Rent the Runway Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 7, 2023

There are 12 speakers on the call.

Operator

Welcome to the Rent the Runway's First Quarter 2023 Earnings Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would like now to turn the call over to Rent the Runway's General Counsel, Karasimbre.

Operator

Thank you. You may begin. Only

Speaker 1

mode. Good afternoon, everyone, and thanks for joining us to discuss Rent the Runway's Q1 2023 results. Joining me today to discuss our results are CEO and Co Founder, Jennifer Heiman and CFO, Sid Thacker. During this call, we will make references to our and listen. Q1 'twenty three Earnings Presentation, which can be found in the Events and Presentations section of our Investor Relations website.

Speaker 1

Before we begin, we would like to remind you that this call will include forward looking statements. These statements include our future expectations regarding financial results, guidance and targets, on market opportunities and our growth. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our Form 10 Q that will be filed in the next few days. We have no obligation to revise or update any forward looking statements or information except as required by law.

Speaker 1

Only mode. During this call, we will also reference certain non GAAP financial information. The presentation of this non GAAP financial information is not intended to be considered in isolation or as a substitute for financial information that's presented in accordance with GAAP. Reconciliations of GAAP to non GAAP measures can be found in our press release, or listen only mode. J.

Speaker 1

Muse:] Slide presentation posted on our investor website in our SEC filings. And with that, I'll turn it over to Jan. J.

Speaker 2

Muse:] Thanks, Kara, and thanks, everyone, for joining. As I shared on our last call, our 2023 growth strategy is focused on improving our customer experience. Listen only mode. To do that, we are focused on delivering more value to customers quarter over quarter in the areas that matter to them most. It's an exciting time for Rent the Runway.

Speaker 2

We're delivering tangible momentum in executing against our customer centric vision as evidenced by our strong Q1 results. We delivered a new record active subscriber count of 145,220, Representing 15% growth quarter over quarter, while posting a beat on the top and bottom line. Revenue came in at $74,200,000 a 10% increase year over year. We continue to hold our gross margin above 40% at 42.3% and posted a strong adjusted EBITDA margin of 6.1%, well above guidance. I'm particularly proud of the progress on profitability metrics paired with strong subscriber growth because I believe that it demonstrates our ability to manage subscriber growth and margins in Q1 provide a strong foundation towards the goals we shared last quarter, which we are reiterating now.

Speaker 2

Growing ending active subscribers by over 25% and reducing cash consumption by almost 50% in fiscal Our team has demonstrated agility and is focused on execution. Our customers are beginning to feel a real difference and we're going to spend much of this call detailing some of the key improvements we've made so far this year. Having said that, I also want to emphasize that Forming our customer experience is not a 1 quarter endeavor. We will be updating you on impact over the next several quarters. Our goal is to maximize customer love and retention, and we'll do that by making their experience easier, more valuable and more fun.

Speaker 2

Growing all over the world and believe our opportunity has never been greater. Now I want to talk to you about what our team has already accomplished related to our on 3 customer centric strategic pillars, which are 1, getting her the inventory she wants when she wants it 2, providing an efficient and easy to use experience and 3, offering best in class product discovery. These pillars are key due to the frequency with which our subscribers use Rent the Runway, and this is what we have to get more and more right over time. As a reminder, subscription programs and we've been happy with the results of our launches since then. 1, on inventory she wants when she wants it.

Speaker 2

In support of getting her the inventory she wants when she wants it, inventory availability continues to be a top priority. We know our customer is here for the fashion and her ability to access it is one of the key ways she evaluates the value of her subscription. We've expanded and grown an ongoing strategy to acquire more of the styles our customers are telling us they want in real time. Inventory mid season. This gives our buying team significant leverage on pricing.

Speaker 2

We believe the next step in this effort will be felt deeply by our customers in the back half of the year as we are focused on significantly increasing depth in the key styles and trends we know our customers want. Next, I want to share some of the actions we've taken in Q1 to make Rent the Runway easier to use for our customers. In early May, we launched a luxury style concierge service to help new subscribers onboard with Rent the Runway more seamlessly. Rent the Runway Concierge provides free 1 on 1 interaction via text with our customer service team to help new subscribers get the most out of their membership from building their first shipment to styling tips or solving a fit or shipping issue. We believe this program has the potential to be an important retention driver.

