Rent the Runway, Inc. (RENT)·Q1 2026 Earnings Summary

Executive Summary

• Q1 FY2026 (quarter ended Apr 30, 2025) delivered a return to subscriber growth and the strongest quarterly customer retention in four years, but revenue fell 7.2% year over year to $69.6M and margins compressed materially .
• Adjusted EBITDA margin was -1.9% versus 8.7% a year ago, driven by higher revenue share mix and higher transportation costs; GAAP EPS was $(6.58) versus $(6.03) in Q1 FY2025 .
• Guidance: FY2026 (company “fiscal year 2025”) outlook was maintained (double-digit ending active subscriber growth; free cash flow $(30)M–$(40)M), and Q2 FY2026 guidance was introduced at $76–$80M revenue and -2% to +2% adjusted EBITDA margin .
• Near-term stock catalysts: accelerated inventory receipts (+134% YoY for the remainder of the year; Q2 receipts +420% YoY), early signs of churn improvement from product/service changes, and uncertainty from tariffs noted by management .

What Went Well and What Went Wrong

What Went Well

• Returned to subscriber growth: ending active subscribers reached 147,157, the highest quarter-ending count in company history; retention was the strongest in four years .
• Inventory/product strategy gaining traction: Q1 receipts +24% YoY; 36 new brands and 1,000+ new styles launched; back‑in‑stock notifications saw 25% subscriber engagement and 48% conversion on notified items .
• Authentic, organic media strategy drove engagement: social engagement rate up 163% post strategy change; management emphasized “customer‑obsessed roots” (“momentum and customer loyalty is back”) .

What Went Wrong

• Revenue and profitability pressure: revenue down 7.2% YoY to $69.6M; gross margin fell 640 bps YoY to 31.5%; adjusted EBITDA turned negative at -1.9% from 8.7% a year ago .
• Higher cost mix and logistics pressure: gross margin decline driven by higher revenue share costs and carrier rate increases; fulfillment costs rose to 29.3% of revenue versus 27.5% a year ago .
• Free cash flow more negative due to inventory step‑up: FCF was $(6.4)M vs $(1.4)M a year ago, reflecting increased purchases of rental product aligned to the inventory strategy .

Financial Results

Segment revenue breakdown:

KPIs:

Notes:

• Q1 FY2026 revenue was within prior guidance of $68–$70M set on the Q4 call (actual $69.6M) .
• Adjusted EBITDA margin at -1.9% was better than prior Q1 guidance of -5% to -7% .

Guidance Changes

Management reiterated that guidance excludes potential tariff impacts given uncertainty .

Earnings Call Themes & Trends

Management Commentary

• “I have conviction that this quarter’s results prove that our focus on transforming our inventory and getting back to our customer‑obsessed roots is working… I believe that Rent the Runway’s momentum and customer loyalty is back.” — Jennifer Hyman, CEO .
• “We are happy with the sequential growth in ending active subscribers and continue to expect double digit growth in ending active subscribers for fiscal year 2025.” — Sid Thacker, CFO .
• “Gross margins… reflect higher revenue share costs… and higher fulfillment costs as a percentage of revenue.” — CFO on margin drivers .
• “Our guidance does not factor in any potential impact from tariffs given all the uncertainties.” — CFO on macro/tariffs .

Q&A Highlights

• Free cash flow drivers: FY2026 cash consumption guided to $(30)M–$(40)M driven by almost doubling inventory purchases and ~2.5x expansion in Share by RTR units; average subscribers lag ending subscribers during the build, pressuring FCF near‑term .
• Consumer/tariffs: Management reiterated no macro/tariff predictions; emphasized renting’s value vs buying and the strategy to address the #1 customer pain point (inventory availability) .
• Inventory “step function” change: Doubling new units in 2025 expected to materially improve customer experience and loyalty (more new arrivals weekly; deeper pillar brands), a marked change vs prior years .

Estimates Context

• Wall Street consensus (S&P Global) for Q1 FY2026 EPS and revenue was not available at the time of retrieval; comparisons to consensus cannot be made. Management’s Q1 results were evaluated versus company guidance instead .
• Implications for models: Lower ARPU from increased promotional spend and a higher revenue‑share mix, plus carrier rate increases, drove margin compression; subscriber growth is improving, suggesting estimates should tilt toward volume growth with near‑term margin headwinds embedded .

Key Takeaways for Investors

• Subscriber momentum and retention improvement are tangible, supported by materially increased inventory and customer‑experience investments; watch Q2 inventory flow (+420% YoY receipts) and sequential subscriber gains as near‑term catalysts .
• Profitability is under pressure from revenue share mix and logistics costs; expect margin volatility near‑term as the company “plays offense” to drive growth before operating leverage reasserts at higher subscriber bases .
• Guidance is consistent: FY2026 double‑digit ending subscriber growth and FCF $(30)M–$(40)M maintained; Q2 revenue $76–$80M and adjusted EBITDA margin -2% to +2% introduced—monitor delivery against these ranges .
• Management is prioritizing subscription experience over near‑term “other revenue” by selling less inventory to improve availability—supportive of loyalty but a headwind to ancillary revenue lines .
• Tariff uncertainty remains an external risk; limited direct import exposure helps but customer behavior is hard to predict—model sensitivity to macro/tariffs advisable .
• If churn improvements continue (styling, 60‑day promise, concierge calls), lifetime value and acquisition efficiency could improve, supporting a medium‑term thesis of scale‑driven operating leverage .
• Balance sheet shows long‑term debt at $340.6M as of Apr 30, 2025; liquidity (cash and equivalents $70.4M) and operating cash flow ($8.3M in Q1) should be tracked closely given the investment cycle .