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  Title	Rent the Runway Q3 2025 Earnings Call Transcript
  ID	29303626
  External ID	79b0d421-7ae5-3126-a4e3-75bea066b9af
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  Published Date	Dec. 12, 2025, 8:15 a.m.
  Summary	Rent the Runway Q3 2025 Earnings Call Transcript Motley Fool Transcribing, The Motley Fool Fri, December 12, 2025 at 9:15 AM EST 14 min read RENT Image source: The Motley Fool. DATE Friday, Dec. 12, 2
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  Content	Rent the Runway Q3 2025 Earnings Call Transcript Motley Fool Transcribing, The Motley Fool Fri, December 12, 2025 at 9:15 AM EST 14 min read RENT Image source: The Motley Fool. DATE Friday, Dec. 12, 2025 at 8:30 a.m. ET CALL PARTICIPANTS Chief Executive Officer — Jennifer Hyman Chief Financial Officer — Siddharth Thacker Full Conference Call Transcript Jennifer Hyman: Thanks, Cara, and thank you, everyone, for joining. We have been laser-focused on two clear priorities. First, completing a strategic recapitalization of the business to significantly strengthen our balance sheet. Second, bringing the business back to growth through a new inventory strategy, increased product innovation, and improved connection to our core customer. Now that we are here in Q3, I am pleased to say we have delivered both of these goals. We have strengthened our financial foundation by reducing our total debt from approximately $319 million to approximately $120 million and extending the maturity to 2029, giving us years of additional runway. With the recapitalization, two highly respected private equity firms with deep experience in the consumer retail space, Nexus and Story3, alongside our long-term existing lender, contributed new capital to further support the business and its growth initiatives. In addition, they will join us in the boardroom to provide their expertise and support. And importantly, the Rent the Runway, Inc. business is growing again. We are on track for 11% to 14% year-over-year revenue growth in Q4, up from 1% revenue growth year-over-year in Q4 2024. Q3, well, fiscal year 2025 ending active subscribers grew 12% year-over-year as our base of inventory has grown and we have enhanced the customer experience. Importantly, despite raising prices in August, we continue to see improvement in both acquisition and retention versus the prior year. We believe that customers are responding positively because the end-to-end experience on our app, discovering inventory, personalization, and getting the inventory you want is better. And that shows up first in retention as existing customers are the first to notice. Inventory-related cancellations, which are related to availability, selection, and quality, year-to-date, is down over 20% year-over-year. And in Q3, was down nearly 30% versus last year. We tracked three important input metrics that are indicators of customer engagement: Net Promoter Score, visits, and heart. All of which are up. Our Q3 subscription Net Promoter Score was up 43% year-over-year, 67% versus Q3 2023, and 100% versus Q3 2022. We believe that this demonstrates a multiyear rebuild of customer trust. Customer engagement is at its highest level in recent years. The average active subscriber visited our app over 20 times per month in Q3, which is 34% higher year-over-year. Parts per subscriber, one of the most important inputs to loyalty, as we see them as proof of the customer finding and loving the inventory, are up 15% year-over-year in Q3. And because she is more engaged, she is willing to spend more money with us. Story Continues Revenue per subscriber is also up, driven primarily by our August 2025 price increase, changes to our late fee policy, and the accelerated performance of our add-on business. To give our subscription programs even more flexibility, we optimized the add-on experience by clearly displaying to our subscribers that our pricing is prorated based on her billing cycle. This strategic clarity, along with the improved inventory experience, drove a 17% year-over-year increase in the subscription add-on rate in Q3 2025. We also recently launched an instant gratification feature which transforms in-stock notifications into immediate revenue by allowing one-off orders of inventory when she is out of shipments. We believe that our subscriber base is willing to pay more for immediate access to the inventory she wants when she wants it. In Q3, we rolled out some meaningful pages designed to improve the customer experience, driving growth and customer satisfaction. Key highlights include, one, a personalized homepage redesign on our app aimed at shifting discovery to her preferences. Since launch, engagement with our new homepage is up 57% versus the prior version. A reminder that a major focus this year has been not only on increasing inventory supply on our site but also making it easier for customers to discover relevant inventory. And add to that. Two, a better onboarding experience for early-term subscribers with the aim to increase loyalty. We launched several features for new users to help educate her about RTR and to give us information about her style. RTR 101 is a step-by-step guide for new subscribers aggressively guiding and handholding them into early days. We also added a Harding quiz for her to give us quick feedback on styles she likes or does not like, which we use to personalize her experience. Early