Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 2024 revenue was $78.9 million, up 4.2% year over year, exceeding the high end of guidance.
- Adjusted EBITDA was $13.7 million or 17.4% of revenue, marking the ninth consecutive quarter of positive EBITDA.
- New customer growth in the reserve business was up around 50% year over year without any incremental marketing dollars.
- Significant improvements in site performance, including a 10x faster grid loading time and a 30% reduction in bounce rates.
- Successful execution of cost reduction efforts, leading to a 17.7% decrease in operating expenses year over year.
Negative Points
- Ending active subscribers decreased by 6.2% year over year, primarily due to reduced promotions.
- Gross margins decreased to 41.1% in Q2 2024 from 43.9% in Q2 2023 due to higher rental product costs.
- Free cash flow for Q2 2024 was negative $4.5 million, although improved from negative $17.5 million in Q2 2023.
- Fulfillment costs remained high, although they benefited from a new transportation contract and warehouse efficiencies.
- The company is still working towards achieving free cash flow breakeven for the full year 2024.
Q & A Highlights
Highlights of Rent the Runway Inc (RENT, Financial) Q2 2024 Earnings Call
Q: Can you talk about resurrecting past users and the broader opportunity there?
A: Jennifer Hyman, Co-Founder, CEO, and Chair: We're seeing strength in rejoin rates of past customers, which is a tremendous source of growth. The market is growing quickly, and rental behavior is becoming more mainstream. We've reoriented the company around growth, hired the right people, and reignited marketing creative. These actions give us confidence in our growth trajectory.
Q: What is driving the acceleration in the reserve business from a product perspective?
A: Jennifer Hyman, Co-Founder, CEO, and Chair: The cross-functional teams are focused on the full end-to-end experience for reserves, including maximizing inventory availability, improving booking windows, and enhancing the UX/UI. This focus has led to significant year-over-year growth in reserve revenue and new customers.
Q: Can you discuss your willingness to lean into marketing to stimulate sales growth and what you're most excited about in terms of marketing initiatives in the second half?
A: Siddharth Thacker, CFO: We are critically evaluating the return on each paid channel and broadening our channels to improve efficiency. Jennifer Hyman, Co-Founder, CEO, and Chair: We are reinvesting in marketing by diversifying channels and focusing on brand initiatives, in real-life events, and influencer networks to increase organic traffic and customer engagement.
Q: How are you thinking about your price points and the decision to reduce promotions in light of a challenged consumer environment?
A: Siddharth Thacker, CFO: We have shifted from multi-month to single-month promotions and discontinued less effective promotions. The current promotional cadence is healthy, and we are focusing on other ways to drive growth and retention. Jennifer Hyman, Co-Founder, CEO, and Chair: The reserve business's momentum, with significant new customer growth, demonstrates that improving customer experience can drive growth without incremental marketing dollars or promotions.
Q: What are the key financial highlights from Q2 2024?
A: Siddharth Thacker, CFO: Q2 revenue was $78.9 million, up 4.2% year-over-year, exceeding guidance. Adjusted EBITDA was $13.7 million, or 17.4% of revenue. We are raising full-year revenue guidance and reiterating our goal to be free cash flow breakeven in 2024.
Q: What are the strategic goals for Rent the Runway moving forward?
A: Jennifer Hyman, Co-Founder, CEO, and Chair: Our top three priorities are growing the reserve business, increasing subscriber loyalty, and boosting organic traffic. We have aligned cross-functional teams to aggressively pursue these goals, which we believe will drive significant growth.
Q: How is the company planning to enhance the customer experience?
A: Jennifer Hyman, Co-Founder, CEO, and Chair: We completed several tech projects in Q2 to improve site speed and checkout processes, which have doubled checkout completion rates. We are also focusing on SEO, UX improvements, and customer reviews to drive conversion and organic traffic.
Q: What are the expectations for Q3 and full-year 2024?
A: Siddharth Thacker, CFO: For Q3, we expect revenue between $75 million and $77 million, with adjusted EBITDA margins of 13% to 15%. For the full year, we are increasing revenue guidance to 2% to 6% growth and maintaining our goal of free cash flow breakeven.
Q: How is the company addressing the decline in active subscribers?
A: Siddharth Thacker, CFO: The decline is primarily due to reduced promotions. Excluding high-level promotions from Q2 '23, subscriber growth would have been better. We are focusing on driving innovation and enhancements to the customer experience to improve subscriber retention and growth.
Q: What are the key initiatives in the reserve business for the second half of the year?
A: Jennifer Hyman, Co-Founder, CEO, and Chair: We are focusing on SEO, simplifying the UX, reinforcing our fit guarantee, and improving the upsell experience. We are optimistic about continued growth in the reserve business in H2.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