Speaker 2

Our customers have incredibly busy lives. 90% of them work, a third have kids and 85% socialize more than twice a week. So the easier we make the experience, The more it can be cemented into her life. As we've shared previously, we've enjoyed strong long term customer loyalty, but we also know that the majority of subscribers who churn do so in their 1st 90 days. By providing a concierge experience in her early months of membership, We aim to delight her with an effortless introduction to rental.

Speaker 2

We think this will improve retention and make her a loyal customer sooner. You'll see us integrate this offering more deeply into our product experience in the quarters to come. Next, we're making our site and app faster. As an example, we drove a 48% improvement in average load time on a key entry point into our conversion funnel, which resulted in an 89% lift in conversion on that page. Last, we made 2 improvements to our delivery and returns experience that directly speak to the premium level of service Rent the Runway offers.

Speaker 2

1, we launched a new tool to drive further adoption of at home pickup, which has led to an increase in in market adoption of the service by nearly 4 percentage points from the end of Q4 'twenty to the end of Q1 'twenty three. 2nd, last week, we launched Saturday delivery to more than half of our subscribers, a big unlock for customers who can now receive their deliveries on the weekend. We plan to continue to enhance all aspects of our experience to make it as easy as possible for customers to navigate their subscription. Finally, I'm going to share recent and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen

Speaker 3

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Speaker 2

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Speaker 4

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Speaker 3

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Speaker 2

and listen and listen and listen and listen and listen and listen and listen and listen and listen and listen and how our customers find the inventory they love. First, we shared during our last call that we launched Rent the Look and similar items in late March to enable customers to easily find a complete outfit or a visually similar option based on the styling we provide on our product display pages. The introduction of these features has increased member engagement, particularly when members landed on pages with unavailable styles. And engagement with substitute items among members. Last, and something I'm personally very passionate about, We're excited to announce that in the coming weeks, we plan to launch an AI driven search beta.

Speaker 2

This will allow customers to and is intended to make searching our site more intuitive and natural. For example, she will be able to write Miami Bites, Clambake in Nantucket or Tropical Motif and our AI powered discovery engine will serve for relevant inventory. We see this as a first and important step in Rent the Runway using AI models to improve our product experience, and we expect to build on this launch in the months and quarters to come. We believe that AI has the potential to directly support our 2023 strategy of delivering more value to the customer and leapfrog ahead of the experience that we deliver today. Fashion as an industry serves to benefit from AI to narrow the endless aisle problem of e commerce, listen, but we believe that Renzo Runway is uniquely positioned to be a significant beneficiary of AI because of 1, The frequency with which she interacts with our product and 2, our unique and rich data catalog, which includes her frequent site behavior and all of the data we gathered from her on fit, inventory quality, occasion and more every time she rents.

Speaker 2

The majority of subscribers are reviewing 10 plus items per month. This data set gives us a head start on any future innovation we'll endeavor in the AI experience and onboarding to deliver an even more personalized experience to enhance customer loyalty. And we have the team to do this. We've been harnessing machine learning for a decade, employing data to power personalization within our consumer experience, progress we've made so far this year and everything that lies ahead. Most of all, I'm looking forward to continuing to deliver for our customers.

Operator

And answer session.

Speaker 5

Thanks, Jen, and thanks again everyone for joining us. Since our 2021 IPO, investors have asked us 2 key on. 1st, can Rent The Runway grow? 2nd, how profitable can the company be? Our first quarter results demonstrate solid progress on both fronts.

Speaker 5

Only mode. As Jen outlined, we believe deeply that the customer experience improvements we are making are key to driving improved retention and faster growth. At just over 145,000 ending active subscribers at the end of Q1, we are making progress to 25% plus on active subscriber growth in fiscal 2023. Our path to profitability is focused on free cash flow.

Speaker 4

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Speaker 5

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Speaker 4

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Speaker 3

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Speaker 5

listen and listen and listen and listen and listen on the call. 2 20 ending active subscribers, up 7.6% year over year. Average active subscribers during the quarter 135,966 versus 125,119, an increase of 8.7% year over year. Only. Total revenue for the quarter was $74,200,000 up 10.6% year over year.

