Rent the Runway's Q2 2025 Earnings Call: Contradictions Emerge on Inventory Strategy, Customer Experience, Subscriber Growth, and Cash Flow

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 11, 2025

Financials Results

• Revenue: $80.9M, up 2.5% YOY and up 16.2% sequentially
• Gross Margin: 30%, compared to 41.1% in Q2 2024 and 31.5% in Q1 2025

Guidance:

• Q3 revenue expected to be $82M–$84M.
• Q3 adjusted EBITDA margin expected between -2% and 2% of revenue.
• FY 2025 Ending Active Subscribers expected to grow double-digit.
• FY 2025 free cash flow now expected to be lower than -$40M, primarily due to recapitalization costs.
• Recapitalization expected to close by Dec 31, 2025; reduces debt from >$340M to ~ $120M, extends maturity to 2029, and lowers interest expense.

Business Commentary:

• Recapitalization Plan and Financial Health:
• Rent the Runway announced a recapitalization plan to strengthen its balance sheet, reducing total debt from over $340 million to approximately $120 million.

• This transaction includes a cash infusion from investors, debt maturity extension to 2029, and the conversion of debt into common equity, positioning the company for growth and financial flexibility.

• Subscriber Growth and Improved Retention:

• The company ended Q2 with 146,400 Active Subscribers, a 13.4% year-over-year increase.

• Growth was driven by a new inventory strategy, increased product innovation, and improvements in customer acquisition and retention.

• Inventory and Customer Experience:

• Rent the Runway posted almost twice the inventory units in August compared to the prior year, with a 323% increase in styles in May and 253% in July.

• This expansion led to increased engagement with new inventory, higher Net Promoter Scores, and enhanced customer satisfaction.

• Revenue and Pricing Strategy:

• Total revenue for Q2 was $80.9 million, up $11.3 million or 16.2% quarter-over-quarter.
• The company implemented a price increase on subscription plans to account for inflationary pressures, improving customer experience and positioning itself as the best deal in fashion.

Sentiment Analysis:

• Revenue grew 2.5% YOY to $80.9M and subscribers rose 13.4% YOY. However, gross margin fell to 30% (vs 41.1% prior year; 31.5% in Q1) and adjusted EBITDA declined to $3.6M (4.4% margin) from $13.7M (17.4%). Free cash flow was -$26.5M (vs -$4.5M), and FY25 FCF is now guided to be below -$40M. Q3 guide: $82–$84M revenue and -2% to 2% adjusted EBITDA margin. Recapitalization expected to reduce debt and interest costs.