Rent the Runway Restructures, Cutting 24 Percent of Corporate Employees
Jennifer Hyman, chief executive officer and cofounder of Rent the Runway, logged her first quarter of profitability — well, adjusted earnings before interest, taxes, depreciation and amortization in the second quarter.
But a quick turn in the rental service’s users, who became more reticent this summer, prompted Hyman to batten down the hatches, laying off 24 percent of the company’s corporate employees in a restructuring intended to make the company more profitable quicker and, ultimately, self-sustaining.
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Investors, who have been waiting for the rental pioneer’s finances to grow into the promises of its business model, sent shares of the company down 23.9 percent to $3.75 in after-hours trading on Monday. Even in a market that’s fallen sharply this year, that’s a steep drop from the more than $24 a share the stock briefly traded at immediately after its October initial public offering.
Hyman, though, is focused on the longer-term future and how renters will be using the service for the rest of this year and into 2023.
The CEO told WWD in an interview that the second quarter started out strongly in May, only to weaken in mid June with more subscribers pausing the service and new customer acquisition slowing.
Even so, the company hit its long-looked for target of making money on an adjusted ebitda basis, reeling in $1.8 million in the quarter. Net losses narrowed to $33.9 million from $42.4 million.
Revenues showed continuing strength, rising 64 percent to $76.5 million.
Even with some promising signs, and a stronger showing from users in August and early September, Hyman is taking a better-safe-than-sorry approach.
“Despite the bounce-back that we’re seeing, we think it’s important to be prudent and assume that uncertainty will persist,” Hyman said. “It’s hard to anticipate how customers will behave in an environment that’s fundamentally different than the one we left behind pre-pandemic.”
The CEO described the company’s approach as data-driven and said, like it did when the pandemic hit, Rent the Runway was reacting to the information available.
“We simply can’t predict what’s going to happen over the next 12 months,” she said.
The restructuring is aimed at fixed costs and Hyman said Rent the Runway will continue to spend on marketing and product to maintain the experience for the customer.
The plan is expected to produce annual operating expense savings of $25 million to $27 million.
This year, the company is projecting revenues of $285 million to $290 million with an adjusted EBITDA margin of negative 2 percent to flat.
While profitability has been a target for Rent the Runway since it went public — and before — the top line is also important to watch.
Hyman is charging toward revenues of $400 million, at which point she said the company would be able to cover operating expenses.
While she declined to give a timeline, she said the $400 million target is “very within our grasp and we believe that it happens in the short term.”
On a conference call with analysts, Hyman added that the cost cuts are “just as much about growth as they are about efficiency.”
“This gives us the ability to reinvest in the customer experience,” she said, noting the cuts were focused instead of the back end of operations. “These changes put us in a strong position. We go from a business that’s burning a lot of cash to one that has a much tighter cost structure in the short term and can fund product cost.”
In addition to readying Rent the Runway for potentially a more difficult macro economic landscape in the second half, Hyman said she still sees plenty of longer-term potential.
“We believe we can become a much larger business,” she said. “We believe the apparel market continues to evolve in a way that’s favorable with our business. Recently, a partnership with Saks Off 5th to sell preloved clothing with our brand was a success. I truly believe that our best days lie ahead.”
But clearly, she still has some work to do if she’s going to convince investors.