Speaker 5

Subscription and reserve rental revenue over the call. Was $66,800,000 versus $61,400,000 last year, an increase of 8.8%. As we discussed last quarter, we did see weakness in our reserve business in Q1. Subscription ARPU for the quarter was slightly higher year over year, primarily due to the impact of the April 22 price increase, partially offset by changes in program mix and add on rates. Other revenue was $7,400,000 versus $5,700,000 last year, growing 29.8% year over year, only due primarily to increased purchases of rental products.

Speaker 5

Note that the timing of these purchases can vary from quarter to quarter depending on the assortment available for sale. Other revenue represented approximately 10% of revenue versus 8.5% of revenue in Q1 2022. Fulfillment costs were $21,900,000 in Q1 'twenty three versus $22,900,000 in Q1 'twenty two. Over. Sales and cost as a percentage of revenue improved from 34.1 percent of revenue in Q1 2022 to 29.5 percent of revenue in Q1 2023.

Speaker 5

Counts of a 5 item launch with efficiencies in both processing and transportation costs. Gross margins were 42.3% in Q1 2023 versus 33.5 percent in Q1 2022. Q1 2023 gross margins reflect the impact of the April 2022 price increase, The fulfillment cost improvements discussed above as well as lower product depreciation due to the continued impact of product acquisition mix changes towards more efficient channels. As expected, gross margins were lower than Q4 2022 levels due to seasonally higher product on the acquisition we typically see in Q1 and Q3. Operating expenses were 5% lower year over year and about 13% lower year over year about $25,000,000 in restructuring related savings in fiscal 2023 compared to the Q222 run rate.

Speaker 5

Total operating expenses, including technology, marketing, G and A and stock based compensation were 66% of revenue versus 77% of revenue on. Adjusted EBITDA for the quarter was $4,500,000 or 6.1 percent of revenue versus negative $8,800,000 and negative versus negative $28,000,000 in Q1 2022. We continue to expect significant improvement in cash consumption in fiscal 2023. Let's turn to guidance. For the full year, we continue to expect revenue of between $320,000,000 to $330,000,000 and ending active subscriber growth in excess of 25%.

Speaker 5

We are also reiterating our full year adjusted EBITDA margin guidance by almost 50% to below $50,000,000 We are updating our fiscal 2023 product spend expectations over to $74,000,000 to $76,000,000 from $69,000,000 to $72,000,000 as we are seeing increased opportunities to purchase high quality styles from top brands at deep discounts. Finally, there is no change to our expectation for gross margins to be slightly lower on a year over year basis. We expect Q2 revenue to be between $77,000,000 $79,000,000 This represents about 5% growth sequentially versus Q1 2023 and approximately 2% growth versus Q2 2022 at the midpoint of the guidance range. Let me talk about the factors affecting Q2. First, as some of you may have noticed, we are experimenting with being less promotional with our new customer offer pricing.

Speaker 5

We think this will improve retention and allow us to invest in improving the customer experience. We do expect these experiments to reduce acquisitions in the short term, especially in our lower price programs. As a result, we at lower ending active subscribers in Q2 versus Q1. We think these are the right decisions for our customers and have factored these changes into our full year guidance of 25% plus subscriber growth. 2nd, both sequential and year over year growth are expected to be negatively impacted by the decline in the reserve business.

Speaker 5

Only. Finally, we also expect other revenue to be relatively flat quarter over quarter due to higher units sold in the Q1 of this year. Expect the higher revenue base versus Q1 to improve leverage on a fixed cost base. I'd like to end by saying that we remain confident in the trajectory of our business and we have a very clear sense of how to improve the customer experience. The second half of fiscal twenty twenty three should see us make significant progress across inventory, onboarding and product initiatives.

Speaker 5

We believe these changes will be noticeable for our customers and make it easier for them to

Operator

call. Before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to 1 question and one follow-up. If you have additional questions, you may re queue and time permitting those questions will be addressed. One moment please while we poll for questions.

Operator

Thank you. Our first question comes from Rick Patel with Raymond James. Please proceed with your question.

Speaker 6

Thank you, and good afternoon, everyone. I have a question on getting better at Giving customers what they want, when they want it. How do we think about this from an inventory management perspective? Does it mean that You'll be buying more inventory as you get a read on fashion. Does it mean that you'll be leaning more on your share by RTR Partners?

