Rent the Runway, Inc.

Welcome to Rent the Runway's fourth quarter and fiscal year 2024 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Rent the Runway's Chief Legal and Administrative Officer, Kara Schembri. Thank you. You may begin.

Good morning, everyone, and thanks for joining us today. During this call, we will make references to our Q4 and fiscal year 2024 earnings presentation, which can be found in the events and presentation section of our investor relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the first quarter of 2025 and fiscal year 2025, and statements regarding the impact of our business strategies and plans, our ability to drive subscriber growth and customer loyalty in a cost-efficient manner, and and our planned increases in inventory. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially. These risks, uncertainties, and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-K that we plan to file later today. We undertake no obligation to update any forward-looking statements or information except as required by law. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our investor website, and in our SEC filings. And with that, I'll turn it over to Jen.

Thank you, Cara, and thank you to everyone for joining today. In Q4, we officially marked 15 years since we founded Rent the Runway to disrupt the retail and fashion industry. In those 15 years, we have not only created a new market category, inspiring competitors and making clothing rental mainstream, but we have built a loyal following of women who we empower every day through our platform. As we've shared over the last few quarters, we've been executing against a multi-year transformation plan. And after several years of increased financial discipline, we believe we are now operating from steadier financial footing. Most notably, we've proven that we can operate a sustainable, nearly break-even business. We've significantly improved our cash position from a decline of $70.5 million in fiscal year 2023 to a decline of only $6.6 million at the end of fiscal year 2024, resulting in record low cash consumption. It is important to highlight that the timing of certain cash flow items were outside our control and slipped into February. In fact, by the end of February, our cash position was only $2.8 million lower than the end of fiscal year 2023. With our business operations in a solid position, we believe proving to you and ourselves that we can exercise strong financial discipline, it is now time for Rent the Runway to look to the future. Our data over the last five years has led us to believe that an investment in inventory is is the greatest lever to unlocking customer growth and supporting customer retention. While we expect that this investment will impact our cash consumption in the year ahead, we believe this is an important investment we need to make for the future success of Rent the Runway. And by applying the same principles that allowed us to reduce our cash consumption in fiscal year 2024, we plan to pursue a disciplined growth strategy rather than growth at all costs. Before we walk you through last quarter's financials, I wanted to take a moment to highlight the progress we have made across the three key pillars of our cultural transformation that underpin our overarching growth strategy. This includes one, a rejuvenated and customer-obsessed team, two, improved customer loyalty and retention, and three, stronger cost discipline. One, a rejuvenated and customer-obsessed team. First, I want to talk about the talent and culture transformation underway at Rent the Runway. Now more than ever before, our energy is focused on innovation and growth. To this end, I'm focused on steering the culture of this company back to our founder-led, entrepreneurial, and customer-obsessed roots. We believe that our data has demonstrated over the past 15 years that our growth opportunity is directly related to customer satisfaction and loyalty. And by reinstilling passion and energy for our customer back into everything we do, I am confident in our team's capability to deliver. To serve our business goals, we've reorganized our company structure into four cross-functional pods that directly align with our strategy. Retention, revenue, customer growth, and inventory. This new structure has allowed us to dramatically simplify our goals, and be more agile in the way we launch new products and serve our customers. We're encouraging a more collaborative and solutions-oriented internal culture, so there is synergy between our technical and consumer-facing teams. As a result of this new way of working together, I believe that we are identifying and executing innovation opportunities faster and more efficiently than ever before. With this new alignment, we're also creating new rituals and avenues to connect with our customers directly. and we are doubling down on our commitment to personal, human-centered customer service. We've always taken great pride in the strength of our customer service, consistently maintaining a CSAT, which is customer satisfaction score, between 80% and 90% over the past three years. We've also heard from customers that customer experience is one of their favorite things about Run the Runway. And yet, with our rejuvenated customer-obsessed lens, we believe there's even more our customer service team can be doing. That's why we've restructured our customer service team