results show this feature increasing average hearts by 70%. Three, add-on pricing transparency and one-off shipments to drive incremental revenue for subscribers, creating more visibility around pricing and the value she is getting by adding on to her order, has significantly boosted add-on revenue. One-off shipments is the first time you have ever been able to add one-off items ASAP when you are out of swaps for the month. The goal is to give her more flexibility to rent what she wants when she wants. Number four, better search and discovery experiences. We launched a detailed taxonomy which provided an incremental 70 pathways for her to explore the inventory. And we leaned into machine learning capabilities to draft improved similar style recommendations resulting in a 70% increase in click-through rate. We continue to see that mainstream adoption of secondhand clothing is growing, women from all geographies and backgrounds are now embracing and considering rental more than ever. The TAM has continued to grow. And I have conviction that Rent the Runway, Inc. is the brand with the clearest long-term advantage. To sustain this growth, our focus now turns to improving customer acquisition. First, we are focused on making paid marketing even more efficient, through channel diversification and better creative. Our early results show meaningful improvements in CPA and conversions. Second, and more importantly, we are shifting more acquisitions towards organic community-driven channels. Historically, over 80% of Rent the Runway, Inc.'s acquisition paid for word-of-mouth. As paid channels have grown more expensive and less efficient, this shift is not only strategic, it is a return to our roots. RTR pioneers the belief that the most powerful marketing channel is an obsessed customer. We bring our model and our brand around that principle. Exceptional customer experience fuels advocacy, our depth and breadth of inventory unlock moments worth sharing. Community behaviors like reviews, photos, events, and referrals scale organically. And our brand identity reflects her aspirations so she sees herself in us. Today, we have conviction that we have the building blocks in place to reignite organic growth at scale. We have defined four pillars: One, activate our communities so they feel seen and proud to share. Two, make sharing fun and easy. Three, tell authentic personality-driven stories. And four, create and own the cultural conversation around rental. Our news program, the community-driven content engine launched this year, has already generated 10 million impressions in Q3. Thousands of posts showcase the product in real life. And when we use this content in paid channels, it delivers a 20% lower CPA and 40% higher conversion than other creative. Our City Ambassador program launched in October and scaled rapidly to 875 ambassadors. In just over two months, they produced over 2,700 reviews, and several hundred referrals. Their referral rate is significantly higher than what we see with regular subscribers. These are passionate users acting as on-the-ground evangelists for our brand. We told you we would recapitalize the business and significantly increase our in order to reignite growth. We have done that. And today, our Q3 results are clear. Retention improved. NPS increased, engagement accelerated, community passion is stronger, and subscriber growth was robust even with a price increase. I am confident that this is what it looks like when the Rent the Runway, Inc. experience gets better when the fundamentals of the model begin to accelerate. We are focused on building a larger, healthier, and more durable business. One that grows through exceptional customer experience and passionate community advocates. Advocacy. Thank you for joining us today. With that, I'll turn it over to Siddharth Thacker. Siddharth Thacker: Thanks, Jennifer, and thank you, everyone, for joining us. I would like to discuss three topics before turning to business results. Our continued growth momentum, cash consumption this year, and our recently closed recapitalization transactions. Let's begin with growth. As evidenced by Q3 results, subscriber growth continued to be strong, with 12.4% growth versus Q3 2024 even with the August 1 price increase. Revenue growth improved considerably, from negative 7.2% in Q1 2025 and 2.5% in Q2 2025 to 15.4% in Q3 2025. Subscription growth was the strong driver of total revenue growth, in light of weakness in our reserve business. As outlined in our guidance, we expect continued strong revenue growth in Q4. We believe that our investment in inventory this year is driving accelerated growth and improved customer satisfaction. We are growing without spending significantly more year over year in paid marketing, which we believe highlights the strength of the retention improvements we have seen. Second, we have been transparent about our fiscal year 2025 goal to invest in inventory, to improve customer experience and accelerate growth. Which is driving increased cash consumption from near breakeven levels in fiscal year 2024. This rental product investment is directly visible in lower gross margins at approximately 29.6% this quarter versus 34.7% during the same quarter last year. As we discussed over the last two earnings calls, we have nearly doubled our units of inventory purchased this fiscal year. At this time, we do not expect increases in inventory receipts of this