Speaker 6

Just curious how to think about the mechanics And as a follow-up, what are the financial ramifications from ramping up this initiative on gross margins and working capital?

Speaker 2

I think there's 2 main ways we're addressing it. And you've seen us really deploy one of the ways thus far In Q1 and early Q2. So the first way is, we get these real time data signals in season on what's doing well, what's highly demanded. And number 1, we're able to respond to them in season, get competitive pricing, reorder pretty aggressively against top styles. And that's kind of because of both the real time data that we get, but it's also because of the business model that we have, where we can continue to monetize inventory over 3 plus years as opposed to being held to kind of a traditional retailer 12 month 12 week of full price selling kind of calendar.

Speaker 2

So that's number 1. The second aspect of this is really focusing on depth. Only mode. We know that our customers come to Rent the Runway, they heart styles that they love, and we want to give them more ability to get those products that they heart way more frequently and way more often. So We are making significant changes to the depth of the styles that we acquire from our partners.

Speaker 2

And that's going to really start to show up in the second half of this year. And we think that it will make a noticeable impact on customer experience. We have great data on what she wants. I think that we're solidly in now this post COVID world where she's really using us again for workwear for weekends and for special occasions. And so we're able to increase the depth across the styles that matter to her most.

Speaker 5

Yes, Rick, and thanks for the question. I think in terms of the financial impact of this move, look, it's obviously number one factor into the guidance that we have provided for product spend this year, but more importantly, I would say we always face this trade off, right? How many styles do we want to buy and then how many units of each style do we want to So there is no additional dollars that are required to optimize for depth. I mean, we have a tremendous amount of data when we look at How easy it is for a customer to find items on our site? What is the impact of depth going to do to those metrics?

Speaker 5

And part of the reason we feel very optimistic About the 25% subscriber growth guidance is we know we have very significant improvements in the customer experience Coming as it relates to inventory because of these optimizations on depth and breadth that Jen mentioned.

Speaker 6

Thanks very much. All the best.

Operator

Thank you. Our next question comes from Andrew Booney with JMP Securities. Please proceed with your question.

Speaker 7

Good afternoon. Thanks for taking my questions. I'd

Speaker 5

Sure. Look, I think, we had to go back a little bit, we always This year was always supposed to be a year of 2 halves, right? So when we provided guidance last quarter, we said revenue growth in the back half of the year was to be significantly stronger than the first half of the year, right? So we still believe that's going to be the case. But I think fundamentally what underpins our confidence on The growth for this year is, of course, number 1, we've had a strong start to the year.

Speaker 5

But secondly, it's our confidence in the data that we have behind Because ultimately, people come, customers visit Rent the Runway, they rent the products they love, right? And if we make it very easy or much easier to find those products Interact with our website very easily. I mean that is going to pay dividends in terms of the retention and the loyalty customers have, right. The other very significant The change that we or the improvement that we've made to the site is this personalized onboarding and RTR concierge service, So 55% of all subscribers of leave us do so within the 1st 90 days. So we think it's been it's quite critical to address The pain points those first 90 days and here we are providing a very personal SMS based, it's almost like your personal stylist and we're seeing Very encouraging results from customers.

Speaker 5

I think fundamentally, we have very significant product improvements that we always had planned For this year, that give us a lot of confidence that we're going to get to 25% of the start of growth.

Speaker 2

Yes. I think our results in Q1 show that The strategic pillars that we outlined this year are working, and they are being felt by the customer. And I think more importantly, What you're seeing across the organization is you're seeing an agile organization that has an execution orientation. So we've actually done a lot over the 1st 4 months of the year. We've launched a lot.

Speaker 2

We've iterated a lot. And this was within a plan where we knew that the majority of the transformative product experiences would really be showing up in the back half of the year. So we already feel good about how the customer is experiencing Run the Runway differently to date, and we know that we have some really

Speaker 4

and listen.

Speaker 7

Jen, I wanted to ask specifically about AI to that last thing that you said. I think you talked about AI as a first step. Can you talk about the vision in terms of how AI can be incorporated more broadly across the Just a little bit more beyond search. Thanks so much.