from a team that has traditionally spent 100% of their time reactively solving customer problems like fit or shipping issues to a team that now spends 14% of their time on proactive customer engagement and selling in order to drive loyalty. For instance, about 50% of new customers now get a phone call from customer service after they joined. to explain the key features of a Rent the Runway subscription and answer questions, as well as mid-month and end-of-month check-ins so we can ensure they have a great experience in those crucial early days after sign-up. As we push forward, we'll be working hard to find new ways to reconnect with our customers. In just the first few weeks of 2025, we've launched a number of initiatives that are already receiving positive feedback and high customer engagement. We've invited customers to our company all-hands meetings to talk about their experiences and invited them to focus groups that we open up to the whole company so everyone can hear directly from our customers. To build excitement about our new inventory investment, we've hosted events online and offline for our customers, including a customer town hall in our New York office and an Ask Me Anything conversation on Reddit. And recently, over three days in March, every employee, regardless of their role, participated in a phone calling campaign to win back churned customers and get their feedbacks. Last but not least, I am particularly proud of the exceptional team that is now in place to help me lead Red the Runway into this next phase of growth. We have both hired new talent to add new skill sets and strengths to the team, as well as reinvigorated our existing team to ensure everyone is doing the work that taps into their greatest strengths. Today, I firmly believe that we have the most talented team we've had in years, and we're making sure every individual is being fully utilized. I have great conviction in this team. Two, loyalty and retention. Next, I want to talk about our laser-focused commitment to strengthening customer loyalty and retention. After 15 years of operations, Rent the Runway has an extraordinary amount of data and customer feedback, which guides us as we make decisions. The piece of feedback we have heard repeatedly from customers is they want more. They have a clear ask, better inventory, more selection, more depth of styles, more new designers. and more clothing they can wear for specific use cases. Inventory is also cited as the top reason why customers leave Rent the Runway. So in 2024, we began making a calculated investment to improve the depth of our inventory and saw an 8% improvement in customer loyalty. The combination of our underlying data and this uptick in customer loyalty supports our conviction that inventory is the key to unlocking customer loyalty. We also know from our data that customers don't just want more in the way of quantity. They also want aspirational designer brands like Ula Johnson, Gani, and Veronica Beard. Our customers are women who are sophisticated and come to Rent the Runway to find new fashion and exclusive designer collaborations that are only available here. Our rich data shows us the most desired brands on our platforms. And these brand partners are incentivized to work with us as a marketing channel to reach their consumers. To that end, I'm thrilled to share that we've officially embarked on our largest inventory investment in the company's history. In 2025, we plan to add two times new inventory units year over year, a three to four times increase in units on average from key brands most desired by customers. including some of the most desired brands in fashion, like Lula Johnson, Veronica Beard, and Stodd. An increase in our exclusive design collections, including Gani, Simon Miller, Agua Bendita, and Rixo. 75% more new styles year over year, 83 new brands, and more new arrivals during periods of the year that were previously light on newness, like Deep Summer and Deep Winter. The new inventory started flowing onto Rent the Runway's site in late February, and we officially announced this new investment to customers on March 8th in a campaign called We Heard You. Our launch emphasized that we have listened to our customers and are committed to giving her the inventory options she wants. As part of this campaign, we spoke directly to and with our customers, creating moments of honest engagement with them to gather feedback, both positive and constructive. For example, I gave out my real personal email address and asked customers to send me feedback, and they did. I received hundreds of emails from customers giving me real feedback on how Rent the Runway has changed their lives and what we can be doing better. Already, customers are feeling the newness. The number of new items in her shipment is expected to increase approximately 75% this year versus last year. And because we are buying new inventory throughout the year, Customers can expect to feel this newness every month and see new styles on our site every week. With more inventory, she has a higher probability of getting the item she wants and availability of the item she loves. In addition to the new inventory and in anticipation of new and returning customers visiting our platform, we've rolled out meaningful changes designed to improve the entire customer experience with Rent the Runway, from the new client onboarding experience to new technology