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Rent The Runway: Gone in a Minute in New York (NASDAQ: RENT)

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At this darkest moment, as you drown in the abyss of emotional bankruptcy, reflect on this universal truth: the difference between success and failure is once again. -Ken Poirot

Today we shine the spotlight on Rent the track (NASDAQ: RENTAL) for this first time. This unique retail concept went public in late 2021, right at the end of last year’s IPO boom. The company posted solid revenue growth, but profitability remains an issue and the stock has been battered in an unforgiving market environment. Management recently announced a major restructuring plan, will this be enough to raise the bar? An analysis follows below.

Stock chart

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Company presentation:

This fashion retailer is located in Brooklyn, New York. Through Rent The Runway, customers can subscribe, rent a la carte items and resell in-store from over 800 designer brands. These include items such as evening wear and accessories for ready-to-wear, casual, maternity, outerwear, blouses, knitwear, jewelry, handbags, sportswear, ski wear, homeware and children’s wear. The stock is currently trading around $2.25 per share and has an approximate market capitalization of $150 million.

Second quarter results:

On September 12, the company released second quarter numbers. The company lost 53 cents per share as revenue jumped more than 60% year on year to $76.5 million. The top and bottom numbers beat the consensus well.

Q2 Highlights

Presentation of the company in September

The company also saw a 37% increase in subscribers over 2Q2021, ending the quarter at just over 173,000. It should be noted that active undergrowth fell 8% in the quarter. against the analyst consensus calling for 7% growth and decelerating from 17% growth in the first quarter of this year. Active undergrowth was up 27% from the same period a year ago, with just under 127,000 active subscribers. Gross margins also increased by 3% to 42%. Management guided between $285 million and $290 million in revenue in fiscal 2022.

Active subscriber growth

Presentation of the company in September

Management also announced an extensive restructuring plan that will reduce annual costs by $25-27 million and hopefully increase the company’s profitability over time. Among other things, this effort will result in the layoff of 24% of the company’s workforce and an expense of approximately $2.5 million.

Restructuring plan

Presentation of the company in September

Analysts’ comments and results:

The analyst community seems happy to give the company the benefit of the doubt for now. Since the announcement of the restructuring plan, eight analyst firms, including Wells Fargo, Barclays and Goldman Sachs, have reissued buy ratings. Price targets offered range from $6 to $8 per share. Credit Suisse appears to be the only skeptic to maintain its Hold rating and $4 price target. The Credit Suisse analyst noted that “this online retailer is more susceptible to macro pressures than expected‘.

Balance sheet

Presentation of the company in September

Unsurprisingly, nearly 15% of floating assets are currently short of RENT. Insiders have been frequent but generally small sellers of stocks throughout 2022 despite the stock price falling. No insider buying has taken place in the shares since the company went public. The company ended the second quarter with just over $190 million in cash and marketable securities on its balance sheet versus just over $290 million in long-term debt. The company recorded a net loss of $33.9 million in the second quarter of this year.

Cash flow

Presentation of the company in September

Verdict:

The analyst firm consensus the company is losing about $2.25 per share in fiscal 2022, even as revenue grows just over 40% to just under $290 million. Revenue growth is expected to slow to around 20% in fiscal 2023 and losses will narrow slightly to $1.90, analysts said.

An article on Seeking Alpha in late July speculated that new initiatives within the company could significantly improve margins. Obviously, this was not enough to avoid the more drastic measures that management was forced to implement this month.

The analyst community seems to be signaling that these changes will significantly improve Rent The Runway’s outlook. However, with the country entering recession and the consumer losing purchasing power in the face of the ravages of inflation for five consecutive quarters; it’s not a market niche I want to be in right now. Therefore, I don’t have an investment recommendation on RENT at this time. I will likely revisit this company that has destroyed shareholder value faster than a minute in New York since going public to see if this restructuring plan pushes the company in a more promising and profitable direction.

We can’t have it all, but we can lose it all. ”― Mokokoma Mokhonoana