Speaker 2

Yes. So first, I just want to talk about AI and what it can do to the fashion industry in general. I think that fashion e commerce is one of the most cumbersome customer experiences that exist. You are searching through pages and pages and pages of content to find the items that you like, and no one likes doing this. And so First of all, as an industry that still is selling physical products, AI is going to be fashion is going to be a major beneficiary as an industry.

Speaker 2

Now why is Rent the Runway like uniquely positioned here? Rent the Runway It's different than traditional fashion in 2 ways. Number 1 is, she's using us all the time. So making the experience Much easier for her. It's even more important for us to do than a retailer that you're going to once or twice a year, where you'll slog through the experience as a customer and kind of put up with it.

Speaker 2

I run the runway if we can make this a seamless experience because we're a utility, it will be appreciated even more. And second, because of how frequently she uses us, We have real time information on what she's doing tomorrow, on how she liked or disliked the items she received yesterday, on fit, on how exactly she wants to dress this weekend. And therefore, the data set that we have, we think is highly unique in terms of how we could power against AI. Now, if we are utilizing AI appropriately over the next few years. There I see no reason why someone even has to come to our website.

Speaker 2

We talked about the fact that she's already texting 1 on 1 with someone from Concierge. That's really today about her onboarding experience. We talked about a beta launching over the next few weeks around AI search, which would be fundamentally about new ways that

Speaker 3

you could discover product on

Speaker 2

the site. The more medium to long term vision is really the marriage of these two things that there can be through any modality, however you want to communicate to Rent the and listen and listen and listen and listen and listen and listen and listen and

Speaker 4

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Speaker 4

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Speaker 2

and listen and listen and listen solving problems, answering questions, and you can do it asynchronously when it makes sense for you on your own time. So we're really excited about the progress that we've made towards this beta that will go live over the next few weeks. It's really interesting because I think that across all fashion sites, all over the world, the way that people are searching for product is Fairly vanilla, fairly functional, right? You can go to a site and search for a T shirt. You can go to a site and search for a black tie gown.

Speaker 2

The fact that we are going to be able to enable our customers to search how they actually want to use this closet in the cloud, to search for items to wear to my beach bonfire this weekend. That is a completely different way to search and I think that it really brings out the value proposition of what a cloud is all about. So we're really excited by that.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Please proceed with your question.

Speaker 8

Yes. Hi. Good evening, everyone. This is Kate on for Ike. Congratulations on the improvements in the business in Q1.

Speaker 8

I guess just First, Jen, we're now 3 months post the extra items announcement. You guys obviously had a lot of initiatives in place to improve the customer experience. I am curious with this latest cohort, if you can share any more color or numbers behind what you are seeing, from a retention basis out of that tranche of consumers. And then Sid, you noted your confidence in the active subs accelerating into the back half. Just from a seasonality perspective, just looking back the last few years, you guys have tended to lose Active

Speaker 2

SED quarter over quarter in

Speaker 8

Q4. Just anything we should consider between 3Q and 4Q,

Speaker 2

So to address the first part of the question, Through Q1, we saw better churn, better rejoin rates and better conversion rates. And as we get further away from the launch, it's harder to say what's related to 5 item versus other experience improvements that we're making across the board, but we feel really great about what we saw in Q1.

Speaker 5

Yes. And in terms of active subs, look, you got 100% right. Last year, we did see A decline in Q4. I mean, if I look at the pacing of product improvements and the inventory build that we have this year, I feel very optimistic that the entirety of the second half is going to be positively affected by that, right. So I'm not going to and guide necessarily to what Q4 is going to look like relative to Q3, except to say that we've already provided confident outlook in terms of plus 25% subscriber growth.

Speaker 5

So we'll leave it at that. But that's what we expect to hit. And I think we feel Given the product improvements we have, very confident in that outlook.

Speaker 8

Great. Thanks very much.

Operator

Thank you. Our next question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question.

Speaker 9

Thanks so much I wonder if we could maybe just talk about the broader environment that you're operating in generally. We've talked in the past about return to work, The return of big events, elements of possible rationalization of spend by the consumer and shift into a model like yours and away from a purchase model. Can you just give us a sense of where we can level set in terms of thinking around the headwinds and tailwinds you face in the business as we go deeper into 2023 across those themes that we've talked about before and how those might impact Elements of pause subscribers or net adds or purchasing behavior. Thanks.

