Release Date: April 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Exceeded top and bottom line guidance for fiscal year 2023, setting a strong foundation for growth and profitability in fiscal year 2024.
- Achieved historical high Q4 and full year adjusted EBITDA, with Q4 at $11.2 million and full year at $26.9 million.
- Grew onsite inventory resell business by 36%, significantly increasing the number of customers transacting and units purchased per subscriber.
- Improved subscription net promoter score by 20 points from Q2 '23 to Q4 '23, indicating increased customer satisfaction and loyalty.
- Implemented a more capital-light inventory model, with a third of inventory procured on consignment and 28% from exclusive designs program, reducing upfront costs.
Negative Points
- Ending active subscribers in Q4 '23 slightly down by 0.6% year over year, indicating a challenge in subscriber growth.
- Total revenue for Q4 '23 only marginally increased by 0.5% year over year, showing slow revenue growth.
- Fulfillment costs, although improved, still represent a significant portion of revenue at 26.5% in Q4 '23.
- Gross margins in Q4 '23 were lower than Q4 '22, reflecting higher rental product costs and increased sales through the resale channel.
- Free cash flow for fiscal year 2023 was negative $70.3 million, highlighting the need for further improvement in cash generation.
Q & A Highlights
Q: Can you help us understand the acceleration that's implied in guidance in 2024?
A: Siddharth Thacker, CFO, explained that the confidence in the 2024 guidance is based on an improved trajectory from Q3 to Q4, a 10% year-over-year improvement in churn, and the initiation of brand and paid marketing improvements. Jennifer Hyman, CEO, added that they have developed key levers to drive revenue growth, such as the retail business, and have realigned resources to focus on growth, with everyone focusing on marketing or digital product innovation.
Q: What are the key hurdles for scaling the advertising business?
A: Siddharth Thacker, CFO, mentioned that it's early days, and they need to organize outreach for brands and highlight the benefits to them. Jennifer Hyman, CEO, added that nearly 50% of inventory in 2024 will come via revenue share, indicating brands see Rent the Runway as a powerful marketing channel. They are now extending this platform to other industries for creative customer acquisition.
Q: How should we think about the cadence of marketing investments through the year and the potential impact on customer growth versus driving retention?
A: Jennifer Hyman, CEO, stated that retention is driven by the customer experience, and they are focusing on diversifying marketing channels and investing in brand activities to increase traffic and reinvigorate the brand. Siddharth Thacker, CFO, suggested looking at fiscal '23 for a guide on the timing of marketing expenditures.
Q: What are you seeing across your customer base since the beginning of the year in terms of the broader consumer environment?
A: Jennifer Hyman, CEO, reported that they are not seeing any macro impacts on the business and feel strong momentum. Siddharth Thacker, CFO, added that they offer value to both brands and customers, especially at a time when they might be price conscious, but there are no signs of weakness in their business.
Q: Can you elaborate on widening the funnel of potential customers and any update on your target customer given the high-end luxury editions and the pullback in promos?
A: Jennifer Hyman, CEO, explained that they plan to widen the funnel by diversifying marketing channels and focusing on content that is social first. The target customer is a sophisticated customer with a busy life, and they are focusing on this psychographic across various channels.
Q: Would you say the workwear segments you're offering fit under your initiative improving the search tools?
A: Jennifer Hyman, CEO, confirmed that the workwear segment is part of their focus on product discovery, helping customers find items for specific use cases in their lives, such as workwear, travel, and events.
Q: Any color on how the months progressed in Q4 and what you're seeing so far quarter to date?
A: Siddharth Thacker, CFO, stated that they are encouraged with the business and the trends they are seeing are consistent with the guidance they provided, but did not share specific monthly trends.
