Rent the Runway Inc

Rent the Runway, Inc. (NASDAQ: RENT) is engaged in providing shared designer closet platform. Through the Company, customers can subscribe, rent items a-la-carte and shop resale from hundreds of designer brands. It gives customers access to its unlimited closet through its subscription offering (Subscription) or the ability to rent a-la-carte through its reserve offering (Reserve). It also gives its subscribers and customers the ability to buy its products through its Resale offering.

Recent Business and Financial Updates:

• Fourth Quarter 2023 Financial Review
  • Revenue and Subscriber Metrics: In the fourth quarter of 2023, Rent the Runway reported a revenue of USD 75.8 million, marking a slight increase of 0.5% from the same period in the previous fiscal year. The number of ending Active Subscribers decreased by 1% year-over-year to 125,954, while the Average Active Subscribers also declined by 1% to 128,840. However, Total Subscribers increased by 1% year-over-year to 173,247.
  • Gross Profit and Net Loss: The Gross Profit for the fourth quarter was USD 29.9 million, reflecting a decrease of 10.2% compared to the fourth quarter of the previous fiscal year. The Gross Margin stood at 39.4%, down from 44.2% in the same period of the previous fiscal year. The Net Loss for the quarter was USD (24.8) million, an improvement from USD (26.2) million in the fourth quarter of the previous fiscal year. The Net Loss as a percentage of revenue was (32.7)%.
  • Adjusted EBITDA: Rent the Runway reported an Adjusted EBITDA of USD 11.2 million for the fourth quarter of 2023, showing a substantial increase from USD 7.1 million in the same period of the previous fiscal year. The Adjusted EBITDA margin also improved to 14.8% from 9.4% in the fourth quarter of the previous fiscal year. 

• Fiscal Year 2023 Highlights
  • Revenue and Subscriber Metrics: For the fiscal year 2023, Rent the Runway reported a revenue of USD 298.2 million, a slight increase of 0.6% from the previous fiscal year. The Average Active Subscribers increased by 5% year-over-year to 135,211.
  • Gross Profit and Net Loss: The Gross Profit for the fiscal year was USD 119.7 million, remaining relatively flat compared to the previous fiscal year. The Gross Margin was 40.1%, down from 40.5% in the previous fiscal year. The Net Loss for the fiscal year was USD (113.2) million, an improvement from USD (138.7) million in the previous fiscal year. The Net Loss as a percentage of revenue was (38.0)%.
  • Adjusted EBITDA and Cash Flow: Rent the Runway reported an Adjusted EBITDA of USD 26.9 million for fiscal year 2023, a significant increase from USD 6.7 million in the previous fiscal year. The Adjusted EBITDA margin improved to 9.0% from 2.3% in the previous fiscal year. The net cash used in operating activities plus net cash used in investing activities was USD (70.3) million for fiscal year 2023, showing an improvement from USD (92.0) million for the previous fiscal year. The net cash used in operating activities plus net cash used in investing activities as a percentage of revenue improved to (23.6)% from (31.0)% in the previous fiscal year.
• Business Highlights and Recent Developments
  • Strategy Implementation: Rent the Runway implemented strategies to enhance customer experience, resulting in increased Subscription Net Promoter scores and improved customer loyalty. The company also revamped its prospect experience through merchandising-based hubs, driving higher conversion rates.
  • Resale Business Growth: The company experienced significant growth in its 'Try Before You Buy' resale business, achieving record quarterly and annual resale revenue. This model is considered a competitive advantage, offering customers exceptional pricing on beloved inventory.
  • Concierge Program Expansion: Rent the Runway expanded its Concierge Program, offering personalized styling advice to customers, which has contributed to higher loyalty rates and is poised for further scaling.
  • Leadership Addition: Natalie McGrath was appointed as Chief Marketing Officer to drive customer growth initiatives. McGrath's tenure commenced on March 4, 2024, bringing extensive marketing experience from her previous role at Afterpay.
• Financial Outlook for Fiscal Year 2024
  • Revenue and Profitability Targets: Rent the Runway expects revenue growth between 1% to 6% compared to fiscal year 2023. The company aims for an Adjusted EBITDA margin of 15% to 16% and anticipates achieving Free Cash Flow breakeven on a full-year basis.
  • First Quarter 2024 Projections: For the fiscal first quarter of 2024, Rent the Runway forecasts revenue between USD 73 million and USD 75 million, with an Adjusted EBITDA Margin of 7% to 8%.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands upward trending with a value of 70.63, with expectations of a consolidation or a correction in the stock price. Additionally, the stock's current positioning is above the 21-period SMA and 50-period SMA, which may serve as dynamic short to medium-term support levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘WATCH’ rating has been given to Rent the Runway, Inc. (NASDAQ: RENT) at the current market price of USD 19.75 as of May 13, 2024, at 07:55 am PDT. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is May 13, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.