Speaker 2

Yes. So first, we're not seeing evidence based on our acquisition numbers that we were impacted by the macro environment in Q1. So we're confident that We know what we need to do with this business. The strategic pillars are in line with things that our customers care about. We made huge progress in Q1 and clearly, we're reiterating our guidance for the year.

Speaker 2

So some things that We are seeing that could be very positive for Rent the Runway is we're seeing demand for workwear is continuing to increase and demand overpenetrates into workwear relative to active units on our site, very similar to pre COVID for the first time since COVID has occurred. And so we think that because of The macro environment as CEOs are calling their workforce back into offices and demanding more that they're there that This is a very positive tailwind for our business, and it feels great to see Workwear back up to similar utilization than we saw pre COVID.

Speaker 5

And I think that it's helpful, I think, when you go into what about the macro? We're obviously in an uncertain environment. On why we still feel good, right? And I think probably the biggest reason why we feel good are number 1, we're addressing these problems that customers have Hold us, they care about. And number 2, we actually have data behind the impact of the decisions we're making, right.

Speaker 5

So for instance, we're rolling out The concierge service as we speak. We see real time data on how many people have signed up, what impacted that improvement Have on our customers. So you're seeing now it's just a question of how many customers can we get signed up, how long will that take. Really, it's just a continuation of the data that we're already seeing, reflecting the improvements that we are making to that customer's experience, right? Take inventory, another very important factor this year.

Speaker 5

Once we actually optimize for breadth and depth and the actions we're taking, We know what a customer is likely to feel in terms of what's available to her when she visits the site. Now we also know based on historical data and evidence How that customer is likely to react? How loyal is that customer going to be because she sees that item more available? It's much more pleasurable and easier to interact with our site. So again, these are all of these improvements.

Speaker 5

This is not something that we're making an improvement, no idea how it's going to play out. We actually have relatively concrete data. It's really just a matter of executing properly and essentially reaping the benefits of The actions that we know our customers care about. Yes.

Speaker 2

We just see this as a market that's growing. We think that Rental continues to offer tremendous financial value, whether you're renting a la carte or you're subscribing, and our goal is to focus on making our customer experience as positive as it can possibly be and to continuously improve it quarter over quarter in a market where there are more customers who are considering rental than ever before.

Speaker 9

Great. Thank you for the color.

Operator

Thank you. Our next question comes from Ashley Hilgens with Jefferies. Please proceed with your question.

Speaker 8

Hey, thanks for taking our question. Anything you can tell us on the composition of subscriber growth trends? Are you activating more reserve users or Seeing new subscribers coming to the platform. Thanks so much.

Speaker 5

Yes. I mean, obviously, look, we've called out Weakness in the observed business, we talked about that is affecting performance this year. But so what that implies is we're clearly seeing activation across Re joiners, we're clearly seeing activations across new customers. I mean, this goes back a little bit to 2 things that are going on, right. The first thing is Customers are embracing rental, right?

Speaker 5

So with that, you are seeing new customers sign up, and that's a very positive And then the second thing you're seeing is really this impact of loyalty, right? I mean, that's been a pretty strong driver for Q1. And given All of the changes we're making for the rest of the year should continue to be a pretty strong driver for the rest of the year, right? I think those are the 2. It's really a combination of certainly acquisitions and new customers given people embracing rental, but also really strong retention that

Operator

Thank you. Our next question comes from Lauren Schenk with Morgan Stanley. Please proceed with your question.

Speaker 10

Hey, this is Nathan Felder on for Lauren. Two quick ones for me. So first, how is inventory utilization trending with the launch of the 5 item plan? And do you feel you have the right mix of inventory or anywhere you see a material gap that you're trying to fix? Thank you.

Speaker 2

So as expected, inventory utilization is higher because of the launch of 5 items. We do feel that We are seeing an opportunity in Workwear. We're actually increasing purchases in Workwear this year 50% versus last year. But utilization is in line with where we assumed it would be before 5 items. We're also seeing really nice utilization in weekend wear and accessories and all of these areas were the areas that we Really look to where we deployed kind of our reorder dollars and access more styles.

Speaker 10

Great. Thanks. And then, good to hear the actual cost improving churn and retrain rain. I guess just thinking about the split between existing And new cohorts, was there any big divergence in trends between those 2?

