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Rent the Runway Tumbles After Unexpected Drop in Subscribers

·2 min read

(Bloomberg) -- Rent the Runway Inc. shares fell 24% in postclose trading after the company reported an unexpected decline in subscribers and said it was laying off staff as part of a restructuring plan.

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The fashion rental company said the plan would deliver $25 million to $27 million in annual cost savings, which would primarily come from dismissing about a quarter of its nonhourly employees. “We’re restructuring so we’re in a position of strength, no matter what happens in the macro environment,” Rent the Runway Chief Executive Officer Jennifer Hyman said in an interview. She declined to say how many employees were being affected.

The company said its active subscribers fell to 124,131 in the second quarter ended July 31 from nearly 135,000 in the prior three months. The five analysts surveyed by Bloomberg had estimated the crucial metric would increase to 143,690. There was a decline in subscribers starting in mid-June through July and a bounce-back in August and September, Hyman said. The company is still analyzing what triggered the dip and the subsequent recovery -- and what that means for Rent the Runway going forward, Hyman said in the interview.

“We thought that it was prudent to assume that some negative trends could continue given the macro environment,” she said.

Other US retail companies have also said they saw a temporary decline in consumer demand in June, when gas prices were particularly high, and a recovery in August as some shoppers geared up for the back-to-school season. While some executives said the recovery has continued in the current quarter, others have said demand remains muted -- a sign of the volatile environment retail executives are navigating amid record-high inflation.

The restructuring plan aims to bolster Rent the Runway’s medium-term profitability. The Brooklyn, New York-based company raised its outlook for its annual margin for earnings before interest, taxes, depreciation and amortization to a range of negative 2% to flat, from the negative 6% to negative 5% it had forecast in June.

Rent the Runway said it expects third-quarter revenue of $72 million to $74 million, below analysts’ estimates of $79.5 million, and an adjusted Ebitda margin of 1% to 3%. That would beat analysts’ consensus estimate of a negative 5.7% margin.

The stock was down 40% this year through Monday’s close, compared with 14% for the S&P 500 Index.

(Updates with shares in first paragraph.)

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