Rent the Runway shares surge after fashion rental company reports stronger quarterly sales

As some shoppers think twice about purchases, Rent the Runway is getting a bump.

The fashion rental and subscription company on Wednesday reported stronger quarterly revenue that beat expectations and raised its financial outlook for the year as customers opted to borrow designer clothes instead of buying them.

Shares were up about 23% in after-market trading after closing Wednesday at $1.36.

In a CNBC interview, CEO Jennifer Hyman said inflation is making Rent the Runway more appealing to a broader swath of customers who cut across incomes and geographies.

During the quarter, 28% of its subscribers also paid more to add at least one additional rental item each month. Subscribers are charged a fee based on how many items they borrow each month.

“There’s no other place that the consumer can go to get as much financial value as she receives from our offering,” Hyman said.

Here’s how the company did for the third-quarter ended Oct. 31 compared to what analysts expected, according to Refinitiv:

• Loss per share: 56 cents vs. 56 cents expected
• Revenue: $77.4 million vs. $72.9 million expected

For the quarter, revenue rose 31% from a year ago to $77.4 million. Its loss for the period narrowed to $36.1 million, down from the loss of $87.8 a year ago.

Its active subscribers at the end of the quarter were up 15% from a year ago to 134,240. Total subscribers rose 17% from a year ago 176,167.

Rent the Runway now anticipates $72 million to $74 million in the fourth quarter. That range is higher than the $72 million anticipated by analysts, according to Refinitiv.

For the year, it expects revenue in the range of $293 million to $295 million, up from its previous forecast of $285 million to $290 million.

Rent the Runway is the latest apparel business to report earnings, as investors and economists scour for clues about consumers’ willingness to keep spending. Some retailers, such as Walmart and Target, have warned that shoppers are buying fewer big-ticket and discretionary items — including less apparel — as inflation drives up the prices of food, housing and other necessities. Others, such as Macy’s and Best Buy, stood by their guidance, but said shoppers have become more choosy and interested in sales.

Rent the Runway’s business and its stock has been on a turbulent ride, especially during the pandemic. The rental platform lets customers to sign up for a subscription to borrow clothing and accessories or borrow them a la carte. Its business was hurt over the past two years, as consumers suddenly had fewer reasons to get out of their sweatpants and put on work attire or party outfits.

Since debuting on the stock market last year, shares of Rent the Runway have plummeted. They began trading at $23 a piece.

Rent the Runway is also still chasing profitability. It announced layoffs in September as part of a cost-cutting plan. It said it would reduce its corporate headcount by about 24% by the end of the fourth quarter. The plan will amount to $25 million to $27 million in annual savings, the company said.

The company has tested new approaches to manage its inventory, stand out with its merchandise and work with designer brands. In November, it launched its first celebrity collection with Ashley Park, the co-star of Netflix’s “Emily in Paris.” It launched four new exclusive design brands and is on track to offer 18 exclusive design partners this year.

Hyman said Rent the Runway customers are not just looking to save money. They also need more variety in their wardrobes, as they dress up for work, parties and everyday outings again.

“We’re in an environment where people don’t know how many days of the week they’re going to be going into the office, how many occasions they’re going to be going to, how they’re going to be dressing in those occasions,” she said.

Life changes such as pregnancy tend to prompt customers to subscribe as well, she said, and many women are juggling new routines as they emerge from the pandemic.