Speaker 5

Look, I mean, ultimately, the way we think about our business is retention is very, very important So, us in terms of ensuring that the long term growth of this business, you've got to remember 80% of all our customers come to us Yes, it is. It comes on organic, right? And 60% of our customers come to us because they heard about us from somebody they know. Or listen. No, I mean, fundamentally, what everything all our strategies that we are to do is improve that customer's experience so that they are delighted and they And I think obviously that has a very mathematical impact on growing subscribers this year, but over time That feeds through, right?

Speaker 5

We will get our share of roles in organic acquisitions simply because our customers brought in and tell others they had a great I mean that is fundamentally the core to the experience.

Speaker 4

And the

Speaker 5

nice thing about loyalty and the initiatives is that we have a lot of data behind what we're doing.

Speaker 10

Great. Thank you.

Operator

Thank you. Our next question comes from Ross Sandler with Barclays. Please proceed with your question.

Speaker 11

Hey, guys. How do we feel about where we are with the kind of Super high demand in season, kind of skewed that to availability. Is that at this point Fully optimized and fully built out or Sid, you mentioned second half investments around that. But when do we think that would be in the right place to kind of match The size of the subscriber business with your inventory. And then is it kind of related to that, but the second part would be, How does AI kind of improve discovery of like hot items that maybe aren't being personalized to the user today And hope I solve some of that availability issue.

Speaker 11

Thanks a lot.

Speaker 2

Yes. So I think the Hummer is going to start to feel a major difference as and listen only to inventory availability starting in August, because we made a significant change in our debt strategies over the second half of the year. So that's when she's going to feel that she's adding more of her parts. She is finding that more of the items are or in stock for her and we think it's going to make a couple of different things on her experience. In terms of AI, you're correctly pointing out that If you think about what I mentioned, how cumbersome any e commerce experience is of just how happening through many, many digits as a result.

Speaker 2

And on the runway, there's no 100 of stages, search results that you could see Actually, have a theory that's related to something you have going on in your life like what's there to the University of Michigan's tailgate this weekend. Only mode. You're going to see this long tail of dial that might have taken you

Speaker 3

many pages of looking at hundreds and hundreds of

Speaker 2

products to be otherwise.

Operator

Thank you. Our next question comes from Ed Yerin with Piper Sandler. Please proceed with your question.

Speaker 3

Hey, good afternoon, guys. Thanks for taking the questions. I guess, first, On reserves, just want to click down on that a little bit more. I know you guys are facing some tough compares there. Has inventory been an issue there?

Speaker 3

I know it was through part of last year. And then I guess just kind of stepping back and maybe as a follow on to the AI question. I guess How do we think about the rate by which you can bring some of these innovations to the market? I know you indicated you're going to have kind of a soft launch in We should think about this as being kind of a couple of quarter phenomena or do you think you can implement some of these search functions relatively quickly? Thank you.

Speaker 2

So in terms of AI, I think that whatever we do launch will be in beta and we'll continue to iterate and improve it over I think AI is so new to everyone. And I think that what I'm excited about is how quickly we've been able to leverage our data here and create a product that we think is going to make a nice difference in product discovery and we'll just continue to make that better over time.

Speaker 5

Yes. And on the reserves business, I think look, it's a fascinating question here, right. So Last quarter, we've been very focused on driving our subscription business. So everything we do, we've gone on marketing, on brand messaging, All reflecting that focus on subscription, particularly with the recent buy item launch in Q1, right? But having said that, We think internally there is a real opportunity to grow our reserve business over time.

Speaker 5

We think they're not mutually exclusive business, right. So we're working on plans That involves both inventory and product to re energize this offering. And obviously, none of that factored into the guidance and the expectations for this year, and we've just and listen. But over time, we feel pretty optimistic about our ability to reenergize Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the or back over to management for closing comments.

Speaker 2

Thanks so much for joining us today. I'm really excited about our plans to and listen, accelerate our profitability and the long runway for growth ahead. We look forward to continuing to update you on our progress on on our Q2 2023 call in September, and thanks again for joining us.

Speaker 4

Only mode.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your

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Earnings Conference Call
Rent the Runway Q1 2024
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