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Rent the Runway stock tanks after company reveals restructuring plan

Yahoo Finance Live anchors discuss second-quarter earnings for Rent the Runway.

Video Transcript

- Rent the Runway-- those shares have been plunging this morning. They're down by 28% after announcing second quarter earnings. They did top Wall Street estimates, but the fashion rental company revealed a restructuring plan that includes cutting 24% of its corporate workforce, and also, importantly, it lost subscribers in the quarter.

And that was really unexpected on the part of analysts. So active subscribers fell to 124,131 in its fiscal second quarter. 135,000 had been the number in the prior quarter, and analysts were looking for more than 143,000.

So that subscriber decline is really what is responsible, I think, for the decline in the stock here and also the restructuring that the company is undergoing. Rent the Runway did say that things were sort of weak in the sort of June-July period and then started to get better going into August-September, which seems to be reassuring analysts. But it's not reassuring the shareholders this morning.

- Yeah, no, not at all. And for Rent the Runway and what the CFO Scarlett O'Sullivan stated, they believe that some of the cost savings they've announced that are going to help rent the runway navigate potentially rougher macro conditions, what could rougher macro conditions look like for Rent the Runway at a time where things are opening back up and you would suspect that if people were going to lean into-- especially during return to office or return to school and getting back into some of those social settings, that they were going to lean into the ability to rent some of those pieces, then Rent the Runway should be able to capitalize on it.

- Well--

- --unless--

- It's expensive.

- Ah.

- That's--

- The pricing.

- Because if you're renting an individual item-- now, I say this as a long time Rent the Runway customer and subscriber, for that matter. It ain't cheap if you are a subscriber. Now, they have to do have different tiers of subscriptions.

- Yeah.

- But if you are looking at a time-- we're seeing a lot of sort of mixed signals here in this market because I will say-- you know, our Brian Sozzi was at the retail conference last week. Talked to the likes of a Neiman Marcus and a Canada Goose. And those CEOs were very optimistic and very sanguine about what's happening with their businesses right now.

So that's the sort of highest end, perhaps-- luxury end. Rent the Runway, which I would consider to be mid to upper end here, maybe is one that is not as resistant. You know, if people are making discretionary spending decisions and they're looking to cut in certain places, judging from what happened with the subscriber growth, this could be one of the areas they're maybe looking to cut.

- This looks fashionable to me. I would rent this. I mean, if they had the men's lines and the patterns, they're Gucci, they're awesome-- but I think what it also comes down to is where you are looking at that cost for yourself, to your point, if you're a consumer, are you rather going to lean into a Lululemon type of subscription that they're rolling out in those tiers, whatever they're going to look like in the near future? Or would you rather go into a Rent the Runway, depending upon the pricing tiers that most fits your budget? And so maybe it is a pricing mechanism that they need to readjust for the consumer that is clearly telling them with their dollars that they're not comfortable with paying some of the prices right now.

- Yeah, maybe that's what's going on. I don't know.