magnitude in fiscal year 2026. We have continued to make progress in acquiring inventory on better terms especially through share by RTR program. We believe our incremental margins are solid, even at current levels. Over time, we expect the combination of growth and these inventory cost improvements to deliver improved cash flow generation. Finally, let me discuss the completion of the recapitalization transactions we announced in August. The transactions provide Rent the Runway, Inc. with additional financial flexibility to execute on our growth plan by reducing our debt burden, and by extending our debt maturity. We also believe that we will benefit from a considerable experience and fresh perspective that new members of our Board of Directors will bring. Let me now review results for the third quarter before turning to Q4 and full year 2025 guidance. We ended Q3 2025 with 148,916 ending active subscribers, up approximately 12.4% year over year. Average active subscribers during the quarter were 147,645 subscribers versus 130,796 subscribers in the prior year, an increase of 12.9% year over year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q2 2025 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher promotional activity and improved subscriber retention versus Q3 2024. Ending active subscribers increased 1.7% from 146,373 subscribers in Q2 2025. Total revenue for the quarter was $87.6 million, up $11.7 million or 15.4% year over year, and up $6.7 million or 8.3% quarter over quarter. Subscription and reserve rental revenue was up $10.7 million or 16.1% year over year in Q3 2025 primarily due to higher average subscribers, and higher average revenue per subscriber, due to the subscription price increase effective August 1. Partially offset by lower reserve revenue versus Q3 2024. Other revenue increased $1 million or 10.4% year over year. Fulfillment costs were $24 million in Q3 2025, versus $21.4 million in Q3 2024 and $22.5 million in Q2 2025. Fulfillment costs as a percentage of revenue were 27.4% of revenue in Q3 2025 compared to 28.2% of revenue in Q3 2024. Fulfillment costs declined as a percentage of revenue primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs. Gross margins were 29.6% in Q3 2025 versus 34.7% in Q3 2024. Q3 2025 gross margins reflect higher revenue share costs as a percentage of revenue due to greater share by RTR inventory levels partially offset by lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue. Q3 2025 gross margins decreased quarter over quarter, from 30% in Q2 2025 primarily due to higher revenue share costs as a percentage of revenue. Q3 2025 operating expenses were 7% higher year over year due primarily to higher employee expenses. Total operating expenses, which include technology, marketing, and G&A, were 45.2% of revenue in Q3 2025 versus 48.7% of revenue in Q3 2024 and 51.7% of revenue in Q2 2025. Adjusted EBITDA for Q3 2025 were $4.3 million or 4.9% of revenue versus $9.3 million or 12.3% of revenue in Q3 2024. The decrease in adjusted EBITDA versus the prior year is primarily a result of higher revenue share expenses due to greater share by RTR inventory level. Free cash flow for Q3 2025 was negative $13.6 million versus negative $3.4 million in Q3 2024. Free cash flow decreased versus the prior year, primarily due to lower adjusted EBITDA and higher purchases of rental products on account of our inventory strategy, for fiscal year 2025. I will now discuss guidance for Q4 2025 and fiscal year 2025. For Q4, we expect revenue to be between $85 million and $87 million. We expect adjusted EBITDA margins to be between 11-13% of revenue. For fiscal year 2025, we continue to expect double-digit growth in ending active subscribers. We expect fiscal year 2025 revenue to be between $323.1 million and $325.1 million. We expect adjusted EBITDA margins to be between 4.9-5.5% of revenue. We continue to expect free cash flow to be lower than negative $40 million primarily due to costs associated with the recapitalization transaction. We believe our business is showing improved momentum as evidenced by growth in the active subscriber base and we plan to prudently manage investments to continue to drive growth for the rest of fiscal year 2025. In conclusion, we are pleased with the improved growth momentum we have seen this year. I believe that Rent the Runway, Inc. is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter. Thank you. Operator: This concludes today's conference. You may now disconnect your lines at this time. We thank you for your participation, and have a wonderful day. Don’t miss this second chance at a potentially lucrative opportunity Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this. On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $469,283 !* Apple: if you invested $1,000 when we doubled down in 2008, you’d have $52,892 !* Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $507,421 !* Right now, we’re issuing “Double Down” alerts for three incredible companies , available when you join Stock Advisor , and there may not be another chance like this anytime soon. See the 3 stocks » *Stock Advisor returns as of December 8, 2025 This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy . Rent the Runway Q3 2025 Earnings Call Transcript was originally published by The Motley Fool View Comments Terms and Privacy Policy Privacy Dashboard More Info
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