believe that it's the most important driver of every business is growth because the more customers have an authentic brand connection with you and actually want to advocate on your behalf like the stronger and healthier your business will be and the more you can invest in customer.

Speaker Change: Spirit as opposed to just investing and in bottom of funnel paid marketing.

Jen: So we are very proactively moving our marketing dollars away from bottom of the funnel marketing up the funnel towards mid and top of the funnel because we think that that's also a healthier way to build relationships with customers and market the brand. And I would say that if you've followed us over the last year or so, you'll see that a lot of this company's energy has been focused on making sure that our existing customers and new customers who join have a really terrific experience because that really does fuel the referral behavior and all of the positive word of mouth that you're referring to.

Speaker Change: So we are very proactively moving our marketing dollars away from bottom of funnel marketing up the funnel towards mid and top of funnel. Because we think that that's also a healthier way to build relationships with customers and market the brand and I would say that.

Speaker Change: If you followed us.

Speaker Change: Over the last year year, and a half youll see that.

Speaker Change: A lot of this company's energy had been focused on making sure that our existing customers and new customers, who joined had a really terrific experience because that really does view the referral behavior and all of the positive word of mouth that you're referring to when we spend a significant amount of money last year on inventory, we improve that significantly we had reasonable.

Jen: We spent a significant amount of money last year on inventory. We improved our debt significantly. We exposed customers to a significantly improved inventory experience, and it went way beyond inventory. It went into providing styling services. It went into providing a better product experience, more aspirational imagery, content, and all of the things that Jen mentioned. So I think what we're seeing now is the rewards of all of that investment in loyalty and improved loyalty and rejoiner rates that we have mentioned. So we do expect that focus to continue and manifest itself in referrals and positive customer behavior.

Speaker Change: Customers will significantly improve inventory turns and we're seeing it.

Jim: It went way beyond inventory went into providing styling services. It went into providing a better product experience more aspirational imagery content in all of the things that Jim mentioned, so I think what we're seeing now is the rewards of all of that investment in.

Jim: The loyalty and improve loyalty and rejoined the rates that we have mentioned so we do expect that focus to continue and manifest itself in referrals and.

Jim: Positive customer behavior.

Ashley Elizabeth Helgans: That's super helpful. If we could just ask one more, Jen, I was curious your thoughts on, if we were to just take a step back on fashion trends, anything you could comment on that you're seeing there, what your customer is asking for, and then just casual, I know you've talked about that assortment changing a little bit since, or during the pandemic, and I think your assortment there had kind of increased, but can you update us where you are on casual use cases as well, or what you define as casual?

Speaker Change: That's super helpful.

Speaker Change: We could just ask one more Jay and I was curious your thoughts on if we were just take a step back on fashion trends anything you could comment on that Youre seeing there what are your customers asking for and then just casual I know you've talked about that assortment changing a little bit since during the pandemic and I think your.

Speaker Change: There had kind of increase but can you update us where you are on casual use cases, as well or what you define as casual.

Jen: Yeah, so our use cases have not. 23, let's say, when life really returned to normal in the sense that roughly about 50% of the use cases are for casual, everyday occasions, around the corner are for what I would call events in the evening where you want to get a little bit more dressed up. That could be a party. It could be a wedding. It could be a gala.

Speaker Change: Yeah, so our.

Speaker Change: Our use cases have not changed much since 'twenty.

Speaker Change: 23, let's say when life.

Speaker Change #100: Really returned to normal in the sense that roughly about 50% of the use cases are for casual everyday occasions around the corner are for what I would call events in the evening, where you wanted to get a little bit more dressed up that could be a party that could be a wedding it could be a gala.

Jen: And about 25% is for work. So we think that that's a really healthy balance for the business. We have adapted ourselves to those use cases. I think that, in terms of fashion trends, I would say, What is the most unique thing about our model? I pointed out, and I will point out many times again, that nearly half of our inventory we procure at zero or very little upfront cost, and we earn revenue share only based on performance. So if the items don't rent, we don't pay for them.

Speaker Change #100: And about 25% is for work. So we think that that's a really healthy balance in the business. We have assorted ourselves to those use cases, I think that we've seen in terms of fashion trends I would say.

Speaker Change #100: The most unique thing about our model.

Speaker Change #100: That I pointed out and I will point out many times again.

Speaker Change #101: Nearly half of our inventory we procure.

Speaker Change #101: Zero or very little upfront cost and we revenue share only based on performance. So if the items don't rent, we don't pay for them.

Jen: That means that for nearly half of our assortment, fashion risk is number one. All right, the riskiest thing, killer of various apparel companies and brands over time. If you miss a trend, you suffer in terms of your financial performance.

Speaker Change #101: That means that for nearly half of our assortment, we have zero fashion risk.

So.

Speaker Change #101: Fashion risk is the number one.

Speaker Change #101: Right.

Speaker Change #102: [laughter] Riskiest thing killer of various apparel companies and brands over time, if you Miss a trend you suffer in terms of your financial performance. The fact that nearly half of our inventory we do not suffer from that same risk I think.

Jen: The fact that nearly half of our inventory we do not suffer from that same risk, I think dramatically distinguishes our business model and our competitive advantage. So that business model, because the other attribute of it is that it is a win-win for us and our brand partners. The more something rents, the more money we make, and the more money our brand partners make. Therefore, when things are successful, they're more likely to give us replenishment units on those units. They're more likely to come to us for reorders and to make sure that the very best inventory is on our platform.

Speaker Change #102: Dramatically distinguishes our business model and our competitive advantages.

Speaker Change #102: So that business model because the other attribute of it is it is a win win for us and our brand partners the more something rents the more money, we make and the more money our brand partners make therefore, when things are successful, they're more likely to give us replenishment units on those on those units there more.

Speaker Change #102: Likely to come to us.

Speaker Change #102: For Reorders and to make sure that the very best inventories on our platform. So we've created a business model that mutually incentivizes us to be aligned with our brand partners, which is very different than many others. In this space and I think that this eliminates fashion risk and allows us to respond very quickly to what's going on in the market.

Jen: So we've created a business model that mutually incentivizes us to be aligned with our brand partners, which is very different from many others in the space. And I think that this eliminates fashion risk and allows us to respond very quickly to what's going on in the market.

Ashley Elizabeth Helgans: Makes a lot of sense. Thank you so much, and best of luck with the rest.

Speaker Change #103: It makes a lot of sense. Thank you so much and best of luck for the rest of the year.

Speaker Change #104: Thank you.

Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing comments.

Speaker Change #105: Thank you there are no further questions at this time I would like to turn the call back over to management for any closing comments.

Speaker Change #105: Thank you.

Jen: Thanks so much for joining us today. We're really excited about our performance in Q1. This is going to be a milestone year for Rent the Runway, and stay tuned.

Speaker Change #106: Thanks, so much for joining us today, we're really excited about our performance in Q1. This is gonna be a milestone year for rent the runway and stay tuned.

Kim: Thanks Kim.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change #108: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.

Speaker Change #108: Goodbye.