notifications. Our ability to innovate and ship product updates faster than ever before is not only the result of our restructured team, but also the result of our renewed commitment to make sure that everything we do as a company is being driven by customer feedback. In Q1 2025, we've launched one more personalized customer onboarding experience where members of our customer service team call new customers personally to provide an overview of their subscription and answer questions. Two, new inventory highlights to make it easier for customers to find new inventory more efficiently. Three, a 60-day customer promise, giving new members risk-free renting for their first two months. And there's more in our pipeline, including enhancements to our back-in-stock notifications to send customers a notification when their size and a certain style becomes available. We first launched this in Q1 2025 for items customers hearted and are excited about this expansion, which is our number one most requested new feature. Stylist in product launching this week, which connects customers to a stylist over text or Zoom to help guide her selection of styles. Personalized recommendations, which allow customers to share specific events coming up in their calendars so Rent the Runway can proactively recommend the best styles to meet their needs. Together, we believe that all of these activities reinforce one thing. Rent the Runway has an important role to play in the lives of our many passionate customers, and if we continue listening to them and delivering on what they want, we will be able to prove we have a best-in-class customer loyalty and retention strategy. Three, cost discipline. Lastly, I want to talk about our cost discipline and how we expect to be able to make new investments in our inventory in a sustainable way over the next few years. After 15 years of pioneering this industry and building deep, longstanding partnerships with some of the world's most recognizable fashion brands, we believe that Rent the Runway is uniquely positioned and capable of developing innovative solutions to acquire new inventory at a fraction of traditional procurement costs. We have developed two key channels to acquire new inventory, a revenue share model and exclusive designs. Again, we are focused on disciplined growth, not growth at all costs. and believe that these cost-efficient channels will be the key to how we grow while maintaining our cost discipline. Our revenue share model, called Share by RTR, allows us to acquire inventory from leading designers and brands at zero or low upfront cost and share revenue over time. Designers love this model as Rent the Runway can serve as a powerful marketing channel for them. Share by RTR units are expected to increase to approximately 62% of total units in fiscal year 2025, a 2.5X increase versus fiscal year 2024, underscoring the popularity with brands and success of the model. We continue to look to our data to find the new brands that our customers love the most and are excited to be launching new exclusive collaborations with our customers' favorite designers. Many of our exclusive design brands are high-end brands that would normally be cost prohibitive to buy, at the quantities we want for our customer base. However, for these collections, we share data with brands and work hand-in-hand with them on design, fit, and manufacturing, allowing us to buy inventory from them at about half the wholesale price. We're already working with 15 brands in the first half of 2025, including customer favorites like Simon Miller, Donnie, Pat Bow, Sea New York, and Agua Bandida. It's important to know that these new exclusive capsule collections for Rent the Runway customers adhere to strict quality standards and go through rigorous design reviews directly with the designers. Our design partners want to make sure that the exclusives they put up on Rent the Runway represent their best foot forward to a new customer base. Similar to the Share by RTR inventory acquisition program, we truly believe that this model is a win-win for the designers and for Rent the Runway. Rent the Runway gets to deliver coveted, high-quality brands to our customers, while the brands gain a marketing channel to gain visibility with new customers. Through these channels, we've been able to source inventory at significantly lower cost than traditional wholesale channels, proving we can use these new models to acquire inventory without drastically increasing cash expenditures. We believe that early signs are showing this strategy is working, and we anticipate our subscriber growth to accelerate in 2025. While Rent the Runway has inspired many competitors, we believe that the quality and breadth of the designers on our platform is unmatched. Our vision moving forward is to evolve Rent the Runway into a discovery engine for consumers to find the latest and greatest in designer fashion. We know that many of our key brands already see Rent the Runway as an effective and alternative marketing channel, which we are looking forward to leveraging in our ongoing inventory acquisition strategy. As we look towards the future of Rent the Runway, We believe we're entering a new era, one where we plan to make bold moves to give current and potential members more of what they want. We're excited for what the future will bring, and I look forward to answering your questions. With that, I'll hand it over to Sid.